Comtech Telecommunications Corp.

Q3 2021 Earnings Conference Call


spk_0: the is and gentlemen thank you for standing by welcome to contact telecommunications corp third quarter of fiscal twenty twenty one earnings conference call at this time all participants are no 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 tuesday june eight twenty twenty one i would now like to turn the conference over to mr jason dealer renzo of contact telecommunications please go ahead sir
spk_1: thank you that afternoon welcome to the conflict telecommunications corp conference call for the third quarter of fiscal year two thousand twenty one with us and the call today or friend clambered chairman of the board and chief executive officer of contact michael the porcelain president and chief operating officer and michael band the chief financial officer for we proceed i need to remind you of the company 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 planned objectives in business outlook of the company's management the company's assumptions regarding such performance business outlook and plans are for looking in nature and of significant risks and uncertainties actual results could differ materially from such forward looking information any for looking statements are qualified in their entirety by cautionary statements contained in the company securities and exchange commission filings i am pleased now to introduce the chairman and chief executive officer of contact for kornberg fred thank you jason good afternoon everyone and thank you for joining us on this call
spk_2: to delay we will be discussing the results for a third quarter of fiscal twenty twenty one and our outlook for the full fiscal year let me just start this call by saying when i hope will the last words about covert ninety as you would expect from the news headlines around the world covered nineteen well clearly receding in the united states is still a challenge for certain international countries normal operations have not really yet resumed and international business travel is still almost impossible nevertheless as you see from our announcements this afternoon or up named performance of the third quarter of fiscal twenty twenty one was very solid arthur's court a net sales were one hundred and thirty nine point four million with adjusted he bodnar of seventeen point seven million we look to a strong fiscal twenty twenty one and we now as the made that fiscal twenty twenty one consolidated net sales will be within a range of five hundred and eighty million to five hundred ninety million dollars our efforts to streamline our operations are really paying off and we continue to target adjusted ebitda in the range of seventy four to seventy six million dollars based on are strong pipeline and year year the business momentum we anticipate it's achieving a book to build ratio for fiscal twenty twenty one in excess of one point zero with positive signs of a post pandemic recovery continued overall dumb man's remain strong and we have recently secured important contract the woods and we're excited about our future all in all we continue to whether the it's still stolen and will continue to see this clouds lifting now let me turn the goal of to michael bondi our see i phone will provide additional commentary by the third quarter of financial performance and our business i've looked after that michael porcelain our president and ceo will provide an update on our total business then i will come back before opening as the line of questions and answers at them
spk_3: mike thank you for and good afternoon everyone has fred mentioned or net sales were one hundred and thirty nine point four million dollars into three which is higher than what we achieved in last year's que three other one hundred and thirty nine point four million dollars of that sells seventy nine point eight percent were to the u based customers with twenty point two percent to international customers
spk_1: bookings for the third quarter were one hundred and fifteen point nine million dollars and are consolidated both to bill ratio was point eight three we finish the quarter with backlog of six hundred and thirty six point five million dollars and when you factor in the total unfunded value of certain multi year contracts
spk_3: that have been awarded to us but which are not yet nor backlog we have visibility into approximately one point one billion dollars a potential future revenue
spk_1: how gross profit percentage in que three of fiscal twenty twenty one was thirty eight percent as compared to the thirty nine point two percent achieved in the third quarter of twenty twenty the period of a period change in our gross profit percentage reflects changes in overall product mix and significant increases and costs due to production delays minor supply chain disruptions lower levels of factor utilization and higher logistics and operational costs resulting from the covert nineteen pandemic
spk_3: q three of fiscal twenty twenty one also reflects a two million dollar benefit from the recovery of historical excise tax paid based on are expected level and mix of net sales for the remainder of fiscal twenty twenty one we anticipate a consolidated gross margin percentage approximating thirty six percent as dna from cute three of fiscal twenty twenty one was twenty seven million dollars or nineteen point four percent of consolidated net sales as compared to thirty two point three million dollars or twenty three point nine percent and que three a fiscal twenty twenty
spk_4: and que three fiscal twenty twenty one we incurred six hundred thousand dollars or restructuring costs related to the shifting up production of many of our t satellite or station products from our existing tempe arizona locations to a new one hundred and forty six thousand square foot facility in chandler
spk_3: arizona we expect about another million dollars or such cost and que for
spk_1: to turning to our indie we spent thirteen point one million dollars in the third quarter or nine point four percent of net sales
spk_3: total stock based compensation for the third quarter was one point two million dollars and amortization of intangibles was five point three million dollars we continue to expect stock based compensation to approximate eleven million to twelve million dollars for f y twenty twenty one are consolidated gap operating income was two point four million dollars and reflects five point three million dollars of acquisition plan expenses primarily due to the april twenty twenty one settlement of an acquisition related litigation and are completed acquisition of s p are adjusted ebitda i was seventeen point seven million dollars or twelve point seven percent of consolidated net sales for the third quarter of fiscal twenty twenty one adjusted ebitda in our commercial solution segment was fifteen point nine million dollars or seventeen point four percent of related cells and in our government's solution segment it was three million dollars or six point three percent of related net sales
spk_1: the fiscal twenty twenty one using the midpoint of are consolidated net sales and adjusted ebitda targets are adjusted ebitda margin approximates thirteen percent now let me talk about interest taxes pps cash flows and or balance sheet
spk_3: interest expense was one point five million dollars in the third quarter and we expect to finish the year with total interest expense of approximately seven million our annual estimated effective tax rate excluding discreet tax items is expected to approximate eleven and a half percent on the bottom line or gap net income in the third quarter of fiscal twenty twenty one was eight hundred thousand dollars or three cents per diluted share excluding acquisition plan expenses restructuring costs at nineteen related costs strategic emerging technology cost and a net disagree tax expense non gaap net income was six point eight million dollars or twenty six cents per share cash generated by operating activities was six point eight million dollars for the third quarter and we expect even stronger operating cash inflows for a fourth quarter of fiscal twenty twenty one
spk_5: or balance sheet as of april thirtieth twenty twenty one includes thirty nine point two million dollars of cash and cash equivalents and our total debt outstanding was two hundred and fifteen million dollars or parents secure leverage ratio as defined in our credit facility was two point seven eight times now i will handed over to michael
spk_2: porcelain mike
spk_6: thank you and good afternoon everyone we are pleased that are cute three performance especially given a during the third quarter we continue to operate our business what remains a difficult operating environment the good news is that our employees of the gun limited travel mostly in the united states have started to return to the office in person demonstrations of are solutions are picking up and been scheduled for those such activity in the international market remains limited as the man slowly picks up across our industry we are seeing higher logistics and operational costs supply chain issues are becoming more prevalent as lead times for certain parts has significantly inc all said we should good problems to have compared to the health issues of code now let me more let me talk more about our business results in our commercial solution segment nutshells when ninety one point four million this quarter receive orders aggregating seventy five point one million resulting in a book to bill ratio of point to for the segment we continue to see positive momentum and our public safety and location technology products net net sales during the quarter for this product going were higher the last year's comparable quarter than reflect the benefit of incremental sales of or next generation nine one one and location be solutions or said in part by the absence of nine one one wireless call routing cells to eighteen two as noted or less conference call we were order the statewide contract by you know to one hundred and seventy five point one million to design deploying operate next generation nine one one services for the commonwealth of pennsylvania this contract was initially funded at one hundred and thirty seven point four million or one hundred eleven million of which was booked on or second quarter work on his contract has just begun and is expected to ramp up next year in addition as discussed or less conference call his contract was awarded to us shortly after we announced the receipt of a fifty four million dollar contract to design deploy and operate next generation nine one one services for the state of south carolina we are really pleased with what we are seen to date in south carolina in addition to this current contract bush starting performance we're sing songs from the customers that additional work may be on the way we believe they have strong interest in our solar can call handling solution and we hope to make some announcements here pretty soon obviously the pennsylvania and south carolina contracts are important but don't let them overshadow other important contract awards we received and que three including a nine point eight million dollar contract with a major tier one mobile network operator for a broad suite of new capabilities and services centered around verge realized applications and by g products we received orders excuse exceeding three point eight million with a tier one mobile network operator for additional capabilities related to a virtual mobility location center platform own point six million dollar next generation nine one one services contract to provide soul comes guardian poll management solution to the toronto put paramedic services the largest municipal paramedic service and canada we also received a one point three million dollar contract where no with a tier one mobile network operator to support messaging services and we received off first international five g services contract with a leading tier one mobile network operator in australia we continue to build out various situational awareness data products for on nine one one customers that we are working on a number of exciting initiatives in a public safety cyber security area also i can say is continue to stay too now i will discuss are subtly ground station product line where things do i mean challenging for are looking better net sales and this product line during que three or higher than the comparable three months of the school twenty twenty we benefited this quarter from a number of awards including a contract valued at more than three million for a be been traveling we've tube amplifiers or tito beauty is to support a new high speed satellite network in order valued at more than two million or stay to the york five hundred watt katie band high power amplifiers supporting a leading high throughput subtly customer we received another two million dollar order for rugged k been high powered t w th for us military communications system and an order with a million dollars for our falcons fifty k solid state power amplifiers for inflate connectivity application and and order receiving a million for expand solves the pot or amplifiers and block of convergys for a transportable military satellite communication system in addition the man for our heights technology solutions is strong and we recently received a multi million dollar contract award from an international custom let me also talk about her acquisition of huge be networks which close during this quarter and which is receiving out the leads across our industry as we have said before we believe you each piece developed the revolutionary technology and is transforming the growing very small aperture total market or be said market with and market for high speed satellite based network significantly growing we're are excited to extend or product offerings to include their tedium amazed adelaide motives the integration of you hp into or solid ground station product line and our commercial solution segment is what on the web now that you hp his full access to our direct and indirect distribution methods we believe that you a few shows was significantly increase from current levels over the next few years the are meeting with our customers discussing with them the benefits of our hide solution and or you hp solutions and how our road maps will play out based on the feedback we have received to date we have no doubt we are headed in the right direction overall despite navigating tall handsome cold and fiscal twenty twenty one we remain optimistic than that sells and our commercial solution segment will be slightly higher than the amount we achieved and fiscal twenty twenty now and return to our government solution segment where sales were forty eight million as compared to fifty six point eight million in two three of last year bookings and or commerce and government solution segment came in at forty point seven million with a book the the ratio point five as everyone knows period the period fluctuations in bookings are normal for the segment the most recent quarter primarily reflects lower sales of global field support services and other programs with the us army or southern part by higher sales of or solid state high power able fires and also are tripoli or high reliability electrical outlet electronic and the literal mechanical space component last quarter we announced that we received initial orders related to a new multiyear contract by have to two hundred and thirty five point two hundred thirty five point seven million to provide ongoing system refurbishment sustainment services and these ban equipment to the us army in support of it's she could internet protocol router and know on secure in their protocol writer access point or snap family of gravel ground subtly channels in the third quarter we received an additional nine point two million dollars of borders on his contract other notable awards but given to us during the third quarter include the following a six point five million of funding from the us government for a joint cyber analysis course training solutions six point two million of funding to support the us army's project management mission command boon for tracking one program the three million dollar order from an overseas agency for the maintenance of downrange tracking stations we received a two million dollar order to provide the us marine corps with rugged be span command control modules for program manager light armored vehicles and they received a one point six million dollar contract for our of michael with solid state amplifiers from a major domestic prime contractor since we last spoke to you we are seeing changes with respect to short term prospects for a government solution segment specifically in april twenty one the us government announced that it intends to fully withdraw troops from afghanistan by september twenty twenty one this accelerated plan will result in lower revenues than previously anticipated for certain prob rooms we participated in addition the us presidential administration released it's fiscal twenty two budget request this request includes less money for certain legacy programs but additional funding for modernization a new programs that we will participate on all at all we believe these budget changes will benefit us over the longer term but it will result in our government solution said that revenues a significantly lower amount and we achieved and fiscal forty one we're definitively same strong interest across the board for a recently introduced contact contact terminals and other new technology solutions the we are actively discussing with our customers those in the third quarter we the we conducted successful in fuel demonstrations including or industry leading tropez got a solution that we are currently providing to the us marines other military commands including the us army are pleased with what they see and have shown shown strong interest
spk_7: in addition as we enter into our fourth quarter in support of the us army's network modernization efforts we've been working to respond to a new proposal request related to the development of the melted mission command transport or m m c d terminal which is the successor to the us army's blue forced
spk_6: tracking to program we estimate that there are over one hundred and twenty thousand legacy be of to terminals across the army and join services and an ultimate production contract to us could be worth hundreds of millions of dollars over the years we have bumper riding be of t one system and services to the us army along with our development and engineering type services and we believe the we'll well positioned to meaningfully participate on this upcoming program in addition to the good prospects with respect to this new mm city program we are excited about opportunities with a new strategic partner as announced earlier today we enter into a strategic technology partnership with committed to broaden it's network of in terminals through interoperability with our as solemn fifty six fifty be program that the fifty six be as a us army forces strategic command wideband google satcom modem that is used for critical commercial backhaul as well as government and military applications it's fully compliant with key military standards and complies with and supports this one forty two certified encryption this climate a partnership expands or solution said and capabilities offered to our government and military user base they will benefit both our government or commercial solution segment now turning it over to fred a dual to share with you some good news with respect to emerging shuttling opportunities that so many of you have as this about as disclosure form tend to during the storm third quarter mean for three hundred thousand dollars or strategic emerging technology cost for next generation satellite technology which was used to advance or solution offerings to be used on new broadband subtly constellations as many of you know there was widespread industry discussion of next generation subtly technologies that is likely to be used in the thousands of new lille meal and even geo satellites expected to be launched over the next few years these new satellite constellations at their core are being developed than deployed to provide high quality high speed broadband internet access to over three billion people across the world and are intended to meet demand for unprecedented data transmission from smart devices as stated in a variety of industry publications the investment cycle is well underway and we believe attention is now turning to the equipment that we provide including ground station equipment that's why antennas modems enabled in order to make this unique in emerging need certain technical capabilities need to be expand or and efforts must be encouraged to decrease size weights and complexity this market is new for us and so during the quarter we made an initial small investment to jettison or business plan although this in total on the investment poor i was small we do continue to evaluate this new market in relation to a long term business strategies and really encourage issue cost over the last four months with got that said i'm very excited to report at the start of our fourth quarter we entered into a multiyear agreement enabling the customer to potentially order hundreds of millions of dollars of our next generation satellite or station technology shortly after signing this agreement we received our first order violent more than thirteen million dollars to make certain customization on behalf of this customer work on these efforts has commenced immediately i do hope that you understand the due to competitive reasons a nondisclosure agreements we can't say much more about it this is a very strategic one for us but i want to extend my thanks for all the hard work or team members to me that that made this happen we expect to fully perform and this initial development work and are very optimistic that future orders will come our way
spk_8: now i will turn it back to fred to provide some closing remarks friend
spk_2: thank you mike as i mentioned previously i am very pleased with our business performing during this epidemic as we enter our fourth quarter i believe we're on track for strong finish the fiscal twenty twenty one i'm also very excited about our prospects going at the fiscal twenty twenty two including our strengthening positions on the large developing new term opportunities that make sure mention even our business artwork because of our business have a board of directors has declared a dividend of ten percent ten cents per come and share payable on august twentieth twenty twenty one to shareholders of record at the close of business on july twenty one twenty twenty one we continue to believe that our dividend program
spk_0: he still a great way to return some capital to my shoulders as we look to grow our business now i would like to proceed to the question and answer point of i comforts of roof at this time if you are like asking questions past the star and one he may remove yourself from
spk_9: time by pressing the pound once again that a star and one ask a question we will pass for a moment to allow questions you
spk_10: and it looks like we have a question from joe gomez noble capital
spk_11: open please go ahead
spk_12: thank you good afternoon
spk_10: for joe so i don't eat he kept mentioning he can't talk a whole lot about the the new multi year agreement ah but you did manage to get a first order of third he made as when are you might be able to give with a little on color i'm you know
spk_6: a how long the that last you know what's the timing for that thirty million was kind of it would be the next steps in the process once that contract the thirty million is completed sure what know as as we discussed in our ten que you know we are making customization so to our our technology so i mean obviously it's a to development contract
spk_13: and that we first got and you know as we say and and you're right i can't say much more but does we we think that there's a potentially hundreds of millions of dollars that oh
spk_12: you know ones that customization is done
spk_10: oh that's that's what we expect okay thanks i met arm
spk_6: and energy kind of went over that the pennsylvania in the south carolina of by and gene nine one one opportunities they believe there was another one out there that that you were chasing baby gonna to give us a little more color on what else is out there right now that you know you're looking for that might be you no in the south carolina and or pennsylvania type of size
spk_12: yeah doing this really i'd say at this point is probably to contractual will probably main main them since information out there is is pretty public at this point so have been a weren't were waiting for ohio thought to have fun you know would would probably a triple million dollar contract job you'll north of ah hundred some odd million dollars it is out there and we we were just sort of waiting on the funding for that particular contract and when we're really waiting on an award announcement which is more competitive in in the state of arizona and know those are very you're near term opportunities and he'll that's pretty much out there for for public consumption okay thanks and in one last one for me and i'll get back and que
spk_14: the in a bowl games and in both of the the business segments were worried a point eight
spk_2: and point eight five your you mentioned in the in the government's illusions that it's it's normal to see some fluctuations there and the commercial side anything out of the ordinary they are that just again some more just your normal fluctuations in in in business for the key
spk_6: porter there
spk_15: yeah i mean obviously and queue to you know it's is lower than q do because we had that large you know of of pennsylvania booking but or two three bookings was actually higher than what we've achieved and key one for the commercial segment so you know i i would just say as normal fluctuations up and down and obviously the international more
spk_16: gate you know is is difficult right now and so up in low those will eventually come at some point
spk_17: great thank like a baggie killed i think comes from chris
spk_18: and and go ahead
spk_17: thanks mike as would just follow up on that constellation order i don't know whether you can provide the detail but are you providing
spk_6: i'm a point solution i e amplifiers or base band or you providing a comprehensive solution for this customer that would range from the gateway the end user terminal
spk_17: while the best answer i'll give you is that we're gonna ride the wave of what's happening in in the industry and that i can only referred to it as next generation satellite technology but i'm not going to get into the specific products of love that we're we're we're putting forth okay are you know build the satellite at least star right i did you get ziggy i agree with ya now a with i got something from yeah shifted on a real quick to the the height product line or you said you're seeing positive momentum i just general business friends that you're seeing their in terms of and market or domestic and international
spk_18: coming back and that you've got some like oil and gas that that tend to be pretty cyclical
spk_6: the yo has moved in titles you know any color you can give us i don't remember anything that's different than the last time i mean we've always wear a big believer that data transmission and and then with needs are going to increase in the and new certainly ashore and acceleration of that during the coven pandemic arm deal ward of heights spiders international customer again too much
spk_19: a million dollars i mean it was a is a very prominent award in that part of the world and we we actually think did i will lead to additional hide sales job
spk_17: in there are you at the same time you know are you h p network solutions thus and by by far and obviously you know that we've had some in death experience with satellite companies have alleged two years and you a fee is a what well position and given the growth that happening with for g and five g around the world with mobile network operators we thank you hp and or high solutions is a very uniquely positioned impact
spk_2: ray and
spk_6: shifted over to the government segment of the business if i read the language correctly it sounded like there was a significant afghanistan component to the that the guide down in on the guidance for the government segment you can use size that for us is that stuff that just goes away because troops are not deployed or does it get reallocated somewhere else and show up later i'm it's more would eat what you said in the earlier part of your palmer in a loop most of most if not all of the change but was related to the withdrawal of troops with afghanistan and you know i think we've always said publicly of you have a few troops in afghanistan or in a particular areas in communication system here the plan is to fully woodrow troops so i mean you're talking about addition dismantling of the of an infrastructure that google was it was out there so we'll think that the that's coming back in both to you know to are thinking camp for of illnesses another you know ground action or something unexpected that that may happen so you're those those program changes were announced by the us presidential administration during the quarter so we don't see that revenue coming back at the same time we're working through the budget and you're the best example you know that i can point to his look there was certainly legacy programs that does this administration is going to not fun but at the same time they're funding next generation system such as the blue for tracking successor program so i mean you you can see that mean the a white paper was out there were responding were responding to this finally after so many years i told people on the phone don't even ask me about bufo tracking three it when i have something to say daniel no i'm talking about it because it's real and you know we all responding we have done some pretty good dirty mean agreements with into work i'd like to think that the government will get the band back together and be of t one
spk_17: was an extremely successful program he sold one point five billion dollars worth of equipment under the be up to one program i'll take care for that you know a in in in this next generation cycle so we're very optimistic that the successor program to the be of t to program to a program i guess you could call it will will happen and you know we're going to put forth our best foot forward to the government will see what happens but that's an example of where in okinawa outside of the short term noise the long term prospects looked dynamite every so technically i'm not asking a question about it because you brought it up but
spk_6: is there a determination at this point in terms of frequency band that that system might go so much of this outcome capacity that that being brought online bull vo and leo is kay a bay on me
spk_18: or are we you know
spk_6: migrating for military only expand or staying in to you
spk_17: i think the way i would describe it as look they they certainly won't backward compatibility which is something that can't take is uniquely positioned to provide is a relief to some of the aviation type equipment that still using our equipment that i so lavishly will have l then we previously announced a couple years ago a partnership with iridium and
spk_6: and i think that you'd be looking to see the iridium out there and yet you may see so much been out there so i think the government's ideas they don't want to be stuck with one particular satellite band or one particular solid system they want the ability that have one part of the system gets jammed that to seamlessly move over to another within the same would in the same product so you know we we we we have that capability to have multiple we forms and multiple a modem technologies in the same transceiver
spk_20: eight and know do final question on next and nine eleven lot of money being thrown around by the government nowadays odyssey the infrastructure bill hasn't made it's way through but any indication that you're seeing that there might be additional money set aside for those that to systems
spk_0: on everyone's was talking about across social i i guess i guess we agree with the philosophy which opened up and it's a question of where that funding or winds up have some states i think it's fair to say are waiting to see read the status open to announce that that their own funding if they can get the funding from the federal government so that's nice
spk_21: dig this a little bit a pause by some states but at the same time there are other states that do not want to wait their local constituents want to move forward arizona an example of it ohio's an example of it we saw it would pennsylvania was short with south carolina so i would say it's all the news either way if there's more funding it is what we should benefit roman great thanks as and next are comes from a merchant
spk_6: go ahead great thank you on the question i mean given all these initiatives that you're talking about in a a think about the ground a driver and sort of even and growth said numbers for twenty two as it relates to the government and commercial pollution any should we expect given be significant job and government of course it's the hopefully grow with insistence we can't but what kind of levels are we talking about can be back at some point you were they wearing fiscal twenty given all the various initiatives and hopefully the be a t opportunity materialized as well
spk_21: i think the be of t opportunity you know which is probably don't get enough outside of additional work or dead will be doing you know assuming we we win the so initial opportunity thugs that that revenue revenues really gonna be twenty three twenty four type type revenue from that you know that is
spk_22: it is can take some time my might be a booking and twenty twenty two in in the hundreds of millions one yeah that's a possibility of mean the government is giving all signs right now that they're moving forward sitting here in the month old the i think it's june
spk_6: it since ditched his way too early for us to give you some some clarity here we normally don't give our a good or guidance to september i think look one thing i can say about the government yeah it's it's it's not i don't think it's going to grow next year is is in is what i would say based on what we city bought it again it's too early to tell as the pie programs come in wheatley if they come in on the earlier side year we might be able to do that but i think given the afghanistan afghanistan withdrawals and what we're seeing on the budget side i think the government business it's you know as a segment will be tough to tough to grow on versus the say this year and in terms of a commercial business i i think yeah i declare rather for signs are positive and the growth as international come back you know given sort of the midpoint of your guidance and are they can get down and death is it reasonable to nail hi single digit growth into next year for the commercial
spk_23: oh of town it yeah that yeah i'm familiar with and call bed
spk_6: yeah i i i think that that's possible we need international markets to come back in and you know if she did should get should come whether or not it's gonna come on first six months to of twenty twenty two it's too early for for us to tell you me and i'll put the i think i think we eventually as you're saying and in the united states the market is starting to turn no unfortunately all get areas of the world like india i'm in india's close
spk_21: you know there there's just there's pockets of the world right now where nobody's doing anything minutes it's it's it's a lot different than what's happening in the us
spk_6: even canada
spk_21: you know surprisingly so are we have we have business operations of their in the it was just shut down so i'm that being said you know when you look at this thing on on a twelve to eighteen month basis this very positive signs and or salad or station business this this new contract that i mentioned to you
spk_24: you know what we're we're we're talking about hundreds of millions of dollars and you know when that comes you know it it's it'll come after we think the development part of the program but we we have to kind of work through that
spk_2: and with the competitive dying and there
spk_6: tom i'll let my competitors share their their aspects to it i get i can't comment and anything if you can talk about like you know how we should think about margin fear across the two segments
spk_25: you know if government kind of hang in there may be no growth that what kind of margin that we now expecting in that segment and curly the go know take them down relative to where we were before ah but you off this eight nine percent
spk_21: margin for the yeah yeah i think i think what we i think our focus of for this year was to get higher than ten percent just the the margins you know when we started the year i think
spk_0: it gives me as we will as we've witnessed would this shove you know sudden change by the by the government would withdraw the troops it is going to impact our goal i don't think we're going to do ten percent for just the he be done margins in in the segment so you may be closer to eight or nine percent i think when the nuts with issue so i think as again as i look forward to next year's i'd like to get us back
spk_26: to the ten percent that's the target bomb or commercial segment bomb you know we we we've done pretty well i'm each of the first recorders we've done north of seventeen percent a just that he would ah margins you know we start getting incremental volume on some of these large opportunities that we're talking about bomb it will
spk_6: come on you know normally when you do development work some such as customization or customer funding tie barn the margins on those initial programs or relatively low you get the benefit of production and you know that sounds a little ways off but in all again we're talking very large amounts of of hardware common great thank you next question comes from my my i'm north i'd this is other the on behalf of my blog demoed ah could you tell me are you facing any component shortages are your current business environment and if so how much impact as the timing on the goss margin or revenue
spk_2: sure we we are experiencing
spk_6: what i would call industrywide shortages we're not seeing anything specific to our sins more in the lead time
spk_26: but issue right now we're not saying on available and availability of parts were you know
spk_6: factory is barb one on fire and to some simply delays and getting parts so your some of the i'd results and inefficiency or facility as we just we build a product and we have to wait until though we could deliver it till we get the parts but the you know he has negatively impacted on gross margins i prefer not to tell you you know specific dollar amount
spk_27: a but it is impacting or margins which we hope will go on but you know we're doubling seeing increase the parts and and the miss similar to what you're you're reading about on the industry
spk_0: free for just another example mean for a cost in some areas of the world have trouble
spk_28: i'm bed and you know and we we we obviously just need to those think we obviously need to see those come down we hope that we're not new experience the cost in some parts of the world that we are saying right now we think that's part due to the shut down on availability of labor in certain parts of the world but yeah mean it's is real and it's out there or it or it on my next question would be the pennsylvania nine one one deal of can be expected to start contributing to the revenue from for you
spk_3: yeah you you we we are we are expecting some few for revenue from our our pennsylvania contract book but not a whole heck of a lot is it it's really going to turn on and and that's you for it or it's fine thank you once again as a star one question
spk_29: jeffrey
spk_28: as as column for george our next to the question what is the fee you can parse through the update the again for the full year of it more and with implied for queue for ah how much their guidance is now driven by the inclusion of you hp revenue and that for the step down versus the preview yes guide for the full year is that all related to the us government and kind of the budget update there are there other put in takes to consider another participant in enough
spk_30: hi girl in terms of the first question your with the u h b i would say the nominal amount in the year
spk_6: you're in terms of que for your second question it was mostly in the government's segment and i was driven by the recent changes that like was referring to earlier directory
spk_31: in the this is one kind of piggyback on the logistics constraints comment but i'm dimension kind of impact on gross margin but is there any way you can frame and you know what the rift may be to net revenue if
spk_28: the feed difficulty with the supply chain issues like of it in our percent of revenue a couple percent
spk_30: or not really that much of a of a headwind to our revenue as you can do next couple quarters
spk_28: yeah i think i think the way i would thus characterize
spk_6: the impact to save the rest of the sheer is really not on the revenue cyber probably on the margin side so you know within our guidance number you know what we were thinking it's going to be somewhere between seventy four and seventy six as if the component call as if the parts continue to increase or they don't disappear him a we might we might be on the lower side of that seventy four million but you know depending on that's how i would characterize the the impact it's not we don't necessarily seen on the revenue side it is really on the costs side were saying it's i think that our four and one last one for me
spk_2: this is regarding the timing and outlook of the got sales
spk_6: with the budget changes in associate head when the talked about harm or they persist in who are three twenty twenty two which seems to be the natural conclusion on the also mention the various next and programs and yeah he talked about the be a t to one but i'm sure there's others and wonder if you can add anything in terms of the time frame of those and when they will beep as a cynic come in are there any the could be there earlier than packing twenty twenty two or are these are kind of twenty twenty three and beyond yea it's it's it's it's it's a mixed it's a mixed answer come in a look we we we have these like would be a t three i guess which i have to start learning the new algorithm which is in the the thank you for the the be of t three program you know it's it's there and it's it's gonna be an initial development for oh graham that will take some time to to work with the government has indicated died shortly after completion of that work they intend to the issue production awards and so you know you simply do the math and you're talking about hundreds of millions of dollars of of production available so we could be in a situation where none of that occurred
spk_13: as and twenty twenty two or we get big orders and that's a twenty three revenue or we get the revenue and twenty two that's why we always say it's just too early but especially with the be of t the three love program a comet is another example palm comment
spk_6: we we were expecting again earlier in this year some some orders to come in like you for and this is a sort of a quick ship product so with the funding situation still not been fully clear yet yeah we're not expecting any orders for the product into force so not or think and to your points gonna carry overload of that into the school year two thousand and twenty two until things get sorted away but if comment order start to come quickly then you know then that will be a big benefit
spk_32: to to the to the bottom line i mean these are these were computer hardware products that we make in internally the got good margins and an uber seems very very strong interest both from the us government and and foreign customers
spk_33: both are jobless got a program is another example right now you know we we've been working with them marines with the program that we won with our partner
spk_0: some people have asked us time and time again while the other opportunity to go back to the us army and we said well as ultimate thought he only as on the diet
spk_2: the thing i can tell you right now as we not demonstrated the solution to the us army does very recently so we we we believe that there's a lot of upside for us what what in in our government segment despite the declining revenues that we we see today but at the same time it is just too early for me to tell you but when i
spk_0: sit back and i look at it as i asked the question earlier that kind of think our government segment of be flat it's gonna be tough to grow next year when i think about everything oh we'll see we'll see we'll see what happens it's gonna come down to funding and and whatever the government does will get clarity all that out of the next few months and more will

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