Comtech Telecommunications Corp.

Ladies and gentlemen, thank you for standing by. Welcome to ComTech Telecommunications Corps' third quarter fiscal 2022 earnings conference call. At this time, all 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 1 on your push-button phone. As a reminder, this conference is being recorded Thursday, June 9, 2022. I would now like to turn the conference over to Mr. Robert Samuels of ComTech Telecommunications. Please go ahead, sir.

Thank you, and good afternoon, everyone. Welcome to the ComTech Telecommunications Conference call for the third quarter of fiscal year 2022. With us on the call today are Michael D. Porcelain, President and Chief Executive Officer of ComTech, and Michael Bondi, Chief Financial Officer. I'm Rob Samuels, ComTech's Head of Investor Relations. Before we proceed, let me 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 the 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. Now I'm pleased to introduce the President and Chief Executive Officer of ComTech, Michael Porcelain. Mike?

Thanks, Rob. And I should also say welcome aboard. I hope that everyone on the call has had an opportunity to review this quarter's investor's letter, where I talk about our business in detail and offer our candid assessment of the road ahead for ComTech. Before starting the substantive part of our earnings conference call, I want to remind everyone that in Q2, we changed the format and framework of our quarterly earnings announcement from a press release to a shareholder letter. In the past, we have traditionally issued a quarterly earnings press release that summarized comparative financial results, highlighted a few contract wins, and included a quote or two for management. I thought the shareholder letter format was a better way to communicate with our shareholder base and analysts and provide prospective shareholders a better way to learn more about us. I also thought it provided a good forum to share insights into my thinking and the way I intend to lead ComTech. Since then, I've appreciated the feedback we received from investors and analysts. Almost all of them overwhelmingly liked the new format. Some of the feedback we received was that since the shareholder letter was substantive, we should allow a bit more time between its release and our earnings call. So we have taken that into consideration, which is why today's call is at 5 p.m. Eastern time rather than 4.30 p.m. its usual time. Also, it was suggested to us to just significantly shorten our prepared remarks and get to the question and answer portion of the call quicker. We agree with that suggestion, so our prepared remarks on this call will be a lot shorter than normal. As we start, let me echo a point I made toward the end of our new Q3 investor letter. It's hard not to be affected by the emergencies, disasters, and conflicts that confront us every day. Unexpected events demand our attention and response, and part of responding to them effectively means giving the right people the best information as quickly as possible. At a very basic level, it highlights just how important fail-safe communications and connections are. For our part, everyone at ComTech is continuing to do what we've been doing for decades, ensuring that all of our products and services work for our customers every time, all the time, no matter the conditions. ComTech is the company that connects people when it matters most, and right now I'd argue that fail-safe communications are as important as they have ever been. Now let's talk about our initiatives and updated guidance. This continues to be a transformative time at ComTech. We, like businesses everywhere, are confronting one of the most difficult operating environments in memory as the global economy struggles to find its footing amidst a pandemic, geopolitical conflict, surging inflationary pressures, and supply chain disruptions. Five months in as CEO, I've been dealing with these issues, but I can relay that we are making demonstrable progress in several initiatives vital to the company's future successes. These strategic initiatives include expanding our talent pool to bring fresh ideas, leveraging our market-leading positions to capitalize on new multi-year investment cycles, increasing company-wide collaboration to exploit emerging opportunities, and refreshing our corporate branding. We are also assessing our product lines and reviewing M&A and strategic opportunities to establish priorities and determine appropriate capital allocation. Our team is energized by the exciting trends and opportunities visible in our core markets, and we believe context technologies and customer relationship position us to capitalize on them. While the long-term prospects for our business are strong, the near-term economic environment promises to be challenging. Right now, the business challenges we face appear to be a combination of near-term supply constraints and timing issues. Importantly, none of them appear to be a function of softening demand. In fact, and as I'll talk about shortly, given our growing funnel, I believe the stage is set for sustainable multi-year growth. Given that the economic backdrop is more uncertain than it was earlier in the year, I've become more cautious with regards to our outlook and are adjusting our financial targets for fiscal 22 as follows. Q4 fiscal 2022 net sales are expected to approximate $123 million, resulting in expected fiscal 22 net sales to approximate $482 million. Q4 adjusted EBITDA is expected to approximate $11.5 million, resulting in 2022 EBITDA of approximately $38 million. This updated guidance reflects incremental research and development expenses and the removal of several identified and viable opportunities in both our commercial solutions and government solution segments that we no longer expect to occur in Q4. Inflation remains a big concern, and in some cases we are seeing component price increases from 10 to 20 times what we would consider normal. We've been successful in some cases to work with our customers to pass along some of these increased costs, but we've had customers push back given their own challenges. The conflict in Ukraine continues to have significant repercussions for our business. We continue with our dialogue with the U.S. government, NATO allies, and the Ukrainian government with respect to a formalized purchase of new troposcatter technology systems for Ukraine. Given their priority for weapons systems spending as opposed to communications spending right now, we continue to expect no meaningful bookings or sales for the rest of fiscal 2022. With regard to Russia, we are assuming no new sales for the foreseeable future. And like other companies, we are continuing to shift certain commercial software development and related support activities conducted in our Russian office to locations outside of the country. Our updated guidance reflects additional expenses of roughly $1.5 million for the quarter or $6 million on an annual basis associated with shifting these development resources. What we're doing at ComTech in the face of these challenges is remaining focused on execution, whether that's making the key investments in our products, people, and facilities that reflect and amplify our long-term strategy, or ensuring that on a day-to-day basis we are doing everything we can to accelerate sales, win business, ship products, and protect our margins. While we continue to work to drive improvements on a day-to-day basis, my greatest optimism for our business is grounded in what we see as a long-term secular investment cycle in our end markets. As part of my assessment of the business, I've been personally speaking with our customers and industry experts in both our satellite and 911 public safety space. Those conversations have convinced me context investments will pay off over a period that will last years. In the roughly five months since I took on the role of CEO, I've been making the changes necessary to drive day-to-day performance while simultaneously ensuring ComTech is in the best possible position to capitalize on the long-term opportunities our markets present. As we execute on these strategic initiatives, I believe we are on a three- to five-year journey where we will see meaningful progress along the way and creation of shareholder value. So far, I am incredibly proud of the work the entire ComTech team has done these past five months. We've delivered sequential quarters of growing revenue, gross margin, and adjusted EBITDA. We've done this despite fast-changing markets at a ComTech that is itself transforming, starting with our people. A key ComTech strategic initiative is to build out leadership and expertise in every area of our business, and that's exactly what we've been doing. I want to call out a few of the folks we've brought on board. First, during the quarter, we welcome Maria Hedden as our new Chief Operating Officer. Maria is a true operator and deeply experienced in overseeing multiple manufacturing and engineering organizations across the globe. Another key addition for us, particularly in the context of my commitment to improve shareholder engagement and communications, is Rob Samuels, who joins us as Vice President of IR and Corporate Communications. Rob is on the call today and will become more prominent and visible as time goes on. We also just announced that Tim Jenkins was appointed president of our safety and security technology product group, effective June 1st. Tim has extensive experience in the 911 business, and I look forward to his leadership and contributions to our business. Further, we strengthened the leadership team of our U.S.-based satellite-focused business line with the appointment of John Opolsky as a new divisional chief operating officer and Bob Pescatori as general manager of digital products. Finally, we recently welcomed Ken Peterman as a new independent director to our board. Ken's career spans over 40 years in the defense sector, and he has unparalleled credentials across a wide array of markets in both commercial and government satellite systems. These additions are part of a larger process that I announced at the beginning of the year to ensure we have the right team in place at ComTech. My goal is to ensure that our strategy, the organization, product portfolio, our board, and talent deployment all come together. I believe with the right people and strategy, we are looking ahead to a bright future underpinned by investments in our company and strong partnerships with our best customers. For example, just a few weeks ago, at the request of the U.S. Army, we conducted infield demonstrations of our troposcatter equipment in Florida for both U.S., NATO, and allied government customers. The demonstration consisted of end-to-end data communication links showcasing our small, medium, and large troposcatter terminals. From what I saw firsthand, no one in the world can do what we do. In the worlds of our potential customers, these demonstrations vastly exceeded expectations. And I believe there are long-term opportunities for our Tropiscata solutions here. We've also been working closely with a number of our current and potential customers and making strategic R&D investments to create or enhance designs for new applications of ComTech gear or to meet emerging requirements. Our customers know that ComTech is 100% committed to devoting the resources necessary to forge durable, long-lasting partnerships. A good example of such partnership is evident in the continued expansion of our role as a key vendor for a satellite network project undertaken by the Indonesia Ministry of Communications, providing critical communication coverage for unserved and underserved communities across Indonesia. It may be one of the world's largest satellite networks in the world, almost all of it connected securely with ComTech equipment. We take this ongoing partnership to be a validation of our technology and strategic commitment to gain market share in the global VSAT systems and solution market. While 5G infrastructure receives a lot of attention, the fact is there is a huge and unmet need around the world to provide cellular backhaul for legacy 4G LTE networks like the one in Indonesia. I believe we have the right people and products in place to be winners in this market. In our next Gen 911 public safety business, we were awarded a small service contract during the quarter to provide our Solicom Guardian call management solution to the London, Ontario Police Services. The London Police Service is our latest customer in the Southern Ontario region, joining the Toronto Paramedic and Toronto Police Services, both of which also recently awarded contracts to Comtech. And as everyone knows, we are performing significant statewide work in Washington, Pennsylvania, Massachusetts, Arizona, and South Carolina. Hopefully, it is clear that the ComTech here, despite the challenges we face, is performing well and demand for our solutions remain healthy and growing. Let me now turn the call over to Mike Bondy to discuss our financial performance in more detail, and I will come back and offer some closing remarks.