Comtech Telecommunications Corp.

Ladies and gentlemen, thank you for standing by. Welcome to ComTech Telecommunications Corps first quarter fiscal 2021 earnings conference call. At this time, our participants are in a listen only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press the star and one on your push button phone. As a reminder, this conference is being recorded Wednesday, December 9th, 2020. I would now like to turn the conference over to Mr. Jason DiLorenzo of ComTech Telecommunications. Please go ahead, sir.

Thank you, and good afternoon. Welcome to the ComTech Telecommunications Conference Call for the first quarter of fiscal year 2021. With us on the call today are Fred Kornberg, Chairman of the Board and Chief Executive Officer of ComTech, Michael D. Porcelain, President and Chief Operating Officer, and Michael Bondi, Chief Financial Officer. Before we proceed, I need to 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 company's management. The company's assumptions regarding such performance, business outlook, and plans are forward-looking in nature and 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 securities and exchange commission filings. I am pleased now to introduce the Chairman and Chief Executive Officer of Comtech, Fred Kornberg. Fred?

Thank you, Jason. And good afternoon, everyone, and thank you for joining us on this call. Today, we will be discussing the results for our first quarter of fiscal 2021 and our outlook for the full fiscal year. As you see from our announcement this afternoon, fiscal 2021 is off to a great start. Our net sales and adjusted EBITDA for the first quarter exceeded our expectations. Our first quarter net sales were $135.2 million with an adjusted EBITDA of $14.3 million. As everyone knows, COVID-19 is still in the forefront of news. And although by no means is it over, we believe that the pandemic's worst impact on our business is largely behind us. As announced earlier today, with our diversified customer base, product leadership positions, and mounting prospects, we are targeting fiscal 2021 net sales to be in the range of approximately $610 to $630 million, and our targeted adjusted EBITDA to now be in the range of $74 to $76 million. As you can see, our strategic initiatives are paying off, and we are clearly holding our own despite the second wave of the COVID-19 pandemic. Our pipeline of large-order deals remains strong, and if momentum continues, we should achieve a book-to-bill ratio in excess of 1.0 for fiscal 2021. Now let me turn over the call to Michael Bondi, our CFO, who will provide additional commentary about our financials. After that, Michael Porcelain, our President and CEO, We'll provide an update on our business and pending acquisition. Then I will come back before opening the line to questions and answers. Thank you. Mike.

Thank you, Fred. And good afternoon, everyone. As mentioned, net sales for the first quarter of fiscal 2021 were $135.2 million. This is a decrease from the $170.3 million reported in Q1 of fiscal 2020. Net sales in the first quarter to US-based customers were 74.4% of total net sales, with 25.6% to international customers. Bookings for the first quarter were $123.2 million, and our consolidated book-to-bill ratio was 0.91. We finished the quarter with healthy backlog of $605.5 million, And when you factor in the total unfunded value of certain multi-year contracts that have been awarded to us, but which are not yet in our backlog, we have visibility into approximately $1 billion of total potential future revenue. Now, let me give you some financial metrics and commentary with respect to the rest of the income statement. Our gross profit percentage in Q1 of fiscal 2021 was 37.1% as compared to the 37.3% achieved in the first quarter of fiscal 2020. Our gross profit during the first quarter of fiscal 2021 reflects minor increases in costs due to order delays, production delays, minor supply chain disruptions, lower levels of factory utilization, and higher logistics and operational costs resulting from the COVID-19 pandemic. These were partially offset by lower travel costs. Given our expectations for the level and mix of net sales in fiscal 2021 and ongoing higher production logistics and safety-related costs resulting from COVID-19, we are targeting a 35% gross profit margin for fiscal 2021. However, if product mix shifts favorably, we could reasonably achieve 37%, like we just did in Q1. SG&A for the first quarter of fiscal 2021 was $27.5 million, or 20.3% of consolidated net sales, as compared to $31.9 million, or 18.7% in Q1 of fiscal 2020. Turning to R&D, we spent $11.6 million in the first quarter, or 8.6% of net sales. Consistent with historical trends, the majority was spent in our commercial solution segment. Total stock-based compensation for the first quarter was $0.7 million, and amortization of intangibles was $5.6 million. Looking forward, we continue to expect stock-based compensation to approximate $11 million to $13 million, and excluding the impact of the pending UHP acquisition, amortization of intangibles to approximate $21.1 million. Now let me address the acquisition plan expenses, which obviously had a big impact on our reported results. During the first quarter of fiscal 2021, we incurred $91.2 million of such expenses. Of this amount, approximately $88.3 million related to the previously announced litigation settlement and merger termination with Galat, of which $70 million was paid in cash to Galat during the quarter. The remaining costs primarily related to the pending acquisition of UHP and GD-NG-911 acquisition-related litigation. These items are discussed further in more detail in our 10-Q file with the SEC. Including these costs, our consolidated GAAP operating loss for the first quarter of fiscal 2021 was $85.7 million. Excluding these costs, non-GAAP operating income would have been $5.5 million or 4% of consolidated net sales. Our adjusted EBITDA was $14.3 million or 10.6% of consolidated net sales for the first quarter of fiscal 2021. On a segment basis, adjusted EBITDA in our commercial solution segment was 14 million or 17.1% of related net sales. And in our government solution segment was 4.3 million or 8.1% of related sales. For fiscal 2021, we anticipate consolidated adjusted EBITDA to approximate 12% when using the $620 million midpoint of our 2021 targeted range net sales. Now, let me talk about interest, taxes, EPS, cash flows, and our balance sheet. Interest expense was $2.3 million in the first quarter and includes $1.2 million of incremental interest expense for ticking fees related to a now terminated financing commitment letter. For fiscal 2021, excluding the impact of our pending acquisition of UHP, we now expect total interest expense to approximate $7.5 million. Our estimated annual effective tax rate was 13.75 percent and excludes a net discrete tax expense of 0.2 million in the first quarter of 2021. On the bottom line, our gap net loss in the first quarter of fiscal 2021 was $85.8 million, or a $3.39 loss per diluted share. Excluding acquisition plan expenses, incremental interest expense for ticking fees, and a net discrete tax expense in the first quarter, non-GAAP net income was $3.7 million, or 15 cents per diluted share. Cash used for operating activities was $74.2 million for the first quarter. This included the $70 million payment to Galat. Excluding the $70 million payment took a lot, net cash used in operating activities would have been $4.2 million. We expect to generate a significant amount of positive operating cash flows during the remainder of fiscal 2021. Our balance sheet as of October 31st, 2020 includes $32.5 million of cash and cash equivalents, and our total debt outstanding was $217 million. Our current secured leverage ratio, as defined in our credit facility, was 3.31 times as compared to a maximum ratio allowed of 3.75 times. Before turning it over to Mike for a business update, let me provide some additional color on our expected fiscal 2021 performance. Based on anticipated product mix and timing assumptions, we expect second quarter net sales to range from approximately $135 million to $140 million, with adjusted EBITDA in the range of approximately $12.5 million to $14.5 million. For the remaining quarters in fiscal 2021, we expect sequential growth with our fourth quarter targeted to be the peak. Now, I will hand it over to Mike Porcelain. Mike?

Thanks, Mike. As Fred mentioned earlier, COVID-19 is still impacting our business. We continue to conduct most of our non-production related operations using remote working arrangements, have curtailed most business travel, and have established social distancing safeguards. These precautions and business practices are expected to remain in effect so long as government advisories recommend. Despite this, it was a great quarter, and let me talk about the team's success in terms of business performance, contract wins, and the direction of where we think these efforts will lead us. I will first discuss our commercial solution segment. Here, net sales were $81.8 million this quarter, as compared to $94.3 million in Q1 of last year, a decrease of about 13%, which is not bad considering the impact of COVID-19 on our international sales. Bookings in this segment were 66.3 million for the quarter, resulting in a book-to-bill ratio of 0.81. Bookings were mainly affected by COVID-19, which caused many international bookings to shift to the right. Period-to-period fluctuation in bookings ends normal for this segment. And although we have seen a recent spike in COVID-19 cases in many of the geographic markets where we sell our satellite ground station technologies, it was a relatively good quarter, and we believe there was light at the end of the tunnel. Bookings this past quarter were higher than the bookings achieved in each of our prior two quarters. In fact, we were awarded a number of important orders, including a $1.7 million order from a large government entity in Asia who selected our equipment to support a significant network upgrade. a $1.5 million order for single-channel per carrier or SCPC satellite modems from a Tier 1 defense contractor to upgrade and expand an existing network with our CDM625A advanced satellite modems. We received $1 million in delivery orders from the U.S. Naval Information Warfare Systems Command for our latest generation SLM5650B satellite modems as well as firmware upgrades. And we also received a million-dollar order for satellite ground station equipment from the largest telecommunication company in Africa, who specified our Heights networking platform to enhance and improve its mobile backhaul capabilities. Now, on to our public safety and location technology product lines. First quarter of fiscal 2021 net sales were lower as compared to last year. This decline was expected and mostly timing-related. As previously disclosed, we anticipated that AT&T would cease purchasing certain of our 911 wireless call routing solutions as a result of our receipt of a large contract a few years ago from another large U.S. mobile network operator. Our first quarter of fiscal 2021 reflected the absence of such sales to AT&T, but they were offset in part by increased sales of our 5G virtual mobile location-based technology solutions. Also, during the most recent quarter, we commenced work related to our recently awarded $54 million contract to design, deploy, and operate NG911 services for the state of South Carolina. To date, the business impact of COVID-19 on our public safety and location technology solutions has been relatively muted, and long-term demand for our products appears strong. Although COVID-19 has resulted in the cancellation of several key public safety trade shows and some states and municipalities announced budget constraints, we believe other customers are increasing their funding for next generation 911 solutions, recognizing the critical importance of upgrading their 911 systems. In fact, our second quarter of fiscal 21 has started off with a bang. In November 2020, we announced that we were awarded a statewide contract valued up to $175.1 million to design, deploy, and operate next-generation 911 services for the Commonwealth of Pennsylvania. The total contract value includes multi-year contract extension options, and the Commonwealth initially funded the contract at $137.4 million, of which we have booked $111.6 million during our second quarter as bookings. based on our anticipated timing of performance we expect meaningful revenue contribution from this contract to begin in earnest in fiscal 2022 this was really a great win for us coming on the heels of the 54 million contract award with the state of south carolina which we announced in july 2020 and not to be overlooked we also received a number of other important orders during the first quarter We received a contract renewal for location and mapping technologies worth $4.2 million with a Tier 1 mobile network operator. We received a contract valued up to $2.4 million to provide next-generation 911 services, including our Solcom Guardian Intelligent 911 workstations to the City of Edmonton Police, Fire, and Rescue Service. We received a large five-year upgrade contract to provide a Tier 1 mobile operator in Saudi Arabia with both active and passive location services supporting their 2G, 3G, and 4G networks. We received a contract renewal for location-based services with Telefonica Digital, a Madrid-based research and development company, which uses our global location services solution for its end-to-end or machine-to-machine communication requirements and other customer use cases. and we received contracts with the Indian Motorcycle Company to expand coverage for a ride command feature in Europe, the Middle East, and Africa, which provides maps and points of interest data and supports for a Doppler radar system for its customers in the U.S. and Canada. In aggregate, we remain optimistic that 2021 net sales for this segment will be higher than the amount we achieved in fiscal 2020. Now let me turn to our government solution segment sales, where here net sales were 53.4 million in Q1 of fiscal 2021. Bookings in our government solution segment for Q1 of fiscal 2021 came in at 56.9 million with a book-to-bill ratio in excess of one at 1.07. Period-to-period fluctuation in bookings is normal for this segment as well. Net sales of our mission-critical technologies during the first quarter of fiscal 2021 were lower as compared to the first quarter last year, primarily due to the timing of and performance on orders related to our Global Tactical Advanced Communication Systems, or GTACS, contract and high-reliability electrical, electronic, and electromechanical, or commonly known as EEE, satellite-based space components. Q1 of Fiscal 21 does reflect a nominal amount of sales from our January 2020 acquisition of CGC. Receipt of new orders for our mission critical technologies during the quarter included the following. A $5.9 million of additional funding on our contract to provide the U.S. Army with global field support services for military satellite communication terminals around the world. It included $5.4 million of additional orders from the U.S. government for our Joint Cyber Analysis Course, or JCAC, training solutions. We received $3 million of additional funding for a 12-month extension on an existing contract to provide Maryland's Department of Human Services with statewide IT services. We also received $2.7 million of orders to provide ongoing sustainment services to the U.S. Army for SNAP, and 2.6 million of orders to supply MANPAC satellite terminals, networking equipment, and other advanced VSAT products to the U.S. Army. And finally, it included 1.9 million of additional funding to continue to provide other critical IT staffing to multiple agencies within the City of Baltimore. During the first quarter, we continue to make progress to ship initial orders on our 10-year, $211 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of the U.S. Marines. We believe this multi-year opportunity validates ComTech's market-leading troposcatter technologies and expertise. At the same time, we continue to see strong interest from both the U.S. military and foreign governments for our recently introduced ComTech comet terminals. With respect to COVID-19 in this segment, as I previously mentioned, we have seen some of our international customers delaying potential order awards, and we are also seeing fielding and order delays from U.S. military customers. In fact, in December 2020, we temporarily closed our antenna production facility in the UK due to a spike in COVID-19 cases in that area. Obviously, this has impacted costs and our ability to deliver certain orders, but all of that is reflected in the guidance that Fred and Mike spoke about earlier. In addition, we believe these issues are temporary and long-term demand for our government solution products and technologies remain strong. As such, looking forward, we believe fiscal 2021 net sales for this segment will be similar or slightly higher than the amount we achieved in fiscal 2020. Now I have one quick comment before turning it back to Fred. On the UHP acquisition front, here we remain focused on the ongoing regulatory review process in Russia. We acknowledge that December 31st, 2020, in prior SEC filings, was a critical milestone. And if we do not get regulatory approval by that date, either party may terminate the acquisition. But that said, we continue to have discussions with UHB in hopes of finding a solution that works for all parties. Now, let me turn it back to Fred, who will provide some closing remarks. Fred?

Thank you, Mike. As I mentioned before, and as you heard from both mics here, We're all very pleased with our business and performing particularly results performing in the first quarter. With our diversified customer base, product leadership positions, and mounting prospects, we are clearly holding our own despite the second wave of the COVID-19 pandemic. Given our business outlook, our board of directors continue to declare a dividend for the first quarter of fiscal 2021 of 10 cents per common share, payable on February 19th, 2021, to shareholders of record at the close of business on January 20th, 2021. We continue to believe that our dividend program is a great way to return capital to our shareholders as we look to grow our business. Now I'd like to proceed to the question and answer part of our conference call. Operator?

At this time, if you would like to ask a question, please press star and one on your touchtone phone. Again, that is star and one if you would like to ask a question. We are going to take our first question from Joe Gomes from Noble Capital. Your line is open.

Good evening. Congratulations on the quarter.

Thank you.

So I just wanted to talk a little bit here first on the next generation 9-1-1. You guys seem to be having some fantastic success there. Just trying to get a bigger picture of what do you guys really see as driving these wins. I think the last call you said you were working on two large state ones. I assume one is Pennsylvania. Yeah. Is the other one still available? What's the competitive environment? What's the win rate here for you guys in the business at this point in time?

Sure. Well, yeah, we're really pleased with the contract win that we got from the Commonwealth of Pennsylvania. And the way I would categorize it is it's extremely competitive in the marketplace. And we think we're winning more than our fair share. In fact, we're winning most, if not all, of the large contracts. And we've done so in the past with Commonwealth of Massachusetts, the state of Washington on the West Coast, and South Carolina, and now Pennsylvania. So we're taking it state by state. And, yeah, there is a really large opportunity that's out there. And, you know, we'll probably see some activity on that, you know, in calendar year next year. Not our fiscal year, but the calendar year 2021. And we'll see how that develops. But we're extremely optimistic about that we will be awarded, you know, a very significant contract there. And, you know, although it is competitive, we like to think it's our prior experience and technology that is winning the states, and we're demonstrating excellence in how we do our products, and we're winning. So technology and our experience is competitive, but we're doing great.

Okay, thanks for that insight. And on the UHP acquisition, I don't know if you can talk a little bit. I mean, what just seems to be the holdup in getting this thing to the finish line? What are the Russian authorities, I guess, focused on that the deal has not come to fruition yet?

Well, the best way I could describe it is typically the Russian government normally has four to five meetings a year where they kind of make these decisions related to the acquisitions. And because of COVID, we only know that they've had one meeting since February. So, you know, these are sort of behind-the-door meetings that the Russian government has, but, you know, we certainly think COVID-19 has impacted the speed of which the Russian government has had to work through the process. We're not... Well, we're not really aware of anything specific that the Russian government has that they would be opposing it. They haven't told us any specific reason they're opposing it. We think we're somewhat caught up in the impact of COVID and the lengthy delays of just general bureaucracy, not in a negative way, but that's just what we're dealing with. And both parties understand that. But we're not aware of any specific reason that the Russian government would oppose this transaction. That I can tell you without any question.

Okay, thank you. One last one for me. I'll jump back in queue. So SG&A expenses seem to have been a little elevated here sequentially, and then also if I look quarter over quarter or year over year as a percent of sales, anything going on there? Is that the 27.5 for the quarter of the runway going forward, or do you think those will be reined in some?

Hi, Joe. This is Mike. In terms of the comparative that you were doing to Q4 to Q1, just keep in mind that in the fourth quarter we had issued our non-equity bonuses and share units. So you get a little bit of a bump there.

Okay. And year over year as a percent of sales, they were up, I think, about 200 basis points.

Yeah.

The run rate for...

Yeah, the run rate for Q1, I would expect, you know, in terms of our historical percentages, we had done some cost-saving measures, you know, back in Q3 of last year, and being mindful of the level of business, you know, we'd expect to try to hold our historical relationship there.

Okay. Thanks. I'll get back in queue.

Our next question comes from Chris Quilty from Quilty Analytics. Your line is open.

Hey, guys. Just thanks. Guys, just wanted to follow up, I think, in the guidance you provided. You expect the Earth Station business to be flat in 21. Is that correct? And can you talk about what trends you're seeing there either by in-market demand or trends in your specific product line where you're seeing you know, either uptake or slowdown by product or technology?

You know, look, the international market, we're seeing, you could call it sluggishness, you know, if you will. I mean, we've certainly seen and experienced order delays on what I would categorize as the small orders. You know, in terms of the vertical markets that we've participated, I mean, the cruise line market for us is, you know, dead in the water, to use that phrase. We're not, you know, we don't see any activity there. But on the other hand, and despite, you know, our categorization of flat, I could tell you that there are a number of large multimillion-dollar opportunities that we are working in the satellite ground station business that, you know, I don't want to use the word transformational, but, you know, they're multimillion-dollar contracts that we believe that we have a good shot at winning either the whole contract or a portion of those contracts. And, you know, we don't want to talk too much about that from a competitive perspective on which ones there are, but there are multiple contracts, multiple opportunities that exist in the marketplace. And so we're seeing extensive activity there and a lot of interest in our products.

And are some of these LEO broadband-related projects?

Yeah.

And are there anything outside of that where you're seeing major customer upgrades due to technology refresh or other issues on the supply side in terms of satellite capacity with new very high throughput satellites coming online?

Yeah, the short answer is yes, although the sales cycle, you know, we've always talked about it being long, and it's probably longer now because of COVID. You know, the Q1 quarter, which I think I mentioned at least a million-dollar order we called out, we're seeing good activity on our Heights products still. So it's pretty broad-based. But, you know, on the smaller side, you know, we're seeing – you know, we are seeing a slowdown in smaller orders. That we see. But on the other hand, the bigger customers are pretty active, and we'll see how the year plays out. But it's sluggishness, you know, and it's got its fits and stops, if you will, starts and stops. And we – We haven't really seen consistency yet in order flow to see that it's going to jump up and start to increase in sales like it was about a year ago. There's probably a little bit more time needs to work its way through.

Great. And shifting to the government outlook, presumably your forecast assumes that we get something beyond a – a short-term budget that gets put in place in the next couple of months and we're not stuck in another sequester for some period of time or other budget morass. There's a question.

Yeah, I mean, look, we've got pretty healthy backlog, you know, in our government segment to kind of hold us through what we obviously will see a change in administration. But, you know, I think the budget will be the budget. We'll get our fair share, and we'll see how it plays out. We're not really nervous about it, but I think they just passed something yesterday or the day before in terms of some budget compromise or whatever, and I can't speak specifically because it just happened. I haven't had a chance to digest it, but we're not concerned internally about what happens with the actions of the budget. We have, like I said, good backlog. We know the opportunities that we're working on. for the rest of the year, and we feel pretty good about the programs that we're participating on.

Gotcha. And I think you did mention you've experienced some delays in fielding equipment, and I've heard sporadic reports from other companies around that same issue. Is it your sense that it's getting better or worse? Have you worked through the COVID-type procedures in order to be more effective at deploying with government customers? Or is the biggest issue government policy in terms of what they allow to happen in terms of deployments?

It's a little bit of both. I would characterize it as not getting better, but it's not getting worse. So I think it's something that we've been dealing with for the last few months. And I guess our hope is with the vaccines coming to marketplace, we'll continue to see a rebound in that stuff. And the orders that were delayed or not placed will come through the channel.

And final question on the 911 business. Congrats on the big win. I think you had implied that there may be more than one of those that you think are a possibility this year.

Well, we had two large opportunities that we talked about, and we definitely have one very large opportunity. But, yeah, you are right. There are other 911 opportunities. We haven't really alluded or hinted to them, but they are out there. And I can't say whether or not the second opportunity would come in this fiscal year, but there are other opportunities, other than the ones that we're talking about. And as things progress forward, through the sales channel or opportunity, obviously we're gonna be mindful of the competition and we're not gonna talk too much about them, but when we say we feel pretty comfortable we're gonna win, we feel pretty comfortable we're gonna win. And that one other opportunity, we feel pretty good about.

Great, and the funding environment, the CARES Act I'm sure provided some money, but have you had a chance to see I can't imagine what's in the next package that's coming through and whether that would be supportive of some of these government spending programs, because obviously a lot of the states and municipalities are way down on tax revenue.

Well, I think as it relates to the U.S. market, no impact to us. On the other hand, Chris, we have seen, in particular, the Canadian government recently launched some funding out there, specifically on the satellite to one of our favorite customers that's based in Canada. So we feel we're going to get some orders from there. And We think other international governments are going to start funding the infrastructure, and since they use satellite as a form of communication infrastructure, we think we'll benefit from them. But those things need to happen. But we've only seen one instance of a very specific impact to us that we haven't received the orders yet, but we're pretty optimistic based on the funding that we'll get them.

Very good. Thank you, gentlemen.

Our next question comes from Asia Merchant from Citigroup. Your line is open.

Oh, hi. Thank you, gentlemen, and congratulations on a good quarter. You know, just as you guys sound pretty optimistic, there is obviously the macro to consider, but maybe Mike referred to gross margins could be closer to 37%, and adjusted EBITDA margins hanging here around 12%. percent, you know, at the midpoint, which is lower than, slightly lower, I should say, relative to where you guys were last year. Can you walk us through some of the puts and takes to that? And then I also have a follow-up question on cash flow. How should we think about, you know, cash flow for the year, knowing that the first quarter was obviously a large payment out to Gilad? Thank you.

Hi, Sarah. This is Mike. So in terms of your first question, you know, in terms of the guide for the midpoint for the year, yeah, we're trying to be mindful of what's, you know, in the news. And as Mike referred to some delays and I was referring to some disruptions here and there, we just wanted to be mindful of that when thinking about the full year for EBITDA. But, you know, in terms of gross margins themselves, we have some very large, lumpy government orders that we had known were timed for the fiscal 2021 period. So as those clear out, that will obviously affect the gross profit margins in the quarter. But we had thought for Q1 we were going to be around 35%. We ended up doing like 37%. So as we work through these deliveries, it's going to be in that range. In terms of cash flows from operations for the year, for the remainder of the year, we do expect to see significant positive cash flows. And in terms of free cash flow itself, as Mike mentioned, we had won the Commonwealth of Pennsylvania contract, and we also recently, as a reminder, won the state of South Carolina contracts. And there, when you think about free cash flows, we will probably see an uptick from our historical levels of CapEx to support the deployments of those very large programs.

Again, if you would like to ask a question, please press star and 1 on your touchtone phone. We now have a question from Kyle McNelly from Jefferies. Your line is open.

Hi, thanks a lot for the question. I wanted to ask if you could tell us the revenue in the quarter for satellite ground station products and what the year-over-year growth was for that product protocol?

Yeah. Hey, Kyle. How are you? We generally, as you know, we don't break out our product line for our segments. But, you know, we have made comments in the past that, you know, that business line as a whole is probably about 50% or so, plus or minus. So that's the way I would tell you to think about it. But obviously, for competitive reasons, we just don't want to put a number on there.

Okay. Can you give us any kind of sense for the growth rate year over year? It's kind of a yardstick or a range of growth rate? Just trying to get a sense of the recovery from last quarter.

Sure. Well, I think for the year, looking at the year and being mindful of the fact that we're not going to have the AT&T 911 routing services in our – in our commercial segment, you can think about it being similar, relatively flat. It's in aggregate for both the public safety business and our commercial segment. But, you know, it's a plus or minus on each of the segments. A few million dollars could change that relationship. So if you want to talk big picture, that's the way I would tell you to think about it.

Okay. And, you know, going forward, do you kind of expect now that you're past the bulk of the COVID impact in the satellite ground station business, do you expect it to be a slow grind recovery or is there potential for snapback? I know you previously said that, you know, the biggest impact is coming from the fact that you can't do face-to-face meetings and go to trade shows and things like that. You know, once you can do a little bit more of that or you get the benefit of doing virtual meetings, Could there be a snapback, or do you think it's going to take some time?

Well, we're thinking it's going to be a slow grind for the rest of the year, but these large opportunities that I mentioned earlier in the conference call, and there's more than one. They relate to the LEO market and the MEO market, and in fact, the GEO market as well. So there's I don't want to use the word game changer, but these are really large contracts, and it's possible that we get awarded them this year. They're not really in our revenue guidance or our EBITDA thinking because we're being mindful of how long and binary some of these program awards could be. But Those are the ones that will really jettison our business on an upward trajectory. And it would not just be for one quarter. It would be, you know, a multi-year type of a situation. But the regular business that we're seeing now, yeah, it's sluggish. And that's the way we see it. You know, well, let's see how people get the vaccines. Let's see how people get on planes. Let's see, you know, where money is being spent. We don't subscribe to the belief that things are going to turn overnight. But maybe we'll be wrong and things will come back faster. But we're thinking it's going to be sluggish.

And in the longer term, do you think the underlying growth rate in that market has changed at all versus pre-COVID? Or, you know, once, you know, never minding how long the recovery takes, but once we kind of get the escape velocity, do you think it's the same, you know, growth rate versus pre-COVID? Or is there any kind of long-term lasting impact from COVID that kind of ways on the growth rate for Satellite Air Station?

You know, there's a possibility in our thinking that it could possibly have increased the long-term demand for the product, you know, and we say that very sincerely because there's not, you know, what's been happening is, right, people have been using video across the world and using up their capacity in many states and countries have banned upgrades right now, right? You can't go out to the field. They don't want anybody doing any upgrades on the system. So people are increased capacity, so if people are going to work from home or from their offices remotely and do less traveling, that's going to result in an increased need to communicate video over satellite. And it's going to result in an increased need to backhaul video and mobile communications on the cellular network. You could make a really strong, compelling argument, as I am, that it's going to actually result in an increase in demand in the long term and a faster growth rate than maybe what we would have thought, you know, nine months ago. But we're not there yet at the peak to see it. But, you know, time will tell what will happen. But it certainly didn't result in a negative change in our view. And, in fact, you know, some of these large, big programs that we're talking about have you know, what the COVID crisis has shown is the bigger the company you are, you're a survivor. And these LEOs and GEOs are being supported by very large companies in the marketplace, and we think those programs are going to happen.

Okay, great. That's helpful. And one last one on the Tropo scatter contract with the Marines. Do you have any more visibility into the level of services that you might provide within that contract? I know that previously you had said that it's not certain yet and you may deliver 30% to 50% of the total contract value, but it's really dependent on how much the prime contractor either allocates to you or asks you to do. Is there any more visibility now that we're a couple quarters past when the contract was awarded?

Yeah, there's really been no change in our thinking on that program. We need to kind of do the initial deliveries and get them out there. There is opportunities for us to get design changes within the program with the end customer as well as our prime, but nothing really to talk about yet.

Okay. All right, great. Thanks a lot.

At this time, there are no further questions. I will now turn... program, back over to our presenters for closing remarks. Oh, actually, I do have one more question. Someone just queued up. We will take our next question.

Hi, this is on behalf of . Could you hear me?

Yes, we can hear you just fine.

All right, so my question to you is, Do you face any supply chain difficulties due to the COVID situation?

We have seen some minor supply chain issues, nothing that we would categorize as material, but we certainly have seen them and we deal with them. They've caused some order delays and obviously some incremental expenses, but nothing that I would describe as material.

All right, all right. And do you foresee a lot more hirings in the next few quarters?

Well, if we win some of these big contracts, yeah, sure. But, you know, hey, we're always looking for great people to work for ComTech, engineers, software developers, production people, accountants. If you're a good person and you want to come to work for ComTech, give us a ring.

Fine, fine. All right. That's it from me. Thank you. I'll pass.

Okay, now at this time, we do not have any further questions. I will now turn the program back over to our presenters for final closing remarks.

Okay, I guess that's the end of today's call. Thank you again for joining us today, and we look forward to speaking with you again in March. Thank you very much.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.