Earnings call transcript: Comtech Q2 2026 sees stock rise despite earnings miss

Comtech Telecommunications Corp (CMTL) reported a second-quarter fiscal 2026 loss per share of $0.68, missing analyst expectations of a $0.64 loss. Revenue also fell short, coming in at $106.76 million against a forecast of $113.85 million. Despite missing these projections, Comtech’s stock rose 3.85% to $4.67, reflecting investor optimism about future prospects and operational improvements.

Comtech’s performance in Q2 FY2026 showed mixed results. While the company reported a decline in net sales by 15.7% year-over-year, its gross profit increased by $2.5 million, reflecting enhanced operational efficiency. The operating loss narrowed significantly compared to Q2 FY2025, indicating improved financial management.

Comtech’s actual EPS of -$0.68 fell short of the forecasted -$0.64, marking a negative surprise of 6.25%. Revenue was similarly below expectations, with a shortfall of 6.23% against projections. These misses highlight challenges the company faces in aligning its performance with market expectations.

Despite missing earnings forecasts, Comtech’s stock rose by 3.85% to $4.67 in aftermarket trading. This positive movement suggests investor confidence in the company’s strategic direction and operational improvements, as reflected in its gross margin expansion and cash flow management. The stock’s resilience is particularly notable given its impressive 165% return over the past year, according to InvestingPro data. However, InvestingPro analysis indicates the stock is currently trading slightly above its Fair Value of $4.53, suggesting limited near-term upside at current levels.

Comtech maintains a strong backlog of $732 million, providing significant revenue visibility. The company expects continued improvement in gross margins and profitability through product mix optimization. Key initiatives include ramping up production of next-generation satellite modems and advancing cloud-based solutions in the Allerium segment. Analysts have set a price target of $6, implying 28% upside from current levels. Yet InvestingPro Tips highlight that analysts anticipate sales decline in the current year, with revenue forecast to drop 8%. For deeper insights into Comtech’s prospects, investors can access the comprehensive Pro Research Report, available for this and 1,400+ other US stocks on InvestingPro.

CEO Fred Kornberg noted, "Our strategic focus on high-margin product lines and operational efficiency is yielding positive results. Despite revenue challenges, we are confident in our long-term growth trajectory." CFO Michael Porcelain added, "The removal of going concern disclosures underscores our improved financial stability and operational resilience."

During the earnings call, analysts inquired about the impact of government shutdowns on revenue and the timeline for next-generation product launches. Management emphasized their focus on mitigating these challenges through strategic planning and highlighted the expected ramp-up in production later in the fiscal year.

Operator: Welcome to Comtech Telecommunications Corp’s conference call for the second quarter of fiscal 2026. As a reminder, this conference call is being recorded. I would now like to turn the call over to Maria Ceriello, Senior Director of FP&A of Comtech. Please go ahead, Maria.

Maria Ceriello, Senior Director of FP&A, Comtech Telecommunications Corp: Thank you, operator, and thanks everyone for joining us today. I’m here with Kenneth Traub, Comtech’s Chairman, President, and CEO, and Michael Bondi, our CFO. After Ken and Mike’s remarks, they will be available for questions together with Daniel Gizinski, President of our Satellite and Space Communications segment, and Jeff Robertson, President of our Allerium segment. Before we get started, please note we have a detailed discussion of the quarter in the press release and 10-Q we issued this afternoon, which are available on our website as well as the SEC’s website. 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. With that, I will turn it over to Kenneth Traub. Kenneth Traub.

Kenneth Traub, Chairman, President, and CEO, Comtech Telecommunications Corp: Thank you, Maria, and good afternoon, everyone. I appreciate you joining us today. I’m going to discuss some key trends, and Mike will discuss our financials in more detail. Comtech continued on its positive trajectory of improvement as we delivered our fourth consecutive quarter of positive operating cash flow and ended the quarter with approximately $50 million of total liquidity. With net bookings of $175 million in the quarter, we’ve achieved a book-to-bill ratio of 1.64 times, increased our backlog to $732 million, and maintained our revenue visibility at approximately $1.1 billion. As previously disclosed, we’ve streamlined our product lines and are more selective in the customer orders we accept.

As a result of these deliberate decisions, as well as the temporary impact of the U.S. government shutdown, consolidated net sales decreased from $127 million in the second quarter of fiscal 2025 to $107 million this past quarter. Importantly, we increased gross profit from $34 million to $36 million, increased our gross profit percentage from 27% to 34%, and increased Adjusted EBITDA from $2.9 million to $9.1 million. These improvements are due to the initiatives we have implemented to enhance operational efficiency, reduce the cost structure, and focus our product development and sales efforts on strategic higher operating margin products. As a result of our improved performance and stronger financial position, we continue to see increased support and enthusiasm from both current and prospective customers, vendors, and employees.

Now I’ll provide some commentary on our business units. Our Satellite and Space Communications business continues to improve as a result of our transformation initiatives under Daniel Gizinski’s leadership. As anticipated, net sales in the Satellite and Space Communications segment declined by 31% as a result of the company’s decision to phase out and eliminate certain low margin and working capital intensive revenues, as well as the impact of the recent U.S. government shutdown. Examples of revenues that have been phased out include contracts for services such as the Very Small Aperture Terminal or VSAT, Satellite Systems and Services Contract, and the Global Field Services Representative or GFSR contract, as well as legacy Troposcatter related products and services.

As part of this repositioning, SNS is pursuing sales of innovative higher margin solutions such as Digital Common Ground modems, network solutions, and rapidly deployable multipath radios, which we refer to as MPRs. Despite the decrease in net sales, SNS improved its operating income to $2.5 million in the second quarter of fiscal 2026, compared to $1.2 million in the second quarter of fiscal 2025. The year-over-year improvement in Satellite and Space operating income primarily reflects the cost reduction and optimization initiatives we have implemented, partially offset by increased research and development expenditures.

In terms of recent accomplishments, in the second quarter, among our other key wins, Satellite and Space was awarded over $5.5 million of funded orders for from several international government end customers who purchased our Troposcatter family of systems, including our Multipath Radios and Modular Transportable Transmission Systems, which we refer to as MTTS. Satellite & Space also received incremental funding in excess of $4.5 million for ongoing training and support of complex cybersecurity operations for U.S. government customers. We have begun deliveries of initial production units to our prime contractor in support of a next generation satellite modem contract. We anticipate transitioning into full production during fiscal 2026. A second next-generation product with the same prime contractor has significantly progressed in development, and it too is expected to begin production deliveries in this fiscal 2026.

Furthermore, we have recently begun deliveries of our first Digital Common Ground 7000 high-speed, small form factor, software-defined modems to Lite Coms for integration, interoperability, and performance testing across diverse government and commercial satellite communications applications and ground terminal configurations. DCG 7000 modems support DVB-S2X along with other protective waveforms and incorporate modern cybersecurity design principles, including integrated transmission security, also known as TRANSEC, for over-the-air transmission. These are important milestones as they signify the long-awaited migration from low margin, non-recurring engineering efforts to higher volume production with improved operating margins and faster cash conversion cycles. Now I’ll provide some commentary on our Allerium segment. Allerium, led by Jeff Robertson, continues to perform well. Net sales were $56.2 million, an increase of 6.2% compared to the second quarter of fiscal 2025.

Compared to the prior year period, Allerium experienced higher net sales in all three product areas, location-based, Next Generation 9-1-1, and call handling solutions. Such increase reflects the continued adoption of Allerium’s solutions by new customers, as well as the migration of more PSAPs onto Allerium’s Next Generation 9-1-1 core se