Board of Directors Discloses Strategic
Alternatives Process for Terrestrial & Wireless Networks
Segment; Comtech to Become a Pure-Play Satellite and Space
Communications Company
Company Amends Credit Facility and Enters into
New Subordinated Unsecured Term Loan Facility
Comtech (NASDAQ: CMTL) (the “Company”), a global technology
leader, today announced that its Board of Directors and management
team are executing a strategy to transform Comtech into a pure-play
satellite and space communications company and provided a capital
structure update.
Ongoing and future actions supporting Comtech’s transformation
strategy include:
- An exploration of strategic alternatives for the Company’s
Terrestrial & Wireless Networks (“T&W”) segment, which is
well underway;
- The pursuit of further portfolio-shaping opportunities to
enhance profitability, efficiency and focus; and
- The implementation of additional operational initiatives to
align Comtech’s go-forward cost structure with a pure-play focus on
satellite and space communications.
Comtech’s Board of Directors noted, “Comtech is in the midst of
a transformational journey. Earlier this year, we enhanced our
T&W segment with a new management team to drive growth and
improved profitability. Given the strength and value we see in our
T&W segment, we initiated a process to explore strategic
alternatives for this business to unlock value for Comtech
shareholders. We believe the best path forward for shareholders is
the creation of a pure-play satellite and space communications
company with a simplified capital structure, streamlined operations
and strong balance sheet. This strategy is the product of months of
careful evaluation conducted with the assistance of management and
independent advisors. We look forward to providing an update on the
strategic alternatives process and broader strategy at key
milestones.”
Strategic Alternatives Process for the T&W
Segment
Comtech’s T&W business is a leading provider of
next-generation 911 (“NG911”) infrastructure and solutions for
state and local governments and telecom carriers across North
America. Enhanced by the leadership of new executive management, in
fiscal 2024, the T&W segment has more than doubled its bookings
of orders for next-generation solutions. Additionally, as a result
of a more refined strategic focus and the achievement of certain
cost-containment and operational efficiency measures, T&W is on
track to delivering strong year-over-year bottom line
performance.
Comtech’s recent T&W wins and milestones include a long-term
competitive contract renewal for NG911 solutions in the
Commonwealth of Massachusetts; the buildout of Pennsylvania’s NG911
statewide network; a mandate for the Toronto Police Service’s NG911
solution; a long-term NG911 renewal with the North Central Texas
Emergency Communications District; a statewide NG911 solution in
the Northeast U.S. in partnership with Consolidated Communications;
and multi-province NG911 deployments in Canada. Demand for these
solutions is expected to continue growing following a July 2024
ruling by the U.S. Federal Communications Commission to advance the
nationwide transition to NG911.
The Board had previously retained independent financial advisors
to assist in its strategic review earlier this year and, in recent
months, commenced a strategic alternatives process for the T&W
business.
The Board added, “Comtech deeply values its T&W customers,
who put their trust in our best-in-class public safety solutions to
keep their communities and people connected in their most critical
moments. We expect to move forward with a partner who will focus on
this attractive business and its customers, talented team members
and valued service providers.”
There can be no assurance that the exploration of strategic
alternatives will result in a transaction or other strategic
changes or outcomes. There is no timeframe for the conclusion of
the process, and the Company does not intend to comment further
regarding this matter unless and until further disclosure is
determined to be appropriate or necessary.
Pure-Play Satellite and Space Communications Company
Comtech’s Satellite & Space Communications (“S&S”)
segment is a U.S.-based, leading provider of advanced modems and
high-power amplifier technologies, and a market leader in
troposcatter technologies. The S&S segment has an innovative
portfolio of these mission-critical technologies and serves some of
the world’s largest defense contractors and allied foreign
governments, as well as multiple U.S. government agencies,
including branches of the U.S. Armed Forces, U.S. Department of
Defense (“DoD”) and U.S. Space Force (“USSF”), among others.
The S&S business operates in large and growing end markets
that benefit from multiple tailwinds and demand-drivers, including
growing global geopolitical tensions, rising global defense
spending, and high barriers to entry. Further, these end markets
are undergoing technology upgrade cycles and modernization
initiatives that are expected to underpin demand for years to come.
Fueling these cycles are the USSF’s Commercial Space Strategy and
the DoD’s Joint All Domain Command and Control approach, which are
expected to generate strong demand for the S&S business’
next-generation digital solutions. Today, only a limited number of
companies, including Comtech, can serve the complex needs of the
U.S. and other governments and meet this demand.
Proceeds from the potential divestiture of T&W would enable
Comtech to substantially simplify its capital structure and
strengthen its balance sheet. Paired with additional targeted
portfolio optimization and a singular focus on satellite and space
communications, the go-forward company would be well-positioned to
capitalize on growth opportunities.
Portfolio-Shaping and Operational Initiatives
In connection with the Board’s transformative strategy, the
Company has undertaken a detailed evaluation of its S&S
portfolio to identify opportunities to divest, separate and/or
rationalize businesses or facilities that are not core to Comtech’s
go-forward focus.
Consistent with this effort, in its fourth fiscal quarter,
Comtech made the decision to exit its subsidiary operations in
Basingstoke, United Kingdom. The U.K. operations were established
in connection with the prior management team’s 2020 acquisition of
CGC Technology Limited, which primarily served customers in Europe.
Following the acquisition, Comtech continued to invest in the
Basingstoke facility to advance LEO constellation-based antenna
technologies in anticipation of a significant production order.
Taking into consideration the significant ongoing investment as
well as unfavorable contract terms on prospective antenna sales,
the Board concluded the U.K. business would not generate an
attractive return on invested capital and made the decision to exit
these operations. After anticipated restructuring charges
associated with the exit of the Basingstoke operations, Comtech
expects to realize approximately $10 million of annual cash
savings.
In addition to its ongoing efforts to improve the cash
conversion cycle and manage the balance sheet, Comtech has been
working with independent advisors to identify opportunities to
align the Company’s cost structure with its go-forward focus on
satellite and space communications.
Furthermore, over the past several months, Comtech has conducted
an intensive review of its product portfolio to focus future
investment on the Company’s most strategic, high-margin revenue
opportunities within its S&S portfolio. While anticipated to
improve the Company’s profitability in future periods, such actions
may result in near-term restructuring charges.
Amended Credit Agreement and New Subordinated Term Loan
Facility
On October 16, 2024, Comtech filed a Form 12b-25 with the
Securities and Exchange Commission (“SEC”) noting that it is unable
to file its Annual Report on Form 10-K for the period ended July
31, 2024 within the prescribed time period without unreasonable
effort or expense, and that the Company anticipates reporting
significantly lower-than-expected performance, primarily in its
S&S segment, in the fourth fiscal quarter.
In light of this, the Company entered into an amendment to its
existing credit facility dated June 17, 2024. Among other things,
the amendment waives defaults or events of default in connection
with the Company’s Net Leverage Ratio and Fixed Charge Coverage
Ratio covenants for the fourth fiscal quarter. To cure defaults,
maintain appropriate liquidity and support the Company’s
transformation initiatives, Comtech entered into a new $25.0
million subordinated unsecured term loan facility with the existing
holders of the Company’s convertible preferred stock. Within the
terms of the amended credit facility, this new subordinated
unsecured term loan allows the Company to maintain a consistent
level of borrowing capacity.
Additional information related to the Company’s credit
facilities can be found in a Form 8-K that will be filed with the
SEC.
Advisors
Imperial Capital, LLC is acting as financial advisor for the
T&W strategic alternatives process. Sidley Austin LLP and Paul,
Weiss, Rifkind, Wharton & Garrison LLP are serving as legal
counsel.
About Comtech
Comtech Telecommunications Corp. is a leading global technology
company providing terrestrial and wireless network solutions, NG911
emergency services, satellite and space communications
technologies, and cloud native capabilities to commercial and
government customers around the world. Our unique culture of
innovation and employee empowerment unleashes a relentless passion
for customer success. With multiple facilities located in
technology corridors throughout the United States and around the
world, Comtech leverages its global presence, technology
leadership, and decades of experience to create the world’s most
innovative communications solutions. For more information, please
visit www.comtech.com.
Cautionary Note Regarding Forward-Looking Statements
Certain information in this press release contains, and oral
statements made by our representatives from time to time may
contain, forward-looking statements. Forward-looking statements can
be identified by words such as: "anticipate," "believe,"
"continue," "could," "estimate," "expect," "future," "goal,"
"outlook," "intend," "likely," "may," "plan," "potential,"
"predict," "project," "seek," "should," "strategy," "target,"
"will," "would," and similar references to future periods.
Forward-looking statements include, among others, statements
regarding our expectations for the strategic alternatives process
regarding our T&W segment, our expectations for further
portfolio-shaping opportunities, our expectations for the other
operational initiatives described in this press release, our
expected financial results for the year and quarter ended July 31,
2024, the intended use of proceeds from the financing transactions
described in this press release, our expectations for completing
further financing initiatives, our future performance and financial
condition, our plans to address our ability to continue as a going
concern, the plans and objectives of our management and our
assumptions regarding such future performance, financial condition,
and plans and objectives that involve certain significant known and
unknown risks and uncertainties and other factors not under our
control which may cause our actual results, future performance and
financial condition, and achievement of our plans and objectives of
our management to be materially different from the results,
performance or other expectations implied by these forward-looking
statements. Factors that could cause actual results to differ
materially from current expectations include, among other things:
the outcome and effectiveness of the initiatives described in this
press release, our ability to access capital and liquidity so that
we are able to continue as a going concern; our ability to
implement changes in our executive leadership; the possibility that
the expected synergies and benefits from our strategic activities
will not be fully realized, or will not be realized within the
anticipated time periods; the risk that acquired businesses will
not be integrated successfully; impacts from and uncertainties
regarding future actions that may be taken by Michael Porcelain and
stockholders affiliated with him in furtherance of their
nominations of director candidates for election at the Company’s
Fiscal 2024 Annual Meeting of Stockholders; the possibility of
disruption from acquisitions or dispositions, making it more
difficult to maintain business and operational relationships or
retain key personnel; the risk that we will be unsuccessful in
implementing a tactical shift in our Satellite and Space
Communications segment away from bidding on large commodity service
contracts and toward pursuing contracts for our niche products and
solutions with higher margins; the nature and timing of our receipt
of, and our performance on, new or existing orders that can cause
significant fluctuations in net sales and operating results; the
timing and funding of government contracts; adjustments to gross
profits on long-term contracts; risks associated with international
sales; rapid technological change; evolving industry standards; new
product announcements and enhancements; changing customer demands
and/or procurement strategies and our ability to scale
opportunities and deliver solutions to current and prospective
customers; changes in prevailing economic and political conditions,
including as a result of Russia’s military incursion into Ukraine,
the Israel-Hamas war and attacks in the Red Sea region; changes in
the price of oil in global markets; changes in prevailing interest
rates and foreign currency exchange rates; risks associated with
our legal proceedings, customer claims for indemnification, and
other similar matters; risks associated with our obligations under
our credit facilities; risks associated with our large contracts;
risks associated with supply chain disruptions; and other factors
described in this and our other filings with the Securities and
Exchange Commission ("SEC"). However, the risks described above are
not the only risks that we face. Additional risks and
uncertainties, not currently known to us or that do not currently
appear to be material, may also materially adversely affect our
business, financial condition and/or operating results in the
future. We describe risks and uncertainties that could cause actual
results and events to differ materially in the "Risk Factors,"
"Management’s Discussion and Analysis of Financial Condition and
Results of Operations" and "Quantitative and Qualitative
Disclosures about Market Risk" sections of our SEC filings. We do
not intend to update or revise publicly any forward-looking
statements, whether because of new information, future events, or
otherwise, except as required by law.
Further, the Company’s financial closing procedures for the
fiscal year and quarter ended July 31, 2024 are not yet complete.
The expected financial results for the fiscal year and quarter
ended July 31, 2024 described herein are estimates based on
information available to management as of the date of this press
release, have not been audited by the Company’s independent
registered accounting firm, and are subject to change. It is
possible that the final results may vary from these preliminary
estimates upon completion of closing procedures and finalization of
the Company’s audited consolidated financial statements.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241017000535/en/
Investor Relations Maria Ceriello 631-962-7102
investors@comtech.com
Media Jamie Clegg 480-532-2523
jamie.clegg@comtech.com
Jed Repko / Aura Reinhard Joele Frank, Wilkinson Brimmer Katcher
212-355-4449
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