Comtech Reports Rising Backlog of Commercial and Government Business

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PRAGUE — Satellite ground communications equipment provider Comtech Telecommunications Corp. on June 6 reported recent bookings were at the highest level in more than two years and that the company is seeing returns on its forced retrenchment into the commercial sector after military contract losses.

Melville, New York-based Comtech said its much-diminished business with the U.S. Army after the loss of the Blue Force Tracking (BFT)-2 contract is nonetheless continuing to generate substantial revenue as the Army pays Comtech to maintain the BFT-1 network and also continues to pay for access to Comtech technology.

The commercial strength and the continued work on BFT-1 caused Comtech to raise its revenue and profit estimate for the current fiscal year. The company has also paid off its outstanding loan and is now debt-free.

In a conference call with investors, Comtech Chief Executive Fred Kornberg said the company’s overall prospects are brighter now than at any time since the BFT-2 contract loss in 2010, a loss that put a large hole in the company’s revenue base.

He cautioned that the lack of debt, a cash balance of $128 million and the $100 million line of credit should not be interpreted as a signal that Comtech is about to close on an acquisition. Kornberg said the company is looking for opportunities, but he gave no indication that anything was imminent.

In 2010, 71 percent of Comtech’s revenue was from U.S. government contracts, mainly BFT-1 and a related contract called the Movement Tracking System, which has since been merged into BFT-2.

In the nine months ending April 30 — Comtech’s fiscal year starts Aug. 1 — U.S. government business was just 28 percent of the total. U.S. government contracts accounted for 22 percent of Comtech’s backlog as of April 30. 

In April the U.S. Army awarded Comtech a BFT-1 maintenance contract valued at up to $68 million over three years, including annual $10 million payments in exchange for the right to use the company’s intellectual property.

A three-year inquiry by the U.S. Defense Contract Audit Agency (DCAA) into alleged Comtech overstatements of BFT-1-related pricing, for which DCAA had asked for a reimbursement of $11.9 million plus interest, is apparently drawing to a close in Comtech’s favor.

Comtech Chief Financial Officer Michael D. Porcelain said during the conference call that the company considers the DCAA issue to have come to an end, with no penalties to be paid by Comtech.

In a June 6 filing with the U.S. Securities and Exchange Commission (SEC), Comtech said that while DCAA had made a ruling in Comtech’s favor, an agency contracting officer had nonetheless asked Comtech to make a “voluntary” payment equal to the reimbursement since the officer believed Comtech had overstated its BFT-1 prices.

Comtech says in the SEC filing that it disagrees with the inflated-cost allegation and “respectively declined to provide a voluntary refund.” While the Army may pursue the matter, Comtech says it views that as unlikely.

Comtech builds satellite Earth station components, including traveling wave tube amplifiers, for a wide variety of commercial and government customers and has an installed base of modems in Earth stations already deployed.

Kornberg said many of these Earth stations will need to be upgraded as satellite fleet operators move to higher-bandwidth applications including Ka-band for broadband and Ku-band tailored to high-definition and, in the next couple of years, ultrahigh-definition television broadcasts. The coming growth in business includes the U.S. military, whose budget struggles continue but without the paralysis of the past two years, Kornberg said.

“We are seeing a return to normalcy” in U.S. Defense Department contracting, and an increased volume of bid-proposal activity that should result in new business, Kornberg said. “In the satellite Earth station area, we believe we have weathered the economic, political, regulatory and market headwinds of the past few years.”

 

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