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Comtech Posts Double-Digit Growth in Q1, Yet Faces Financing Issue

By Rachel Jewett | December 12, 2023

      Comtech’s office in Chandler, Arizona. Photo: Comtech

      Comtech reported strong revenue growth in the first quarter of its 2024 fiscal year, growing revenue 15.9% over the same time last year. However, the company disclosed in its Q1 2024 results on Dec. 7 that financing issues “raise substantial doubt” that the company can continue to operate over the next year. 

      According to disclosures in its 10-K filed with the Securities and Exchange Commission (SEC), Comtech has a $180.5 million credit facility that matures in October 2024, and the company may not be able to remain compliant with financial covenants under the facility or obtain waivers. The company said it does not believe current levels of cash, cash equivalents, or future cash flow will be enough to fund operations over the next 12 months and repay the credit facility. 

      CFO Mike Bondi told investors on a Dec. 7 call that Comtech is looking to refinance the credit facility and is also seeking other sources of credit or capital. 

      “Over the last several months, we’ve been approaching alternatives like an asset-based loan,” Bondi said. “We did engage with third parties to do our own internal evaluation of what a borrowing base could be and how that would fit into our alternatives. … We’ve been talking with several parties. We’ve also been translating all these alternatives and how something like an asset-based loan would fit into the capital structure.” 

      First Quarter Results 

      Chairman, President and CEO Ken Peterman noted in a letter to investors that this is the fifth consecutive quarter of growth for Comtech since initiating its “One Comtech” transformation. Peterman took the helm as CEO in August 2022

      Comtech reported net sales of nearly $152 million in Q1, and a net loss for the quarter of $1.4 million. Adjusted EBITDA was $18.4 million. 

      The company has split its reporting into two segments — Satellite & Space Communications which includes satellite modems, amplifiers, components, and antennas, and Terrestrial & Wireless Networks, which includes 911 and messaging technologies. 

      In Q1, Satellite & Space Communications net sales were $102.4 million, up 26.6% YoY. This increase was in part due to higher sales in troposcatter terminals and satcom solutions to U.S. government customers. This segment booked $137.1 million in awards during the quarter. 

      Terrestrial & Wireless Networks net sales were $49.5 million for the quarter, up 1.6% YoY. Bookings totaled $48.4 million during the quarter. 

      “Our net sales this quarter are a reflection of the multiple, year-long initiatives that we have implemented to transform our company, reinvigorate our sales, and pivot aggressively toward delivering more comprehensive, innovative solutions that exploit the emerging opportunities of a complex communications landscape,” Peterman said. 

      The “One Comtech” initiative has included starting a formal program management office to manage budgeting and risk for contracts, consolidating all engineering functions under a single leader, and strengthening its finance team. 

      Comtech provided guidance for the second quarter of 2024, expecting net sales to grow sequentially 1% to 3%. The company expects the adjusted EBITDA margin in the second quarter to remain in the low double digit percentage, in the 11% to 13% range. 

      Comtech’s projections for future sales do not include high-powered solid-state power amplifiers and switches because the company divested this product line in November to Stellant Systems.