[Satellite TODAY Insider 04-04-12] While Comtech subsidiary Comtech Mobile Datacom was widely expected to receive an indefinite delivery/indefinite quantity contract and licensing agreement from the Pentagon to support its Blue Force Tracking 1 (BFT-1) and Movement Tracking System (MTS) programs, the $80.7 million price tag on the deal was slightly better than analysts had anticipated.
In a research report issued April 3, Raymond James Analyst Chris Quilty said the contract could provide Comtech with a much-needed boost going into the mid-year. “Of course, U.S. Army purchases are optional and Comtech could come up well short of this contract cap,” said Quilty. “Given the Army’s poor history of managing technology migration, however, we also wouldn’t be surprised if Comtech were to exceed this cap over time due to additional hardware purchases.”
Comtech Mobile Datacom received the three-year indefinite delivery/indefinite quantity contract April 2. The contract calls for Comtech to continue supplying satellite bandwidth for the BFT-1 and MTS platforms through the end of June 2012. The U.S. Army agreed to pay Comtech a fixed $10 million IP licensing fee for a period of up to five years. The deal could generate an average of as much as $17 million in profits for Comtech through a three-year period. The contract also does not include any optional performance periods.
Quilty said that though the contract terms appeared to be modestly more favorable than he had previously anticipated, he believes Comtech’s stock is nonetheless reasonably valued given the company’s challenging near-term growth prospects.
“While our full-year 2012 estimates [for Comtech] remain unchanged, we are lowering our 2013 full-year Comtech Mobile Data revenue estimate by approximately one-third to reflect the termination of U.S. Army bandwidth purchases,” said Quilty. “Alternatively, we are increasing our full-year 2013 EBITDA estimate by almost $3 million to reflect the high-margin impact of IP licensing fees, which essentially provide a 100 percent margin. The net effect is a 3 percent increase to our full-year 2013 adjusted EBITDA estimate to $78.5 million.”
A separate deal, announced between Comtech and the U.S. Army on the same day, calls for a three-month supply of Comtech satellite bandwidth. The second contract to supply satellite bandwidth for the BFT/MTS programs through the end of June was initially funded for $18 million, though the pricing for the satellite bandwidth has not yet been finalized. Comtech also announced that it received its first $25.6 million order under the BFT/MTS sustainment contract that is currently funded for approximately $17 million.
“Additional orders are likely to follow,” said Quilty. “After [the end of June], the U.S. Army intends to purchase satellite bandwidth directly from satellite operators, unless they are once again unable to solve nettlesome integration issues.”
