Comtech Telecommunications Corp. (NASDAQ:CMTL) Q4 2023 Earnings Call Transcript

Comtech Telecommunications Corp. (NASDAQ:CMTL) Q4 2023 Earnings Call Transcript October 12, 2023

Comtech Telecommunications Corp. beats earnings expectations. Reported EPS is $0.29, expectations were $0.18.

Operator: Welcome to Comtech’s Fiscal Q4 2023 Earnings Conference Call. As a reminder, this conference is being recorded today, Thursday, October 12, 2023. I would now like to turn the conference over to Mr. Robert Samuels of Comtech. Please go ahead, sir.

Robert Samuels: Thanks, operator. Good afternoon, everyone, and thanks for taking the time to dial in today. I’m Rob Samuels, Comtech’s Head of Investor Relations. Welcome to the Comtech Telecommunication Corp.’s conference call for the fourth quarter fiscal year 2023. Today I’m here with Comtech Chairman, President and Chief Executive Officer, Ken Peterman. We’re also joined by Mike Bondi, our CFO. Before we get started today, I’ll say that both myself and Ken are always available to answer questions our investors may have. So please get in touch if you want to organize a meeting to talk about the company, our results, or our strategy. We also have a detailed discussion of the quarter in our shareholder letter available on our website.

A commercial satellite in the sky, its antennae glimmering in the light.

And we have also been working to communicate directly about our business and our market between quarters in our blog, Comtech Signals. Finally, let me remind you of the company’s safe harbor language. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company, the company’s plans, objectives, and business outlook, and the plans, objectives, and business outlook of the company’s management. The company’s assumptions regarding such performance, business outlook, and plans are forward-looking in nature and always involve significant risks and uncertainties. Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company’s SEC filings.

Now, I’m pleased to introduce the President and Chief Executive Officer of Comtech, Ken Peterman. Ken?

Ken Peterman: Thank you, Rob. Hello, everyone. Thanks for joining us today. This call and this quarter represent a significant inflection point for Comtech. It not only marks the close of our FY 2023 fiscal year, but also demonstrates the success and substantial positive momentum we are seeing as a result of our One Comtech transformation. In fiscal 2023, we brought 14 historically siloed businesses together and successfully instituted common practices, tools and processes across our new, unified enterprise. We implemented our first-ever comprehensive People Strategy. We established EVOKE, our innovation foundry, and brought on strategic partners who are continuing to work with us to develop and deliver new comprehensive solutions aligned with our vision for smart networks and unique technology convergences that provide our global customers with new forms of connectivity, insights and actionable intelligence that have the potential to fundamentally transform technology landscapes across the globe.

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Q&A Session

As I shared during our Investor Day in June, our customers need more than a vendor. They need a technology partner, one who listens and solves the challenges they’re facing every day with the foresight to simultaneously position proactively to address the challenges that are looming on their horizon. Over the past 12 months, we’ve streamlined our business to better align with the emerging market convergences and technology trajectories, which as you’ve seen over the past few months alone is driving hundreds of millions of dollars in new business opportunities for Comtech. Our global customers, ranging from the Department of Defense and emergency service providers to commercial mobile network operators and new satellite service providers, they continue to place their trust in Comtech, and these customers are also recognizing the tremendous value our solutions can deliver to address their toughest challenges.

This year, we moved proactively, thoughtfully and quickly as a unified enterprise to effectively respond to the increasing pace of change in our end markets, to build on our existing products and bring forward new technologies that underpin modern communications, and to deliver the kinds of solutions and services our customers really need from us. Based on our accomplishments in fiscal 2023, I believe we have excelled at overcoming the challenges posed by that kind of transformational change. Our progress is reflected in both our financial performance and our positioning within the market for growth next year and beyond. Since the start of our One Comtech journey, we have focused on delivering exceptional results for customers. Today, through our renewed and unified customer-centric approach, we are leveraging our culture of innovation, differentiated expertise, technology leadership, and unique understanding of our customers’ needs to position Comtech to lead the way in delivering the blended, hybrid, smart-enabled solutions and services that will bring forward smart networks and new technology convergences that can empower a truly connected planet.

As we have pursued these strategic goals over the past fiscal year, we have remained focused on the crucial daily work of improving our operations, balance sheet and financial performance. We’ve made difficult decisions where necessary to empower our teams on the frontline with both the resources they require and the authorities to address our customers’ needs. Importantly, we’re seeing the results of these efforts every single day. Our teams are empowered to develop new business capture strategies that align with and address our customers’ most difficult challenges. And we’re winning large and strategically important contracts that accentuate our technology and thought leadership. We are still providing the products and services that Comtech is known for, and our customers are seeing that we can now be relied upon to bring even more comprehensive value, solve their toughest challenges, and apply technology in innovative ways that truly change the game.

The updated technology in our next-generation troposcatter family of systems is a great example, which I’ll talk more in depth about in just a few minutes. Our relentless attention to performance improvement has not only expanded adjusted EBITDA margins sequentially every quarter of this fiscal year, but also has given us the space we needed to address strategic questions about the composition of our portfolio and the strength of our balance sheet. Importantly, following a careful review of our current business and product lines, and considering the kind of software-defined and solution-based enterprise our customers need us to be in the future, we identified opportunities to rebalance our segments and ultimately choose to divest our solid state power amplifier product line.

Upon completing this transaction, in the short term, we anticipate using some or all of the net proceeds from this divestiture to meaningfully reduce our outstanding debt, leverage ratio and interest payments. We’re also simultaneously addressing the need to refinance our credit facility, which expires in October 2024. This process is moving forward and we believe we’re headed toward a solution. We have engaged in productive discussions with various potential sources of capital, including our existing preferred shareholders regarding alternative investment structures. We are also in discussions with our existing lenders regarding a short-term amendment and extension of our credit facility, if needed in the interim while we move toward completion of a longer-term solution.