Q3 2020 Comtech Telecommunications Corp Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Comtech Telecommunications Corp, third quarter fiscal 2020 earnings conference call. At this time, all participants are not 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.
Darren and one on your push buttons on as a reminder, this conference is being recorded Wednesday June 3rd [laughter] 2020, I would now like to turn the conference over to Mr., Jason Dilorenzo of Comtech Telecommunications. Please go ahead Sir.
Thank you welcome to the Comtech Telecommunications Corp. conference call for the third quarter fiscal year 2020.
That's on the call today, our freight Kornberg, Chief Executive Officer, and Chairman of the board 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 on 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 in plans or 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, a cautionary statements contained in the company Securities and Exchange Commission filings.
I'm pleased now to introduce the Chief Executive Officer, and Chairman of the board of Comtech, Fred Kornberg Fred.
Thank you Jason.
Good afternoon, everyone and thank you for joining us on this call.
Let me start this call by saying if your words about the covert 19 and dynamic.
As you would expect our top priority engine for the pandemic has been to protect the health and safety of our employees suppliers customers and partners [noise].
Well, so I hope that everyone that is listening to the school is healthy and staying safe.
No doubt the current quarter was challenging and you could say it was a surprise to us on how difficult the quite a turned out to be.
The last time, we spoke was on March 4th 2020.
We discussed the modest effect on our Q2 performance due to the current <unk> Corona virus situation.
We felt we had a strong pipeline and that this situation from what we thought we saw was temporary.
Well we were wrong.
One week later on March 11.
Coronary Corona virus situation. It was characterized by the World Health organization as a pandemic.
Thereafter, there was a sudden an unexpected deterioration in business conditions caused by covert 19 throughout the world.
On March 31st just 20 days later, we withdrew our fiscal <unk> 2020 guidance.
[noise], although I can never has imagine what has occurred over the past few months. It had and we saw how our can come thick employees would rise quickly to the challenge.
I have never been prouder, our employees for their dedication and commitment to our customers and into our company.
I'm also exceedingly grateful for the trust our customers continue to place in context, leading industry technology and expertise.
And as you will hear about this cool I remain enthusiastic about our business.
Despite Q3 performance occurring through the worst part of the pandemic crisis. We stayed focused we generated a positive adjusted EBITDA and positive cash flow.
Oh business remains healthy.
Line remains fall.
Although my P. porcelain and Mike Van de will provide more details. Let me give you a brief overview of what happened during the.
30 Corp [noise].
The covert 19 pandemic really impacted our commercial segment satellite Earth station product line.
The most especially internationally.
Almost all travel was suspended and historically international customers likes to close deals.
With satellite Earth station or what is face to face as such this negatively impacted our sales in our order pipeline.
The covert 19 pandemic did not really impact our public safety or location technology product lines in our commercial segment.
If anything depend then again demonstrated the importance of reliable quality advanced communications equipment and infrastructure that is needed in 911 space.
Our customers continue to place Great Trust in us.
We didn't experience any outages in providing services and we supported state and local public agencies with flawless kinda continuity of of the nine month, one one operations.
We believe there's a market for 911 public safety and location solutions remain strong.
And we hope to announce some big remains very shortly.
Turning to the government segment markets, although we did see some fielding delays and what a slippage the pipeline for government customers, particularly the U.S. D remains very strong we won two important contract awards and received initial funding for prototypes and engineering services that I believe.
Really result, and multimillion dollars of revenues for the next several years.
We also demonstrated and received orders where I knew what we call comet product line the world smallest over the horizon Tropo microwave terminal.
The comment which has been using the making is a testament to our engineering prowess and we believe they come into a quickly become a much needed rapidly employable low intercept communications through for the deal with the for war fighter.
As you can see although we were negatively impacted by the virus, we feel without a diverse product lines. We can weather. This economic storms. We believe the long term fundamentals of our business remains strong as we continue without a strategic planning for the acquisitions of you lot and.
<unk>.
Now, let me turn to go over to Mike R&D, Our CFO will provide a discussion about third quarter financial results right.
[noise] [noise]. Thank you Fred.
Our net sales for the third quarter fiscal 2020 435.1 million.
From a geographic perspective net sales in the third quarter two U.S. based customers were 75.7% of total net sales were 24.3% to international customers.
Bookings for the third quarter were 137, and a half million and our consolidated book to Bill ratio was 1.0 too.
We finished Q3 with backlog of 640.7 million and when you factor in the total unfunded value certain multiyear contracts that we have received and for which we expect future funding we have visibility into approximately 1 billion dollars' worth of total potential future revenue.
How gross profit percentage in Q3 was 39.2%.
GAAP SJ expense in Q3 was 32 point threemillion or 23.9%.
Consolidated net sales.
Turning to research and development expense, we spent 12.3 million in the third quarter were 9.1% of consolidated net sales.
Oh, this amount 10.8 million well spend in our commercial solutions segment, and 1.4 million, let's spend and our government solutions segment with the remainder representing amortization and stock based compensation.
Total stock based compensation expense was $1 million for the quarter.
Q3 amortization of intangibles of 5.5 million.
Reflects a full quarter of amortization related to our January 2020 acquisition of CGC.
For fiscal 2020, we are expecting amortization to approximate 22 million dolls.
Such amount does not include the impact of depending you HP or go out acquisitions.
Our consolidated GAAP operating loss for the third quarter fiscal 2020 was 3.1 million.
GAAP operating costs include 6 million of acquisition expenses acquisition plan expenses and a half a million of estimated contract settlement costs.
Excluding these costs are consolidated operating income would have been 3.3 million or 2.5% of consolidated net sales.
Our adjusted EBITDA was 12, and a half million dollars or 9.2% of consolidated net sales for the third quarter.
On a segment level adjusted EBITDA in our commercial solutions segment was 11 and a half million dollars were 14.7% of related net sales and in our government solutions segment was 5.8 million or 10.3% of related net sales.
Now, let me talk about interest taxes E. P S cash flows and our balance sheet.
Interest expense was one and a half million dollars into third quarter.
Our current cash borrowing rate, which excludes the amortization of deferred financing costs approximates 2.25% to 2.5%.
Excluding pay $700000 net discrete tax expense, our effective tax rate was 31%, which is what we now expect for fiscal 2020.
GAAP net loss in Q3 was $4 million or net loss per share of 16 cents.
Excluding acquisition plan expenses estimated contract settlement costs and net discrete tax items in the quarter non-GAAP net income for Q3 was $1.2 million or five cents per diluted share.
Our balance sheet remains strong at April Thirtyth, we had 50 $50.6 million of cash.
Net of 159.4 million and our net leverage ratio was 1.93 times.
During the quarter, we generated positive operating cash inflows of $7.7 million.
Given covert 19.
We ceased providing specific financial targets, although it remains difficult to predict the timing of customer awards and related shipments. We do expect that our Q4 sales net income and adjusted EBITDA to be somewhat better than Q3.
Now I'll hand, it over to Mike porcelain, Mike.
Thanks.
As French stadium coffee 19 was president right from the start about third quarter and as a result, we experienced significant order delays lower sales and implemented a variety of cost saving measures. Let me give you some detailed color by segment and product line of what is happening.
Our commercial solutions segment achieved a book to Bill ratio 0.73, well bookings a 57.4 million.
Net sales in the segment was 78.3 million this quarter compared to 89.6 million last year decrease of 12.6% here you can see that our satellite ground station technology product line, which has historically required significant in person meetings to generate new business and finally shows orders has been most impacted.
By restrictions on business traveler.
Well, it's our recent deployment of new video sales channel methods and the partial resumption of business activities in some places around the world. We believe this product line has started to slowly recover as we enter Q4.
Importantly, we had been awarded multiple satellite ground station technology solution contracts to support several U.S. Department of defense end customers and we have received initial funding for these critical projects that we expect will generate revenues for 2021 and for several years beyond.
Oh are you S. government business was always important given the increased uncertainty in the international International business and commercial markets right. Now it is even more so here, we will position and recently announced two contracts first we announced a 1.7 million dollar order for engineering services to support the Datalink modernization.
Asian or deal Im contract by providing new advanced Satcom systems for the U.S. armies Gray Eagle unmanned aircraft system.
Under the development and prototype phase, we will provide advanced engineering services, including porting waveforms to the primes airborne and ground be satellite modems and supporting the stringent army cyber security requirements.
We believe this program will generate double digit millions across a number of years watched hardware and once hardware and the customer are ready for installation, which could begin to happen in fiscal 2021.
Second we were awarded a 4.7 million dollar contract for engineering services from a large prime contractor the supporting critical Air Force, an army and Jim modem or a three m. program under the U.S. space forces space and missile system Center.
Our equipment when delivered will provide the air force an army with a secure wideband any jam satellite communication terminal modem for tactical satellite communication operations.
In addition, it will support the U.S. space forces space and missile systems Center protected tactical we form technology and they Jim capability operating on military satellite communication terminals through the wideband global Satcom constellation.
The prime contractor, who is our current who is our customer was awarded a five year 500 million ceiling indefinite delivery indefinite quantity contract. The prime received an initial delivery order in excess of 30 million for the development and prototype phase.
Comtech will be a key subcontracted to this prime providing both engineering and hardware services like the am three contract I discussed once development is completed we expect to also receive significant multimillion hardware production orders in the future.
In addition to good visibility for more U.S. government satellite ground station business. We believe things are pretty good with our commercial solutions segments portfolio of 911 in location based technologies.
Although we've experienced some order and contract Finalization delays for new 911 on location projects. We do believe that the pandemic, there's only a heightened the importance of our solutions in fact during the peak of the pandemic crisis or secure highly reliable communication solutions, so unprecedented demand.
During the months of March and April and continuing into May or network supported over 400 million text messages per hour, what's just over two times normal usage.
Comtech has aligned itself with the Fccs keep Americans connected pledge and has agreed to provide our mobile network operator partners with ongoing an additional access to SMS text messaging at no cost ensuring that Americans did not lose their mobile connectivity as a result of these exceptional circumstances.
This decision did cost us a few million dollars a profit in twentytwenty, but we felt it was the right thing to do and then the long run fostered better relationships with our partners and help highlight the need for our critical technologies and reliability of our solutions.
As it relates to our next generation 911 technologies, we believe that demand for our solution remains strong and we are in the process of finalizing the number of large multiyear projects and remain optimistic that we will announce them soon.
We continue to expand our 911 product leadership and during the quarter, we announced in closed on an acquisition of LNG 911, Inc. a pioneer in providing next generation Nineone solutions to public safety agencies in the Midwest.
And you can 911 was a small distributor based in Illinois, Iowa, and Missouri, and maintain key customer relationships and local Noelle, we knew and Jeannine on on a long time as they previously partner was sold to come.
Given certain customers desire to have more support and the need to buy more product, we purchased them for less than a few million dollars right. After we purchased LNG 911, we were able to secure several multi year contracts valued at more than $15 million to deploying new call handling solutions in the Midwest we absolutely.
We think Angie 911 was a smart investment.
During the quarter, we also announced that we were awarded a five year contract valued at 9.1 million from a U.S. tier one mobile network operator for Fiveg virtual mobile location location based technology solutions, including public safety applications.
This 919.1 million dollar contract win is highly strategic as it further positions comtech as a leading supplier of location based platforms, which is a key enabler for fiveg.
You may recall that for more than one year, we have been repositioning this product line to focus on what we do best and we believe this contract when provides tangible evidence of the success of our strategy. We are working with at least one other major U.S. carrier and hope to announce another awards should.
We believe there are more opportunities for us not only in the United States, but worldwide.
Since our Fiveg location platform is fully virtualized cloud native and compliant with almost all major industry standards. It is ready for adoption not only in test environments, but the real world.
As such we are well positioned with mobile network operators on a global basis to help them build and operate their fiveg networks. In fact, we believed or at least 35 other mobile network operators that can benefit directly from our technology and our focusing business activities in this area.
[noise] or reposition location based product line also enables public safety to support new applications and use cases that fiveg is creating today and we ultimately expect to significantly benefit as Fiveg is adopted all in all we believe our public safety relocation technology products will benefit from strong customer relations.
Ships, a good base of backlog and growing opportunities and market conditions, while competitive and subject to state government funding for LNG 911, we believe remains healthy.
Now, let me turn to our government solutions segment.
Net sales were 56.8 million in Q3 and were lower as compared to last year largely due to the timing of them performance on orders related to our 98.6 million dollar you much Army global field support contract and satellite tracking and tenors and a high reliability <unk> satellite based space components.
Although this segment did experience Q3 order and shipment delays as a result of the Corona pandemic demand for almost all of our government's solution remains strong in fact, our government solutions segment achieved a book to Bill ratio of 1.41, where bookings of 80.1 million.
In particular, we should strengthen beside equipment that we sold to the U.S. government and we also saw orders for ongoing Sustainment services for several critical programs, including the snap and DFT one programs.
In addition, we continue to support the U.S. government cyber security posture and during Q3, we see large orders for its joint cyber and our analysis course, well Jay Jay Tack training solutions.
We're continuing to make significant efforts to win multi year awards for several large opportunities with the D that we believe bode well for the future.
Many of you know there is increased attention on space and Nasser is focused on going to the moon by 2024 in this regard we're proud that we can support this effort in fact, just yesterday, we announced that during our third quarter. We were awarded a 12.6 million dollar contract from a major U.S. subcontract.
For the supply of Triple lease space components to be utilized Natchez Artemus rocket launch program.
This program is intended to help NASA carry the first woman and next man to the Moon by 2024, we're excited to be part of this important program and expect more follow on orders in the future.
In addition, as Fred mentioned, we announced the Comtech comment the world Smallish over the Horizon microwave terminal terminal and received an initial order from the U.S. Special operations command.
Content come the concept comment is the first rapid deployable low power airline checkable over the horizon communication terminal, which uniquely addresses the so comes community concern of low probability of intercept and low probability of detection, what providing hiring a lot reliable mission.
Essential communication.
Given our success with the U.S. Marines Troposcatter program, we're very excited about this new product and we look forward to receiving additional orders and 2021 from both of these customers.
Finally during Q3, we mostly completed the integration of CGC Technology Limited CGC, which is based in the United Kingdom is a leading provider of high precision full motion fixed and mobile X Y satellite tracking antennas.
Although very small in revenues today. This acquisition adds another growth dynamic to Comtech and we are working with several top tier European aerospace companies and other government entities in particular in the Leo and any Yos satellite space.
All in all of those sales in this segment can be lumpy and difficult to predict we do believe our government solutions segment is well positioned for 2021.
Now, let me give you an acquisition update.
First let me start with you HP, which we first announced in November 2019.
You HP networks is a leading provider of innovative and disruptive satellite ground station.
Technology solutions.
The usage fee business, although impacted by the Corona virus remains a healthy business. In fact, you HP announced this afternoon that it's completed its fiscal year ended April 2020 with record revenue and record profits.
Nevertheless, given overall changes in business conditions and the economy, we were able to amend our agreement with you HP.
Specifically, you HP agreed to reduce the purchase price from 50 million to 38 million, which reflects a 24% price reduction.
Additionally, the original 50 million dollar deal at least 35 million was payable in cash.
In order to provide more balance sheet flexibility to contact our amended agreement now allows us to pay only $5 million and cash with the remainder in cash or stock or a combination at our option. When we close the U.S.P. transaction remains subject to customary closing conditions, including necessary regulatory approval in Russia.
I can tell you that we were very pleased that we were able to reach an amended agreement with you HB I cannot wait for them to be onboard and we look forward to attacking the market together.
Now, let me turn took a lot.
As most of you know Gilad provide satellite networking technology solutions and services with a presence in the satellite ground station and in flight connectivity markets and expertise and operating large network infrastructures.
Let me provide you with some comments relating took a lots business and the acquisition status.
I just got remains a public company I will simply repeat information that a lot itself has publicly reported about its financial results, including in a press release that was issued today.
The Corona virus into lots own words has significantly impacted to travel and aviation markets that isn't and has resulted in a slowdown in their business. They have experienced postponed orders and suspended decision making by customers.
A lot experienced a reduction in Q1 2020 sales as compared to Q1 fiscal 2019, and they incurred an operating and adjusted EBITDA loss for Q1 to fiscal 2020, which runs from January to March 2020.
One of the conditions to close the lot transaction is regulatory approval in Russia here, we can provide an update.
In May 2020, Comtech received notification from the federal Antimonopoly service or size of the Russian Federation that it was extending the review period for context application to purchase Gilad.
This extension is intended to allow the Russian government sufficient time to determine under the Russian federal investment law, whether approval of the lot transaction is required from the chairman of the Russian Government Commission for supervising foreign investments.
The Russian Government Commission is an inter agency group with the authority to review certain foreign investments.
Let me give you some more color.
If the chairman decides review by the commission is not warranted or application will continue to be processed by the Russian federal Antimonopoly service or Fas.
If the chairman decides to send it to the commission, we will need to fill out a second application and this process could take a number of months [noise].
I want to point out that given this regulatory process is ongoing and a lot remains a public company, we will not be making additional comments relating to this regulatory process or regarding other conditions to closing of the go a lot transaction, we will however update investors as appropriate.
Now, let me turn it back to Fred who will provide some closing remarks.
Thanks, Mike.
As I mentioned previously in these unprecedented times, we're very pleased with how we are performing.
You have an extremely dedicated and talented workforce and I'm confident that our current approach will support sustained growth for years to come.
We have a strong diversified customer base selling to government customers and commercial systems.
And having a good business mix and a diversified product line has protected contact in the past.
We believe it is a significant source of strength today.
We remain determined to extend our market leading positions in a friendly focus through achieved growth in fiscal 2021 as market conditions improve.
Given our business outlook our board.
Directors declared a dividend once more for the third quarter fiscal 2020 of 10 cents per common share payable on August 14, 2022 shareholders of record because of business on July 15th 2020.
We still continue to believe our dividend program has agreed to resign capital to our shareholders as we grew our business.
For the long term.
Now I'd like to proceed to the question answer part of our conference operator.
Okay.
[noise] as a reminder, if he would like to ask a question.
Sorry.
Touchtone phone.
If you find your question has been answered you may press the pound Keith.
Thank you.
We will take a question from.
Joe Gomes from Noble capital. Please go ahead.
Good afternoon, Thanks for taking my question.
On the Joe how are you.
Good we're doing well here you guys are doing the same.
Quick question on the next generation 911 last.
Quarter, you mentioned and also this one that you're in negotiations for some large multiyear orders.
I know, it's part of LNG 911, any acquisition you received a 15 million dollar order from Northern Illinois.
Is that one of the contracts that you're talking about you're talking about additional ones to that one also said, there's even a bigger target market out there that we're looking to get some awards from.
Yes. So that's a good question Joe that's not the other contracts that were referring to.
There's a number of contracts.
A very near to Finalization.
A couple of them or.
Certainly multimillion double digit millions in the high double multimillion dollar number range I can even tell you that during the quarter with the Corona virus, we had folks running around one stayed in the car getting signatures and that's how close it has to being finalized. So we we feel pretty good that things are going to get final.
Wise, but we need to get all the paperwork done and announced the contraction.
Okay, great and it sounds stake in Omnicom and.
You know again, you got the Marines the one in new now you're talking to the special ops have ordered placed an order, but last year. We had lost the army contract does this potentially give you the opportunity to go back there.
And maybe get some of the army business also.
I guess I answer though on.
The comment is really a.
What you could call a fineline choke.
Terminal, it's extremely small it's extremely a low power.
But very very employable in special ops operations, so, it's especially as it it's really a special product line.
That notwithstanding that it is almost equivalent to the.
Choke the large tropo systems that we have supplied in the past so to answer your question, Yes, I I certainly believe the comment will effectively be used by the army as they see the performance that.
But we will show, we actually demonstrated through and that we will show in actual field operations.
That's good news.
And one last one from me and I'll I'll jump back in line.
Again last last quarter, you guys had talked about.
<unk> expenses satellite Earth station that you couldn't get into offices and no. One was there to receive product et cetera, but still sounds like there's some of that going on but you Ben you know releasing a a fair number.
Awards lately.
And your press releases.
How close to normal would you think we offer the business at this point in time.
I think I think it's just starting I guess is the reopening is the way I would card characterize it.
Earlier in the quarter, we started to see some increased activity with China and you know China opened up first around the world, but there are many places around the world.
That are not placing orders right now.
There there are customers that are still you know closed but at the same time you know we are seeing we are seeing the pickup in activity and that's what's done that's what we're seeing and I guess I would say, it's a slow and I'd like to think we're in the early stages of that I I can't tell you right now is you're going to be a view recovery for us or.
You are now it's it's difficult for us to say that at this point, but one comment that I think we feel pretty strongly about is given the markets that we have strengthened the fiveg the cellular backhaul market.
And the types of end applications that we sell we do think that there theres going to theres, a tremendous need for them and on lets say you know although markets they should come back relatively quickly.
Great. Thanks for taking the questions.
We will take a question from Chris Quilty from Quilty analytics. Please go ahead.
Hi, guys just wanted to follow up on that comment product line was that a cots development internal development product line or did you have any customer funding from it.
No. It's it's been a totally developed by content trends.
Gotcha taken as a couple of years, but but we actually demonstrated it.
To the army into the Murray's just in the past few months.
And is there a separate contract vehicle that might be available for their product line or sense it something entirely new.
Do we perspectively have to go to some kind of along contracting and specification period.
Okay just be tag.
I think I think we're.
We're doing at the moment with the special forces, obviously, but I think both the Marines and the army have expressed interest in actually.
Before getting a a. I guess and ordering number to be a large program for the army.
And Chris importantly, and not to deemphasize. This point right now there is Oh, we think a very big market with the special operations Command and I think you know that they have ways to do business.
Our initial orders that were getting is true rapid acquisition mode. So through all the companies that have contracts that allow for quick turn communication equipment to be purchased so we're not seeing an obstacle or I guess is the main point here, there's not an obstacle is not having a contract vehicle out there there's ways that the government Ken procure this and.
They are doing so when we're talking to them about more orders.
Great and one other tropo related question.
Are you seeing any kind of a slowdown with your international customers given the fact that I believe.
So more many of those customers are dependent upon.
Energy markets for.
Funding a lot of their defence expenditures.
Certainly the international market.
It's very very similar to the satellite international market. We are seeing delays, we as Mike mentioned as I mentioned.
These are these are usually contracts that.
Good good placed with personal personal face to face meetings and negotiations. So I think it's very very similar to the satellite area in which it would Chris though to be it would be a mistake to use oil as the reason in the lower oil prices here to be the causes.
Delays, we think that these delays are strictly related to the Corona virus in the markets that we're serving most of our end customers are not in the oil producing side of the business. There's other companies out there that sells a lot of their equipment into it we don't our key customers are in the mobile network operation space. So you know.
Again, the over the horizon business that we previously sold to Algeria, we were wearing between phases of a contract. So it's not it's not oil was not driving any other delays for us.
At the moment.
Gotcha and.
Question on the Heights product line I mean.
Given everything going on I don't know that we should expect any developments around that product line, but any commentary on.
Customer acceptance.
They are on the historic product, where I forget the name of the new lower cost version.
Yeah, let's say, you're referring to the heights Pico aligned but.
I think it's kind of lumped into the slowdown that we're saying I think one of the things that we are hearing from our sales team is that it's allowing customers to test the product thought more so that is what's happening is this a lot of the folks that instead of actively rolling out networks are spending much more time testing, it which ultimately will bode well both good if those.
Nicole good so again I don't think is anything.
We have nothing nothing big to announce right now on the height stuff, but the opportunities are still there and you're just waiting for things to improve.
That's just switching gears over to the energy 911.
Area.
Lots of government money being thrown around are there any specific.
Government grants or outlays or whatnot that you can identify that might benefit your customers' ability to either expand or accelerate their purchasing decisions.
I guess I would say, there's a yes or no many of the projects that we're we're talking.
With with our end customers. There's this line on one John that already appears on everybody's phone Bill. So there is there is some 911 money on the other hand, we do recognize that some of the states that are out there are now a budget constraints. They spent a lot of money on Corona virus stayed there theyre, having some reductions of stadium.
Come tax revenue. So we're cognizant of that I think when we sit back and you know the feedback we're hearing from our customers is there's going to be most likely a federal infrastructure budget that will be passed and they'll have access to spend on the equipment and upgrades and things that will you know.
Still local economies. So if anything if an infrastructure bill is passed it will help solidify some things that are out there and also potentially get things moving faster upgrading nine on one equipment definitely increases employment definitely provides a tangible benefits it as citizens I think most everyone.
As you know continues to go through this pandemic, a and realize how important a 911 system is and if anything we think big picture is going to drive more money to the to the market.
I understand and final question you mentioned some cost cutting initiatives can you.
Help quantify perhaps where they fall.
Either by.
Government or commercial or just from a piano perspective, where these folks out of sales and marketing or was it more heavily on production side or evenly split across the board.
I would say, it's more broad based I mean, obviously as Fred and I. Both discussed our satellite Earth station product line bore the brunt of the Corona virus. So you'd assume that you know a higher percentage was in that group.
But we don't want to get into specifics.
And cost reductions during this time is not easy and it wasn't you know wasn't a phone activity to do but.
You know it was pretty broad based.
I understand.
Thank you gentlemen.
We will take a question from Mike Latimore from.
Northland Capital. Please go ahead your line is open.
Okay, great. Thank you.
On the 911 or any 911 Inc. acquisition can you just talk a little bit about.
The assets, you're acquiring or is it you know what technology, what sort of services are you getting there.
Yes, I mean, Didnt Angie 911 as we.
Mentioned in the prepared remarks is really it was a small distributor with local knowhow and local Knowhow means you know who who do you know and how do you get stuff done in the town.
And it also means you know where do you do the installations and what kind of the local system. So a lot of it was intangibles rather than our hard technology or hard equipment and that's why it was the you know I would say very nominal investment for us to make which words really resulted in.
Those those $15 million contract awards that we subsequently received.
Got it.
And I think during the quarter you.
Close some of your it looks like your Santa Clara facility for a few weeks I guess.
It is everything back up and running and then you know what kind of I don't know revenue affected that have a partner.
Yeah, I mean, it definitely did we certainly know from both production from both our production side and an order side, but.
We were going to Santa Clara announcement, I think came out that was one of the first counties in the United States to issue any sort of shutdown mode and eventually you know shortly thereafter I think about a week later the U.S. Department of Defense a issue you know this a essential definition company.
And that that's sort of overrode some some of these local ordinances. So I would say we lost a couple of weeks of production really.
So almost all of our facilities are impacted by the Corona virus in some way shape or form.
We were implementing solve quarantine that's off warranty work or separating people doing social distancing as we best can can implement them at the facility.
But I think also at the same time since order flow is suppressed at the moment, we've been able to accommodate that lower order flow and what not operating at full capacity that is certainly the case.
Okay.
And then you talked a little bit about I think some.
Push outs in orders from the U.S. government I believe.
But you know the demand is there the pipeline there I mean are you expecting a little bit more of a.
Kind of fiscal year end spike in kind of federal spending this year, we've done a project you're looking at.
Yeah.
In the short term yet some of the government bases that we do work on has actually made public announcements that they're not letting folks on live on the on the grounds into all these July 1st.
So you know again, there is an inability to do certain field support and services that we normally would we do so we definitely saw delays there.
But it's going to get shifted to the right and so some of that stuff is in backlog already we can't do some of the stuff is a government has money. It's not a question of money and at the end of the you know the government doesn't like to lose funded money. So what they're trying to figure out as the logistics behind how to do the work in every state and every county as its own.
Rules and regulations and now we're working through that with the customer but in short yeah. We do expect to receive some nice orders in Q4 of this year and we're expecting to do some deliveries in Q4 as well as continuing that in 2021.
Got it.
And then I guess since last one seems like there's been a lot more just text messaging activity given you know people staying at home communicating our hey, if any influence on.
Some of your kind of messaging business.
Yes, no doubt, we like I said, we had.
The messaging that we've been processing on our system is twice then what is normal and right right then and there there are some revenue opportunities for us that you know I would categorize in the millions and very high margin type work.
But in connection with the Fccs keep America connected pledge.
We decided that we don't want to pass on cost due to our cell phone mobile network operators, who were not passing cost onto the end user.
Trying to make sure that people had this very critical capability now I think what's happening as you start to see these reopenings and some people work at home some people come back to the office that number will probably dropped at some point, but I think most importantly, theres going to be increased messaging and there's going to be an opera.
Unity for us to get incremental revenue from these customers and most importantly, I think and it's something that I've always felt that text messaging is not is not a dead technology. It's a critical piece of the network infrastructure, it's going to be needed.
Around and it certainly proved its worth during this crisis and I guess I don't think it's going anywhere for a long time.
Great. Thanks, a lot.
We will take a question from Chris Sackey from singular.
Research. Please go ahead your line is open.
Hi, everyone just had a question.
I know I know you mentioned that that state there are running on budgetary issues.
I thought effect you guys at all I mean, how you dealt with that.
I I joke, we drove around the county.
This in a particular state to try to get some signatures. So.
Further funding obviously the stage need to provide funding to do 911 services. So it's a part of getting that order. We have seen some delays we don't have those orders at the moment, it's why we haven't announced them and hopefully those states will.
Deal with their funding issues and allocate their budgets and move forward with the projects and short term.
These these projects crush our safety orientated, so I think as you're seeing states sort of wind down.
You know the mobilization of hospitals, the the purchasing of these mass for health care responders and so forth I think you'll see a shifting of money back to the 911 space to try to get the the networks and computers ready for the next next wave.
Okay, Great and then.
Okay I know you can.
Okay from light on that but so for the commercial solutions segment, you're the book to Bill rates generally.
0.73.
Just as you know.
And on the current quarter.
You know can you guys give an idea or are all in the ballpark, where where this book to bill ratio might land.
For Q4, we think it's going to be higher.
Our satellite I satellite Earth station business, we'd like to get it back to a 1.0 on a trailing 12 months I'm. You know, we think it's a growth business market for us given the cellular backhaul requirements that mobile network operators have.
So this is a business that the book to Bill we would like to believe is you know one all three one on five on on a on a short term basis. So that's kind of where we'd like to go but obviously given the corona virus just things just didnt happen in Q3 show. The best I can say is we think it's going to be higher then then then it currency.
He was in Q3.
Okay.
Alright, well thanks, thanks to that.
Yeah.
Great.
And we do not have any further questions at this time I will turn back over to the speakers.
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Thank you again for joining us today, and we certainly look forward to speaking with you again in the fall to discuss our full year fiscal 2020 results. Thank you very much.
This concludes today's program. Thank you for your participation you may disconnect at any time.
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Dave.
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