Comtech Telecommunications Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 7, 2023

There are 8 speakers on the call.

Operator

Welcome to Comtech's Fiscal Q1 2024 Earnings Conference Call. As a reminder, this conference is being recorded today, Thursday, December 7, 2023. I would now like to turn the conference over to Ms. Maria Seriello of Comtech. Please go ahead, Maria.

Speaker 1

Thank you, operator. Good afternoon, everyone, and thank you for taking the time to dial in today. Welcome to the Comtech Telecommunications Corp. Conference Call for the Q1 of fiscal year 2024. Today, I'm here with Comtech's Chairman, President and Chief Executive Officer, Ken Peterman.

Speaker 1

We're also joined today by Maria Hedden, Comtech's Chief Operating Officer and Mike Bondi, Comtech's CFO. Today, please note we have a detailed discussion of the quarter in our shareholder letter available on our website, We have also been working to communicate directly about our business and our market on our blog, Comtech Signals. 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 and the company's SEC filings.

Speaker 1

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

Speaker 2

Thank you, Maria. Hello, everyone, and thanks for joining us today. This call represents the 5th quarter Our 1 Comtech transformation, our 5th sequential quarter of incremental revenue growth and our 2nd consecutive quarter with positive GAAP operating income, Clearly demonstrating the positive momentum we are building as One Comtech. As we finish the Q1 of our new fiscal year, The One Comtech transformational change is well underway, including the collaborative culture of innovation we're building, our steadily improving sequential performance and the promising strategic trajectory we're on. While there remains much to do, we believe more than ever before that we have a very exciting future ahead.

Speaker 2

Since I took on a role of CEO of Global a year ago, I have consistently expressed how critical it is for us to fully embrace the need for change And work together to drive a near total transformation of our organization and together we are doing that. Having brought 14 historically silvered businesses together, We are collaborating better than ever before, utilizing common practices, tools and processes across our unified enterprise to steadily improve operational performance. We're leveraging our people strategy to reveal and address emerging skill gaps, and we're harvesting synergies among our programs and our product roadmap. As one content, we are collaborating with customers in new ways to deliver more customer value than ever before, As I shared before, our customers need us to be more than a vendor. They need a technology partner.

Speaker 2

We are becoming that partner who listens and solves the challenges they're facing every day with the foresight to proactively position and address the challenges moving on their horizon. Recent strategic contract wins such as EADIM, DoD's next generation 8 channel satellite modem And GFSR are clear proof that as One Comtech, we are succeeding. Our global customers ranging from emergency service providers, Commercial Mobile Network Operators, satellite service providers and the Department of Defense continue to place their trust in Comtech. More importantly, these customers recognize that our comprehensive solutions will deliver greater value than ever before in addressing their toughest challenges. As we launched our FY 'twenty four, we have remained focused on the crucial daily work of steadily improving our operations, Balance sheet and financial performance.

Speaker 2

When necessary, we've made bold decisions to empower our teams on the front line With both the resources and the authority they require to address our customers' needs. Importantly, we're seeing the results of these efforts Every single day. Together, we are working to assure our culture of collaboration and innovation. In conjunction with our differentiated expertise, technology leadership and unique understanding of our customers' needs, TomTech will continue to be positioned to lead the way In delivering the blended, hybrid, smart enabled solutions and services that will bring forward smart networks and new technology convergences While Michael speaks to this quarter's results in a moment, I'd like to steal just a little bit of his thunder And highlight some numbers we're proud of. First, I'm pleased to report that Comtech continues to deliver on our commitment to growth.

Speaker 2

Our net sales rose about 16% year over year to $151,900,000 with new bookings of 185,600,000 Which are the highest they've been since I assumed the role of CEO. We're also consistently meeting or exceeding our financial projections, Delivering sequential revenue growth in each and every quarter since our 1 Comtech transformation began. Our revenues this quarter are, in my view, A direct reflection of the multiple year long initiatives that we've implemented to transform our company, reinvigorate our sales Aggressively turn toward delivering more comprehensive innovative solutions that exploit the emerging opportunities of the Comtelx communications landscape. Let me emphasize again that our transformation to One Comtech is working. Simply put, the improvements to our business And the increased attention to risk management and process discipline as we implement common systems and platforms across our enterprise Have significantly enhanced our ability to identify exploit synergies, increase cross collaboration and optimize business execution across the entire organization.

Speaker 2

Allow me also to highlight a couple of key wins this quarter that I think highlight the competitive advantage that our technology leadership gives us right now And that I think will extend going forward. Our satellite and space segment had an especially strong quarter On the heels of multiple significant contract wins, we recently announced the receipt of a $20,000,000,000 plus order from UK based Spectra For our common portable triple scatter systems, for our international allies, network agnostic, secure and interoperable communications capabilities comprise a crucial We believe this common order is another clear indicator This is increasing global market demand. For our total scatter family of systems, every additional win further validates our position as the Provider of the best probe scatter solution in the market. Other parts of our satellite space portfolio are also contributing to our growth. In October, Comtech was awarded a $9,600,000 sole source contract by a division of L3S Technologies.

Speaker 2

The contract calls for delivery of Comtech's highly regarded modem technologies and platforms supporting the Air Force and Army Anti Jam Modem or A3M program. This provides cutting edge anti jam telecommunications capabilities to military personnel across diverse operational environments and geographies. This contract vehicle also allows the DoD to place production order requests for A3M modems for years to come. At the same time, our Trusted and Wireless business also secured a key win this quarter with significant upside potential. The Canadian government at the federal level has mandated countrywide adoption of Next Generation 911 Services And March of 2025, to ensure a national nine eleven infrastructure that is future proof, utilizing the best modern communications technologies, Including voice, text, video, location based services and both terrestrial and satellite based networks.

Speaker 2

Comtech is at the forefront of this emerging opportunity. When Strathcona County in Alberton recently became the 1st municipality in the country introduce these services, it was Comtech's recognized expertise as a service provider that got them there. This win for Comtech is In fact, in October, Members of the Pennsylvania Emergency Management Agency, a Comtech customer, received the Pennsylvania Governor's Award for Excellence in recognition of their efforts In the Pima Next Generation 911 Project, increasingly sophisticated first response technologies and services Collect and integrate data from multiple sources to direct and optimize responses. These communications infrastructures will increasingly Demand not only assured connectivity, interoperability between terrestrial wireless networks and advanced analytics,

Speaker 3

but also need to meet

Speaker 2

the highest security standards as well. These are all core companies for us at Comtech. And the work we've done to combine and harmonize our own businesses Under One Comtech means that we can bring our native fluency in all aspects of communications network infrastructures to bear on our clients' most complex problems. When I first started as CEO a little more than a year ago, it was obvious that maintaining the status quo was not an option. The onus was on Comtech and its leadership to regain the confidence of investors and the only way to do that was through accelerating the decisive and total transformation of the organization.

Speaker 2

Improved operational performance combined with the collective technology advantage we deliver to our customers as One Comtech Across an expanding range of applications in an expanding set of growth markets is one of the reasons I'm so excited as we look to the year ahead. With that said, I'll ask our Chief Operating Officer, Maria Hedden, who some of you may remember from our Investor Day this summer, To speak to the significant progress we are making as we implement our One Comtech transformational initiatives. Maria?

Speaker 4

Thanks, Ken. Having spent my career driving continuous improvement in business execution, I found that it is important to be able to not only And looking at this quarter's financial performance confirms it's working. Following the implementation of OneContact That's a 4 10 basis point improvement on a comparable year over year basis and $1,000,000 sequential improvement from last quarter. As we shared before, upon launching our OneContact transformational journey, we first initiated an appropriate period of discovery, wherein we visited each of our 14 siloed businesses and conducted a thorough assessment that included operating policies, Processes, tools, platforms and skill sets. Following this discovery phase, we analyzed We collected data and rapidly launched standardized best practices, common tools, processes and platforms across the entire enterprise.

Speaker 4

As we continue to execute, we are already realizing measurable improvements in operational performance as well as identifying opportunities to collaborate and exploit synergies in ways that were simply not possible before. Importantly, we identified key performance parameters and institutionalized the methodology necessary to Contivant measure and empirically assess our ongoing operational improvements. We are increasingly exploiting performance metrics and extending their applications to drive continuous improvement across the enterprise. While we have much work ahead of us and this implementation phase is far from over, we are making significant progress in nearly every aspect of our operations. There are many examples of the transformational changes underway across our enterprise.

Speaker 4

We have instituted a formal Program Management offers to standardize best practices, which is having an impact on not only our ability to efficiently manage Existing contracts with customers will bring more effective budgeting controls, risk and timeline management to future projects. All our business leaders have a clear understanding of the economics that impact our contracts, programs and proposals. We have consolidated our enterprise Engineering functions under a single leader, which allows us to prioritize staffing and resource deployment across the organization. This streamlines decision making, optimizes resource deployment and improves efficiencies, while simultaneously improving employee career We have strengthened our operational finance team with additional leadership with a proven track record in all aspects of financial planning, forecasting, execution, analysis and capital allocation. In parallel, we're applying lean manufacturing and We are synchronizing our technology roadmaps to leverage technology inflections and make the most of market conversions, which is improving every aspect of our new product development process.

Speaker 4

It's a lot of work, So when we look at the results like the meaningful improvement in our operating income, it's clearly worth it. Thanks for the opportunity to

Speaker 2

Thank you, Maria. While there's much yet to do, it's We've made remarkable progress over these past few months and you and your team are critical to driving the transformational change that is already making a difference to our bottom line. Thank you all. It's also noteworthy that we're continuing to attract proven leaders and great people. We expect we'll make significant contributions to Comtech's growth.

Speaker 2

We recently appointed the industry veteran, John Rattigan, As our Chief Corporate Development Officer, with 3 decades of leadership experience behind him, including the creation from scratch A $100,000,000 a year annual revenue satellite communications business, John's leadership experience and track record Clearly indicate that he is uniquely well suited to help drive Comtech's strategic business trajectory, accelerate our transformational journey and lead our expansion into new growth markets. I've known John for many years and I'm thrilled to welcome him to our Comtech team. Finally, and before I turn to Mike to discuss our financial performance in detail. I want to speak about the importance of proactively managing our balance sheet, which I talked about last quarter. Our credit facility matures in October 2024, and we're continuing our engagement with multiple parties as we make steady progress On that point, it's particularly noteworthy that we've grown revenue every quarter since I took on this role of CEO.

Speaker 2

We've expanded EBITDA margins and have generated positive operating income growth for the past two quarters. And we have good visibility Into approximately $1,700,000,000 of future revenue. We are undoubtedly making steady progress in our transformational journey. Our performance clearly indicates that we are on a favorable business trajectory that has delivered sequentially improving performance each quarter. With that, let me turn to Mike.

Speaker 3

Thanks, Ken. For Q1 fiscal 2024, we recorded 151 $900,000 of consolidated net sales, of which $102,000,000 were reported in our Satellite and Space Communications segment $49,500,000 were reported in our Terrestrial and Wireless Network segment. Consolidated 1st quarter sales represented a 2 1% increase over last quarter and our 8th consecutive quarterly increase. Compared to the year ago quarter, Our consolidated Q1 fiscal 2024 net sales increased $20,800,000 or 15.9%, reflecting higher net sales in our Satellite and Space Communications segment. Consolidated gross margins for Q1 With 31.5 percent 35.7 percent in the comparable period of the prior year, such changes reflect an increase in net sales And overall product mix changes, including significantly higher net sales of our TripleScatter and Satcom solutions Gross profit in comparable period from the prior year also reflects the benefit Of higher net sales of our Beyond line of sight communications terminals and upgrades to the Ukrainian government's existing systems As part of an FMS contract awarded to us during that quarter, operating income in Q1 fiscal 2024 was $2,100,000 compared to an operating loss of $9,700,000 in Q1 of last year.

Speaker 3

Such operating income this quarter Reflects higher net sales reported as well as the benefits from profit improvement and lean initiatives implemented through October 31, 2023. This marks our 2nd quarter of GAAP operating income since Q4 of fiscal 2021. This is not a small accomplishment when considering that we achieved this all while still incurring incremental expenses Associated with our OneContact transformation that Maria just discussed along with our restructuring

Speaker 2

activities. Of importance to,

Speaker 3

we believe this provides a stronger foundation for sustainable and profitable growth in the future. As explained in more detail and reconciled in our Form 10 Q filed earlier today, we utilized a non GAAP measure that we refer to as adjusted EBITDA. During Q1 fiscal 2024, adjusted EBITDA was $18,400,000 or 72% increase From Q1 fiscal 2023. Also, as a percentage of net sales, adjusted EBITDA was 12.1%, an improvement from the 8.2% we achieved in Q1 fiscal 2023. Adjusted EBITDA margin in the more recent reflects higher gross profit from higher net sales in our satellite and space segment and the benefit of our One Com Tech lead initiatives.

Speaker 3

Overall, our consolidated Q1 net sales and adjusted EBITDA were within our guidance provided last quarter and we're pleased with our continued strong results, Particularly in light of a macro environment that remains challenging and all will undergoing one of the most comprehensive transformations in this company's history. In addition to optimizing our cost structure, securing key contract wins and expanding our pipeline of opportunities, We have also been very busy addressing strategic questions about the composition of our business and the strength of our balance sheet. 1st and foremost, we made some important liquidity and going concern disclosures in our SEC filings today, and we strongly urge you to read those disclosures carefully. Now with that as context, we discussed in October following a careful review of our current business and product lines, We saw an opportunity to divest our solid state power amplifier product line. As disclosed in our Form 10 Q filed today, We successfully completed this divestiture on November 7, 2023.

Speaker 3

We are also simultaneously addressing the need to refinance our credit facility, which expires in October of 2024 and is now current. In anticipation of this maturity, we have engaged with 3rd party financial advisors To assist us in our discussions and negotiations with our existing lenders and holders of convertible preferred stock to extend or refinance the credit facility and or amend or restructure our convertible preferred stock. We've also engaged with our advisors to assist us with seeking other sources of credit or outside capital. During our Q and A session, we will do our best to respond to your questions regarding our refinancing efforts as well as our disclosures in our SEC filings today. But due to the ongoing nature of our discussions and negotiations with various parties, we may be limited in what we can or will say.

Speaker 3

As we enter the Q2 of fiscal 2024, business conditions continue to be challenging and the operating environment is largely unpredictable, Including factors such as inflation, rising interest rates, the repercussions of the military conflict in Russia and Ukraine and the Middle East And a potential global recession. Order and production delays, disruptions in component availability, increased pricing for labor and parts, Lower levels of factory utilization and higher logistics and operational costs have in the past and could impact

Speaker 2

our business in the future.

Speaker 3

Despite these business conditions and resulting challenges and although we anticipate some variability from time to time as we move through our OneComtech transformational change For our Q2 of fiscal 2024, subject to the risks highlighted in our Form 10 Q and other filings with the SEC, We are targeting consolidated net sales to increase approximately 1% to 3% and for our consolidated adjusted EBITDA margin to range between 11% 13%. As an important reminder, net sales in future periods will no longer include High powered solid state power amplifiers and switches due to the divestiture of this product line on November 7, 2023. With that, now let me return the call back over to Ken.

Speaker 2

Thanks, Mike. As Comtech moves further into our fiscal year 2024, the practical impact of our transformation is playing out positively and clearly across All the facets of our business. As Maria and Mike Rose highlighted, our operational performance is steadily improving. We're winning more business because we're providing more sophisticated solutions than our competitors. We're generating more revenue because we're solving our customers' most challenging problems.

Speaker 2

The implementation of our One Comtech transformation is unlocking growth opportunities in a difficult overall market environment that includes inflationary pressures, Interest rate shocks and rising geopolitical tensions. And of course, we work every day to make sure our business is managed effectively, Bringing the right resources and the right people together to support our ability to deliver on our customer commitments. Everything we are doing is being done to put our company on a durable growth trajectory that I believe will create and deliver value for years to come. Thank you, as ever, for your support and conference. With that, we'll take any questions that you may have.

Operator

And we'll move first to Greg Burns with Sidoti. Your line is open.

Speaker 5

Good afternoon. In regards to the balance sheet and the refinancing, I think at the last earnings Release, you'd hope to get something done, I think, before you reported this quarter. Obviously, that hasn't been the case. So could you just Maybe give us an update on why that might have been? You're not seeing favorable financing opportunities or you're waiting for something more favorable?

Speaker 5

Just give us a discuss give us a little bit more color on the timing of when you expect to get this done?

Speaker 3

Sure. Good afternoon, Greg. This is Mike. Yes, in terms of the refinancing process

Speaker 2

and the

Speaker 3

timeline, I think what we're Afforded us is really a good trajectory and strong results. Looking back, we have about $61,000,000 of trailing EBITDA for the business, and I think when we're going into our discussions and negotiations, I think we have a good amount of alternatives to explore We've been going down each one of those in detail to review the pros and cons of it. One of the things that we'd like to do is Make sure that we're getting a good deal for Comtech in this environment. And so I think we're trying to be methodical about that And considering the tools that are available to us, I think from our perspective, there's a lot to balance and I think we're going through it at a good pace and we'll get it done.

Speaker 5

Okay. Thanks. And then in terms of the Canada E911 opportunity, The win you announced this quarter, was that a previous win that just got deployed? It didn't sound like it was necessarily tied To the Canadian mandate. And then can you just talk about the differences or similarities between the Canadian market and the North American market?

Speaker 5

Is it Similar competitors up there, maybe In terms of the size of that opportunity, market opportunity for you?

Speaker 2

Yes, this is Ken. How are you, Greg? Yes, I don't want to give the timing because I don't know the specific date The award, but it was recent. And I think that it's significant because there is a Canadian mandate. The mandate Is to roll this next generation capability out by March of 2025.

Speaker 2

And so that's a fairly Short timeline, when you think about rolling it out across an entire country, it is significantly similar to the next gen capability roadmap that we're implementing In the United States, so I think it's the thing that I'm most excited about is that we're the leader in terms of being The provider of the Next Gen 9 11 capability, this very first Canadian county that launched ahead of all the others. I think we're well positioned. I think it's right in our sweet spot. And I think that it holds a lot of promise in the near term from an orders and growth perspective.

Speaker 5

Okay. And in terms of like the market size, like comparing it to maybe the U. S. Is kind of a similar Addressable market and is it the same competitors that you're seeing in the RFP process?

Speaker 2

It's a similar technology. Remember, I'm speculating here a little bit, but I think the population of Canada It's roughly the same as the population of California. So I think from a market size perspective in terms of people, I think you can think of it that way. I would not Be able to speculate the number of public service answering points that stretch across Canada, but I think that gives you some gauge in terms of the market size.

Speaker 5

All right. Thank you.

Operator

And we'll move to Mike Crawford with B. Riley Securities. Your line is open.

Speaker 6

Thank you. You talked about this Is that entirely synonymous with the unfunded plus funded backlog numbers you used to give? I know we have the funded backlog number, but not Unfunded backlog number.

Speaker 3

Yes, the methodology has not changed. What you're seeing is an increase in the number due to some recent large awards, namely the GFSR contract. The Initial funding was in the $40,000,000 range on the $540,000,000 contract. So the balance of that $500,000,000 or so went into that unfunded section of our calculation because we have the contract, we have visibility to what the customer is looking to do Over the almost 5 years of that contract. So we'll put the $37,000,000 in the funded column, We'll put the $500,000,000 in the unfunded column and that's really probably the largest driver to the revenue visibility of $1,700,000,000 We also have the EDAM contract, which was almost $50,000,000 contract.

Speaker 3

That would be another good example of Initially, the funding that we received was a small amount, so the balance goes into that unfunded calculation. But again, we know what the customer is trying to achieve with the EDAM modem. We saw what they did in the prior EBAM modem historically. So we feel Good about that visibility.

Speaker 6

Thanks. Mike, I would like to talk about Maybe the Eden modem in the second relative to the Eden, but with the ongoing restructuring Costs and also what I guess you build strategic emerging technology costs, which I think might relate to Evoque. Is that something that should remain in the $5,000,000 a quarter range or when does that ever start to tail off?

Speaker 3

So I'll cover the restructuring first and then get to the strategic emerging technology costs. I think in terms of the restructuring, we will start to see that Unwind over the course of this year. A lot of our discovery phase happened already. A lot of our migration to the Chandler So the Mazzing Steel facility, that's now behind us. So last year towards the end of the year, we had a restructuring event with our workforce And that's now behind us.

Speaker 3

We have immaterial amount of severance, I think, left to pay out. So at this point going forward, we still are seeing opportunities To invest in the business, to get it on a good footing going forward. So if we see an opportunity, we will undertake the actions. But I think at this point, over the course of the next several quarters, you'll start to see that winding down. Similarly, with the strategic R and D, I would say that's more for one specific customer that we're incurring that R and D cost for on a particular LEO program.

Speaker 3

As we're getting through the development efforts, we're seeing that market is being a lucrative one to be in. So we're looking to be a good partner with our customer and making our own investments there. And I would say as they get closer to production orders, That would also start to go down over time over the course of the year.

Speaker 6

Okay. Excellent. Thank you. And then Can you confirm well, first of all, can you say what the Revenue and or EBITDA was of the divested PST business? And then I guess ancillary to that Are those numbers adjusted for your credit facility EBITDA and leverage Calculations.

Speaker 3

In terms of the first question, I will not be able to give you specifics Pursuant to the stock purchase agreement in terms of the size of the organization, but it was a smaller product line for us. Relatively speaking, it was a nice good steady business. It had good strong margins. But from a revenue and EBITDA perspective, Historically, in our numbers, it's in the historical numbers, in our guidance of 1% to 3%, I would think of it this way. We're increasing our guidance 1% to 3% on a base that included that product line.

Speaker 3

So our guidance of 1% to 3% is actually probably higher If you were to do like an apples to apples adjustment for it, but in terms of the actual revenue for the year and the EBITDA, I won't be able to give you that specific, but We viewed it as an immaterial product line.

Speaker 6

Right. And in terms of the credit That's the adjusted.

Speaker 3

Yes. In terms of our credit facility that we have today, we're in the process of looking to refinance that. So I would imagine All of the efforts with the divestiture would be rolled into that refinancing of a new instrument.

Speaker 6

Okay. Thank you. And then I guess the final question, just getting back to the modem, the EBOM Modem business at Viasat has had for 15 plus years. How many of those would you estimate were ever deployed in the field?

Speaker 2

Hi, this is Ken. Yes, the EBEM program, which was awarded to ViaSat, EBEM is E BEM, it stands for Enhanced Bandwidth Efficient Modem. Contract was awarded about 15 or more years ago and ViaSat has deployed a little over 40,000 Those eDIM modems, it's a single channel modem that implements DoD waveforms for satellite communications. The program that we won is the EDIM program, Enterprise Digital Intermediate Frequency Multi Carrier Modem. It's distinctively different because there are 8 modems in each of our units, each of our EDM units.

Speaker 2

So it can also can utilize a variety of different waveforms that operate over a variety of commercial military satellite networks. So we expect there's every reason to expect that the we will deliver tens of thousands of these modems over the program's life.

Speaker 6

Excellent. Thank you, Ken.

Speaker 4

Sure.

Operator

We'll move next to George Notter with Jefferies. Your line is open.

Speaker 7

Hi, guys. Thanks very much. I was taking a quick look at the 10 Q filing. There's some references in there to Your lender is shrinking the size of the revolver or the term loan. Could you walk through what exactly is going on there?

Speaker 3

Hi, George. In terms of the amendment that we entered into on November 7, when we cleared The transaction with Stellan, we had gone to the banks to get The ability to take some of those proceeds and actually apply it to the revolver instead of all going to the term loan. So as part of our negotiations and They understand that we're looking to refinance. We've been talking very closely with our existing lenders. I think they're just Looking to make sure that they're holding our feet to the fire and we're doing the same to make sure that we get this done expeditiously.

Speaker 3

So I think in our view, it was part of the overall negotiation to retain some of the proceeds on the sale.

Speaker 7

Got it. Okay. That makes sense. And then, so the term loan, do you have more availability on the Firm loans in between now and when this facility expires?

Speaker 3

Good question. In our footnotes, we did Disclosed that we have borrowed up to the maximum on the revolver at this point. Just wanted to make sure that we had efficient access to Cash as we're going through these discussions and negotiations, as we're going to into the second quarter, We did draw down at the start of Q2 just to make sure we had adequate liquidity. So at this point, the answer is no. We don't have any additional borrowing capacity on the revolver.

Speaker 3

And the term loan, as we pay it down, it settles the commitment On that portion of the facility.

Speaker 7

Got it. Okay. Okay. And then is there any I'm just thinking about the timing of it all. You guys have been working on Kind of resolving the balance sheet issues for some time.

Speaker 7

And I guess I'm just curious about the process. I mean, is I assume the Stellant transaction was Kind of an element or a step in kind of moving down the path. I mean, do you feel like is there any context you can give us in terms of milestones or Stones or progress or what we're kind of waiting for to kind of arrive at a deal here?

Speaker 3

Sure. Good question. We've been at this for a little bit. I think over the last several months, we've been approaching alternatives like An asset based loan, for example, Comtech has never had an asset based loan before with a borrowing base capacity. So something like that, we needed to educate ourselves on.

Speaker 3

So we did engage with 3rd parties to do our own internal evaluation of what a borrowing base could be and how that would fit into our alternatives. So that's just one example of the homework we've been doing to try to get a durable solution here. And stuff like that does take a little bit of time. We think it was worth it to do that. We did get some good insights.

Speaker 3

And as we've been saying, we've been talking with several parties. So we've been also translating All these alternatives and how something like an asset based loan would fit into the cap structure. So that's just one example of something that takes a little bit of time to do, But that's behind us now in terms of the timing. I think we're progressed through that step and now trying to put that into a cash structure could look like.

Operator

And it does appear that there are no further questions at this time. I would now like to turn it back to the speakers for any closing remarks.

Speaker 2

Thanks, everyone. We're very excited about the journey we're on. We're very excited about what's ahead of us, And we thank you for the call.

Speaker 3

Thank you.

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Key Takeaways

  • One Comtech transformation is unifying 14 previously siloed businesses with common processes, driving five consecutive quarters of sequential revenue growth and two straight quarters of positive GAAP operating income.
  • Q1 results showed net sales of $151.9 million (up ~16% Y/Y), record new bookings of $185.6 million, and an adjusted EBITDA margin of 12.1%, marking the eighth straight quarter of sales growth.
  • Major contract awards include DoD’s next-gen 8-channel EADIM satellite modem, a $540 million GFSR order, UK Spectra’s multibillion-dollar TripleScatter deal, a $9.6 million L3 A3M anti-jam modem contract, and Canada’s Next-Gen 911 rollout leadership.
  • Operational improvements—standardized program management, consolidated engineering leadership, lean manufacturing and synchronized technology roadmaps—have driven margin gains and $1 million in sequential operating income improvement.
  • On the balance sheet, Comtech sold its non-core power amplifier line, holds $1.7 billion in revenue backlog visibility, and has engaged advisors to refinance its credit facility maturing October 2024.
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Earnings Conference Call
Comtech Telecommunications Q1 2024
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