Q2 2021 Comtech Telecommunications Corp Earnings Call
Okay.
Yes.
Ladies and gentlemen, and thank you for standing by and welcome to contact Camilla Telecommunications Corporation second quarter fiscal 'twenty 'twenty One 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 one on your push button and phone.
As a reminder, this conference is being recorded Thursday March 11th 2021.
I would now like to turn the conference over to Mr. Jason Dilorenzo of Comtech Telecommunications. Please go ahead Sir.
Thank you and good afternoon.
Welcome to the contact Telecommunications Corp.
Conference call for the second quarter of fiscal year 2021.
With us and the call today are from his home Fred Kornberg, Chairman of the Board and Chief Executive Officer of Comtech and at our corporate headquarters.
Michael D porcelain, President and Chief operating Officer and.
And Michael Bondi, Chief Financial Officer.
Before we proceed I need to remind you of the company's safe Harbor language.
Certain information presented in this call will include but not be limited to information relating to the future performance and financial condition of the company.
The company's plans objectives and business outlook.
And the plans objectives and business outlook of 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.
I am pleased now to introduce the chairman and Chief Executive Officer of Comtech, Fred Kornberg Fred.
Thank you Jason and.
And good afternoon, everyone and thank you for joining us on this call.
Today, we will be discussing the results for our second quarter of fiscal 2021.
And our outlook for the full fiscal year.
As you see from our announcement this afternoon.
And quarter of fiscal 'twenty one.
And as our business expectations.
Our second quarter net sales were 161 3 million with an adjusted EBITDA of $18 1 million Boe.
Both of which exceeded our expectations and prior guidance.
In addition, we are targeting fiscal 2021 sales to be and the range of $610 million to $620 million with an adjusted EBITDA and <unk>.
Range of $74 million to $76 million.
Although the pandemic is by no means over.
We continue to believe that the worst impact and our business is largely behind us.
And our strategic initiatives are paying off and we are.
We're clearly holding our own.
Our pipeline remains strong and if business momentum continues as it is we anticipate a book to bill ratio and fiscal 2021 to be in excess of 1.0.
Moreover, although we are only halfway through fiscal 2021.
We are already excited about fiscal 2020 two.
As an overall domain.
And remained strong and we believe we are seeing a number of increased opportunities.
Some of them very very large.
In simple terms, we have the right products and the right technologies.
The issues from COVID-19, fade away as we expect them to fiscal 'twenty 'twenty two.
I'm a banner year for Comtech.
Now, let me turn the call over to Michael Bondi, Our CFO, who will provide additional commentary about the second quarter performance and business outlook.
After that Michael porcelain, our president and CEO will provide an update on our business, including our exciting acquisition of UHD.
Which we were able to close this month.
Then I will come back before the opening.
Your line to the questions and answers.
And <unk>.
Thank you Fred and good afternoon, everyone.
As mentioned, our net sales of 161 $3 million and Q2 were similar to what we achieved in last year's Q2, and was $26 $1 million higher and what we achieved and our first quarter of fiscal 2020 one.
Of the $161 $3 million of sales 78, 1% were to U S based customers and 21, 9% to international customers.
Yeah.
Bookings for the second quarter were $215 $8 million and our consolidated book to Bill ratio was 1.34.
We finished the quarter with healthy backlog of $660 million, which represents a growth of about 9% since Q1.
And when you factor in the total unfunded value of certain multi year contracts that have been awarded to us, but which are not yet and our backlog we have visibility into over $1.1 billion.
Our potential future revenue.
Our gross profit percentage in Q2 of fiscal 2020, one was 34 and 5% as compared to the 37, 5% achieved in the second quarter of fiscal 2020 the.
The year over year change and gross margin was largely expected and reflects the period to period decrease of net sales and our commercial solutions segment, which historically achieves higher gross margins and our government solutions segment as well as the ongoing impact from Covid.
Given all events and expected level of sales, we continue to target a consolidated 35% to 36% gross margin percentage for fiscal 2020 one.
SG&A for Q2 of fiscal 2021 was 29 and a half million dollars or 18, 3% of consolidated net sales as compared to $29 4 million or 18, 2% and Q2 of fiscal 2020.
Our Q2 reflects a full quarter of expenses from our CGC acquisition, which closed last fiscal year on January 27 2020.
And Q2, we incurred $600000 of restructuring costs related to the relocation of production of certain of our satellite Earth station products to a new 146000 square foot facility and Chandler, Arizona.
We expect another $600000 of such costs in Q3, and and another $900000 of costs in Q4. These costs may fluctuate a bit.
Turning to R&D, we spent $12 $7 million and the second quarter or seven 9% of net sales representing a decrease of $1 million from last year's Q2 the.
The majority of this spend was in our commercial solutions segment.
Total stock based compensation for the second quarter was $1 3 million and amortization of intangibles was $4 $8 million looking forward. We continue to expect stock based compensation to approximate 11 million to $12 million.
Given the closing of the BHP acquisition on March <unk>, 2021, total amortization of intangibles and Q3, and Q4 is expected to approximate $5 million per quarter, resulting in expected fiscal 2021 intangible amortization of approximately $21 million.
Our consolidated GAAP operating income was $5 4 million for the second quarter of fiscal 2020 one.
GAAP operating income reflects the incurrence of $3 $4 million of acquisition plan expenses as described in our 10-Q. Most of these expenses relate to lingering litigation from a from our acquisition of the Gd and G 91 business, we expect to incur several million dollars of costs during Q3, 2020, one and we hope this matter will.
Be resolved by the end of our fiscal 2021.
Our adjusted EBITDA was $18 1 million or 11, 2% of consolidated net sales for the second quarter of fiscal 2021.
Adjusted EBITDA and our commercial solutions segment was $16 2 million or 18, 5% of related sales and in our government solutions segment. It was $6 6 million or 9% of related net sales.
For fiscal 2020, one we anticipate our consolidated adjusted EBITDA margin to approximate 12%.
Now, let me talk about interest taxes, EPS cash flows and our balance sheet.
Interest expense was $1 from $1 $4 million and the second quarter for fiscal 2021, we expect total interest expense to approximate $7 million.
Our annual estimated effective tax rate, excluding discrete tax items is expected to approximate 17%.
On the bottom line, our GAAP net income and the second quarter of fiscal 2021 was $4 $2 million or a 17.
Income per diluted share.
Excluding acquisition plan expenses restructuring costs, COVID-19 related costs and a net discrete tax benefit of $800000 and the second quarter non-GAAP net income was $6 8 million or 27 cents per diluted share.
Cash generated by operating activities was $10 $9 million for the second quarter.
As we said on earlier conference calls, we expect to generate a significant amount of positive operating cash flows during the remainder of 2021.
Our balance sheet as of January 31, 2021 includes $39 million of cash and cash equivalents and our total debt outstanding was $208 million.
With the reduction of our debt since Q1, our current secured leverage ratio as defined in our credit facility was three times.
Finally, let me provide the cadence of revenues and EBITDA for the rest of the year based on what we think today.
Because of the overall impact of COVID-19, and the second Spike that occurred in December we did experience some shifting of anticipated orders from Q3 to Q4 and some into fiscal 2022.
As such we still expect our Q4 to be the peak quarter of sales for the year.
Further we continue to be mindful that additional shifts could occur as reopening plans from country to country change.
Based on current thinking we anticipate third quarter net sales to approximate $140 million with adjusted EBITDA to approximate $10 million with Q4 results filling and the rest of the year.
Q4 is expected to be the peak quarter now I will hand, it over to Michael gross.
Mike.
Thanks, Good afternoon everybody.
We are really pleased with our Q2 2021 business performance and as Mike Just said and the early December 2020 period. The World did experience a spike of Covid. This second wave impacted many of our international and customers a number of whom purchased our satellite Earth station and technology products had this second wave not hit we.
Actually believed that Q2 bookings could have been significantly higher than the amount we ultimately reported.
As a result of the second Spike we continue to conduct most of our global non production related operations using remote working arrangements curtailed most business travel and we have maintained social distancing safeguards and our workplaces.
And so several anticipated large projects and our government segment were delayed and have shifted into fiscal 2022.
Covid also significantly impacted our operations and the United Kingdom, forcing the complete closure of our antenna design and manufacturing Center in December 2020. This facility is now reopened and beginning to resume normal operations.
Although the COVID-19 pandemic is by no means over and additional ways could occur again, we believe the growing COVID-19, vaccination inoculations will lead to improved business conditions.
The reopening of the World economy does bode well for us for the rest of fiscal 'twenty, one and perhaps more importantly, we believe it bodes well for fiscal 2022.
And we believe our long term fundamentals remain strong and as I will explain we continue to think that both of our segments are well positioned for growth.
And our commercial solutions segment net sales were $87 8 million this quarter and it was a great quarter for bookings.
We received the orders aggregating $179 1 million, resulting in a book to Bill ratio of 2.04 for this segment.
The quarter included $111 $6 million of initial bookings for a contract valued up to $175 1 million to design deploy and operate next generation 911 services for the Commonwealth of Pennsylvania.
This contract was awarded to US shortly after the Q4 2020 receipt of a $54 million contract to design deploy and operate and G 911 services for the state of South Carolina.
Based on our anticipated timing of performance, we expect meaningful revenue contribution from both of these contracts to begin in fiscal 2022.
Clearly, we believe we are seeing positive momentum and our public safety and location product lines. Although Q2 2021 sales were lower than last year's Q2 sales as we work through a previously announced transition of AT&T and 911 wireless Colorado solutions business prospects are clearly Brian.
To date, the business impact of COVID-19 on our public safety and location technology solutions has been relatively muted and addition to the 901 contract for Pennsylvania. We received several other notable orders in Q2, including a $2 9 million dollar award to provide next generation 911 <unk>.
Officers, including sodium Guardian call handling software so the Toronto Police service supporting the largest 911 center in Canada, and one of the largest cities and all of North America.
Toronto is the latest customer to join and solar farms growing customer base, and Australia, Canada, New Zealand and the United States and we are pleased with this international expansion.
<unk> Com is not our only product line doing well we have received several location based service orders from mobile network operators, including a one year contract value up to $1 6 million to provide hosted location based services known as lbs platforms. If we all.
Also received two other location based orders aggregating $2 4 million from two other mobile network operators. We are building out various situational awareness data products for our 911 customers and are working on a number of exciting initiatives and the public safety cyber security area.
Stay tuned as we look forward to making future announcements in this area.
Now, let me turn to our satellite ground station product line, where things remain challenging we're looking better.
Net sales and this product line during Q2 were lower than the comparable three months of fiscal 2020. This product line continues to be impacted by the pandemic effect on international customers, which represent a large majority of end users for this product line.
However, at the same time, we experienced an increase and total bookings for this product line as compared to Q1 fiscal 2021.
We benefited this quarter from 11 4 million and orders from the U S. Naval information warfare systems command for our latest generation and 50 650 D satellite modems and firmware upgrades.
We also received a $1 $6 million follow on order for K E band solid state power amplifiers that your state of the art gallium nitride technology for inflight connectivity applications.
We also received $1 5 million and orders for satellite modems and optimization equipment from our North American communication service provider.
And finally I am pleased truly pleased to highlight that on March 2nd 2021, we completed our acquisition of UHD networks, a leading provider of innovative and disruptive satellite ground station technology solutions.
As we've said before we believe you hps developed a revolutionary technology and it's transforming the growing very small aperture terminal or VSAT market. This acquisition closed at the very start of our Q3.
And with end markets for high speed satellite based network significantly growth. We are excited to extend our product offerings to include their TDMA satellite modems.
The feedback we are hearing from customers has been extremely positive and initial UHT orders are starting to come and nicely.
In aggregate our commercial solutions 2021 sales look like they will be similar to fiscal 2020 sales, but are shaping up very nicely for 2022 now.
Now, let us turn to our government solutions segment, where sales were $73 5 million as compared to $65 5 million and Q2 of last year book.
Kings and our government solutions segment came in at $36 $6 million with a book to Bill ratio of <unk> five.
And as everyone knows period to period and fluctuations in bookings and normal for this segment.
Net sales of both our mission critical technologies and our high performance transmission and technologies were higher this quarter.
During the quarter, we benefited from performance on orders related to high reliability satellite based space components, and cyber security training solutions and ongoing performance on a contract to provide next generation Troper SCADA systems and support of the U S Marine Corp.
During the second quarter, we did get a small benefit from the inclusion of a nominal amount of sales and that is why antenna products that we now offer as a result of our January 2020 acquisition of CGC technology.
Notable new orders and our government segment. During this quarter include orders of $11 5 million related to a new multiyear contract valued up to $235 7 million to provide ongoing system refurbishment sustainment services and baseband equivalent to the U S Army.
This new $235 $7 million contract will support the Sustainment of the U S Army snap family of ground satellite terminals to include spare parts repairs and upgrades Refurbishments logistics and engineering services and training.
And this multi year contract includes a base year award and three one year option periods ex us exercisable by the U S. Army, we expect that additional funding will be authorized over the remaining contract period.
During Q2, we also received $4 $2 million of orders from the U S government for a joint cyber analysis cost training solutions, we received three and a half million of contracts, where solid state high power and RF amplifiers from a major domestic medical instrumentation provider we have.
Received a $2 $8 million contract for high power amplifiers from and international Prime contractor to be incorporated into the electronic warfare systems and we also received a $2 7 million dollar contract from an international oil and gas company, which will provide the first over the horizon and truckers got a system for a floater.
And liquefied natural gas facility utilizing our troper scatter and see US 67, plus radio modal.
Understandably, we believe COVID-19 has resulted in some of our international and military customers in this segment delaying potential orders and as Mike said, they have shifted fielding schedules from fiscal 'twenty, one to fiscal 'twenty two.
At the same time, though we continue to see strong interest from both the U S military and foreign governments for our recently introduced Comtech common terminals the world's smallest deployable troper scattered terminal we are really excited about the future prospects of this product line.
All in all fiscal 2021 net sales for our government solutions segment will be similar to the amount we achieved in fiscal 2020 and prospects appear to be brightening, and we're focused on making fiscal 2020 to a great year for this segment.
Now I will give you an update on some current actions that we're taking to improve our long term adjusted EBITDA margins first and our government segment. We are embarking on average that include the consolidation of certain administrative and operating functions and both our Florida, and Maryland, Maryland locations and the elimination of certain duplicate functions.
Yeah.
In connection with this consolidation and we intend to increase our marketing and R&D efforts with respect to providing integrated satellite solutions. These integrated solutions are anticipated to include everything from our best in class TDMA and S. CPC modems are high quality solid state power amplifiers and our recently.
Acquired XY antenna product line that can be used by the U S government and other large government customers.
It also includes focus focusing marketing efforts on our <unk> product line, including the comment as I said earlier, the world's smallest deployable drove scattered terminal.
We have been setting the stage for this for quite a while and we hope this multi year initiative will start paying dividends at some point during fiscal 'twenty two.
And our.
Social solutions segment, we expect to continue shifting production of many of our key satellite Earth station products from our existing Tempe, Arizona and location to a new 146000 square foot facility in nearby Chandler, Arizona.
This new facility, which is located less than 10 miles from our current facilities and is expected to support our anticipated growth and the long term business goals that we are trying to achieve for our satellite Earth station product line.
And by streamlining and modernizing our operations over time, such efforts are expected to improve adjusted EBITDA margins and will allow us to support large volume orders that we believe are coming down the pike.
With that said, let me turn it back to Fred who will provide some closing remarks Fred.
Thank you Mike.
As I mentioned before and very pleased with how our business is performing.
As we and third quarter of fiscal 2021.
I believe we are on track for a very respectable fiscal year <unk>.
Everything that is going on and as well.
Further we are looking forward to a strong prospects and fish.
And 2022.
Including the additional opportunities with you HP will bring.
With their TDMA product line.
Given our business outlook, our board of directors declared a dividend for the second quarter of fiscal 2021.
10%.
Common per common share payable on May 21, 2021.
Shareholders of record at the close of business on April 21, two.
2021.
Now I would like to proceed to the question and answer period of our conference call operator.
Yes.
At this time, if you would like to ask a question. Please press star and one on your Touchtone phone you may withdraw your question and at anytime by pressing the pound key.
Again as a reminder, please press the star and one.
Yes.
And we will take our first question from Matt and Mike Latimore. Please go ahead. Your line is open.
Yeah, congratulations on the great results there.
I guess.
Mike you mentioned that.
You're expanding capacity and Erin <unk>.
Alrighty and in anticipation and maybe some large orders coming down and I guess can you just elaborate on that a little bit what product areas and that yet.
Yes, I mean, we are bidding on and as you mentioned and our last conference call and a number of large opportunities with several customers some new and some existing and obviously this is a multi year type of thing and things that you can read about in the newspapers and so forth like that but we do see.
Our current product line with our CPG modems, the the big shift going to five <unk> and the international market the launching of Leo satellites around the world yet you add these trends up and we just see a lot of opportunity over the next few years.
Got it.
And then.
The.
And the 901 category next year, and I don't want and I guess do you have other good.
Good sized prospects for kind of next gen and I want to windows.
Yes, we do we've been waiting on one particular opportunity that we've talked about as being a large large opportunity that's out there that we feel pretty comfortable that.
You know, we will get where we're really just waiting for the customer to work through.
Legislative funding that they need to do on their side. So that's a contract we ultimately expect to get I would say sooner rather than later, but you know obviously it hasn't come yet, but we think that that's on the horizon and yes. There are a number of bids out there that we are actively working on that.
Hope that over the next 12 to 18 months that we can report some good news on <unk>.
Yeah.
Okay, Great and just last one I guess on the 911 business.
Kind of as you've added a number of large contracts maybe add some more and then kind of by it and I guess by the December timeframe, you'll be lapping the effectively lapping the AT&T deal. So I guess and what kind of growth rate do you think this kind of normalizes to over time here.
Okay.
And it's you know when you use the word normalize and and you know you spread that over a number of years. It could be you know maybe in the mid to high single digits.
But you know the business is lumpy you get a contract out to do some work and then you get straight line for awhile. So aggregate each contract you. The revenue base will grow I don't know if it translates into specific annual growth growth rate, but you know the numbers that we expect to achieve we'll hopefully grow that product line.
You know over the course of a number of years.
Okay, great. Thanks, a lot.
Our next question will come from Asia and Martin. Please go ahead. Your line is open.
Great. Thank you very much and congratulations on the quarter as well.
Fred mentioned like a banner year shaping up versus 20 and the next.
Per year.
And you guys. Obviously are embarking on a bunch of cash that you guys already talked about should.
Should we expect revenue to exceed where they were back a couple of years ago, and you know even before the pandemic and guides for talking about somewhere in the range of 10, and 15, seven and 20, melia and maybe even a bit higher than that.
Or.
And the bank now.
Is it fair to assume that you get hungry and argue and.
And by our <unk> acquisition, as well, which should contribute a little bit now.
Our revenues breakdown could approach the double.
Oh Boy I hope, you're right, but I would say to you look it's very it's very early and it's you know we will.
We're seeing just what we believe to be the start of the reopening.
In the United States.
And Europe, you know for the most part from what we see still is significantly closed and areas and economic activity remains suppressed you know there are definitely some terrific signs.
You look at the first six months of this fiscal year, we had a year over year, 18% in total bookings increase.
So we're seeing good signs of it Q2 was nice.
And at the same time, we've seen things shifting around so I think.
Take care of as we want to see how the next six months play out this year, but from every sign we are seeing 2022 is looking good and it certainly looking better than 2020. One I think that statement, we feel good to say, but we're not going to put numbers on it yet it's just way too premature.
Great and then you guys talked a little bit about.
Expansion and from all the efficiencies that you are driving towards.
Can you level set making after hitting margin where they are and.
Fiscal 'twenty, one and how we should think about and higher revenue run rate.
The EBITDA margin.
Yes look I mean right now we do believe margins can be approved if you. If you look at what we did back in 2019 I would say that that's the next step we got to get back to so no matter. What the revenue is we'd like the margin to kind of go back to at least the 2019 level, where we had increase in revenues and increase.
Margin, we think we can do better than that but it's going to take some time and me and we're going to work through the facility move and the second half of the year and in the streamlining of our efficiencies and our government segment and you know as we think about again next year and you know the hope is between incremental revenue and higher.
Better margins, yes, we think well I'll use my phrase we'll think we'll have a banner year next year, but the number we're targeting is higher than the 12% ourselves and we expect to achieve obviously and you know from.
From that perspective, but again.
These things are complicated and.
And we're going to do things at a relatively slow pace, but.
What we're hoping and get back to margins and we'd like to that we liked that first step to get back to maybe the 13 and 14% range is the first step that we'd like to achieve.
Mhm.
Okay and then.
And anything between them.
Thank you and what it's called <unk> guided down and at least sequentially.
No.
And it's been like an up quarter and you guys that maybe there is something in terms of whether it's demand or revenue that got pulled into the fiscal 'twenty versus fiscal <unk>.
Yeah.
And the way we're seeing this year and again, we've always said you know, it's very difficult to compare our business.
But at the end of day, if you look at the mid point of our guidance our fiscal year from the most part is going to be very similar to last year in terms of Q2 Q3 last year in Q3, we did $135 million of total revenue and you know Mike Mike said here, we're going to do about 140 <unk>. So.
It's really just timing the we had a big shift in fielding schedules and the U S government and Q2 of this year go into Q4, and some shifting into next year. So at the end of the day, it's really timing.
Okay.
Okay. Thank you.
Okay.
Okay.
Again, if you would like to ask a question. Please press the star and one.
And we will take our next question from Chris Sakai. Please go ahead. Your line is open.
Hi.
Alright, well instead of a quick.
A question I know.
Mike went over what QC net sales to be $140 million and then with the EBITDA was that I didn't get the last part what was that.
And.
Along with a 140 million and we're expecting EBITDA to be about $10 million and Q3 and then.
Yeah, we're holding for the year at the 75 million, so obviously everything shifts into Q4.
Yes.
Okay.
Alright, great and then let's see.
I just wanted to get a sense of.
The UHT acquisition.
I mean, how much.
Hey, guys. Thank you and contribute to revenue right off the bat and and how many is going and taking into 2020 two to really start to see things.
Yes, I mean, obviously, it's not it's not a material enough number for us to talk about and given the nature of the competitiveness of this market.
We're not going to give out a number.
We can tell you that this has been a longtime coming of you might remember we announced this acquisition first in November of 2019, So it's been more than a year plus customers are waiting for this thing and finally, another comtech has closed on the acquisition, we can start talking to our <unk>.
Customers about what the Roadmaps are and how things are going to be fit and now that we know that we have actually closed the transaction. So I can tell you the reception from our customers is very well received.
Initial orders have started to come in based on people just wanting to move forward UBS and Uhm. If you look at some of their prior announcements that they put out by themselves I would refer you to those announcements for what's out there and the marketplace, but yeah. We think it's going to add certainly year over year growth to that product.
Line, and we're delighted to have them.
Okay.
Great.
And then.
I just wanted to ask a question about so for instance, just.
And now the <unk> 911 contract with the Toronto Police Department.
I wanted to see so what you mentioned and the maintenance period.
And for how long is that and then.
And when would you expect a renewal there with them.
Chris I'll take that those contracts tend to be the first year like and an implementation year, where youre putting in the equipment and then use you'll have a tail of maybe two to three years and you know as we always say once you get there the cost of switching is high so youre likely to get the optional renewals from the <unk>.
Customer so, but I believe that contract is at least a two to three years.
Oh, okay.
So I guess as far as the renewals go I mean is it and the ones that you've already had what's the percentage and the percentage of them renewing.
It's pretty high.
You know we've been.
Telecoms and part of Comtech for a couple of years right now and to be quite honest with you I'm not sure we've lost a contract and renewal since I've been here.
So, it's it's definitely probably close to 100%.
Maybe there's a few small funds, maybe that and not even aware of but you know our customer retention rate nearly has to be 100%.
And we're certainly picking up market share as you can see based on this recent win and in Toronto and in some of the.
Awards that we've gotten over the last six months so.
Pretty high.
Right.
And last one I guess I know you guys fine.
To begin with the army.
Do you see any sort of anything.
Anything like that and the future.
Moving on.
Yeah, there's a number of programs that we're working through again.
The army programs are very difficult to predict.
Nothing to report to you today and stay.
Stay tuned.
Okay, alright, great. Thanks.
Yeah.
Our next question comes from Joe Gomes. Please go ahead your line is open.
Yeah.
No. Please go ahead. Your line is open from noble capital.
Thank you let me add my congratulations for the nice quarter and also.
Just real quick back and we could circle back for a minute here and you H P.
You Werent able to get the Russian assets. There I was wondering if you could give us just a little color on what happened there because that would seem to have been there.
The large hang up for the approval process for acquiring the entire company was something that in the past you had said you really wanted to get those assets. So if.
If you could talk a little bit about that I'd appreciate it.
Sure.
And from the day, we first announced it in November of 2019. The main part of UHD was based in Canada and that clearly was the gem of the company at the same time, you know, we hey, we'd love to expand sales and in Moscow. So you'll have to go through a regulatory approval process and.
And in Russia to do that and at the end of the day as you kept seen in our press releases Boy and short took a long time and you know we came to the conclusion sometime in December and January of this year that we don't want to wait anymore.
We've been waiting for a long time, Covid certainly delayed things you know.
Everything from their Prime Minister, who unfortunately develop the COVID-19.
Covid thing I mean, you can name and one thing after another but we ultimately decided let's move forward with the transaction that we have now.
We obviously as we said in the press release, we have the right to market into the <unk>.
Region, and Russia and.
And we expect to do really well and so at the end of the day, we just really don't want to wait anymore, we want and move forward and move all of our business plans.
Okay and another that is complete.
You know what does the acquisition pipeline look for you guys are you.
And have pulled back here and let's just focus on what we've got or are you still out there looking for additional opportunities on the acquisition front.
I think we're just at this point I'd say, our primary focus right now is to execute that.
And Thats, what I would say we have so many good opportunities internally that we see and and given the move in and the AR.
The streamlining of operations that is our immediate focus.
From a from a large acquisition do I do I expect us to do you know a $500 million acquisition tomorrow, no or there are some other smaller type things that are out there that we're thinking about and talking to yes, but that's the way I would describe the way we're thinking about it.
Okay, and one last one kind of a.
Big picture here.
Yeah, Michael maybe you could talk a little about Fred you too. If you wanted to I mean, you started off saying you believe the worst of Covid is behind us.
But then.
And your commentary you mentioned, how you continue to see stuff shifted to the right.
And the press release, you talk about you did because of Covid you weren't going to provide some types of guidance and everything. So I was just trying to square that circle. So to speak if if the worst is behind us and why why are we still seeing.
Some of these things being shifted or is it just.
And.
Near term our impact of lingering out so to speak of Covid, but as you mentioned you know the.
The orders are coming and strong.
This book and look for more a little more color or detail there. Thank you.
I think let me take that one.
And I think what we've seen.
A lot of shifting to the right and what does that mean, some shifting into the third and fourth quarter. Some shifting is actually into fiscal 2020 two.
Besides the shifting of the requirements. There is also a.
And actual request by some customers just not the ship.
Even though we have some orders that we could ship, we can't ship customer doesn't want it and so there's multiple reasons out there because of Covid are.
Various customers taking various positions.
Now we think we think the COVID-19 situation.
Should be over and hopefully this this summer.
Just on the vaccines being available and hopefully the world will get inoculated and go back to normal.
Could that happen and.
And and in a short period of time with we hope. So we certainly don't know we don't know could there be another spike yes, they could but for the moment, what we see.
As we see a start of at least dialogue and.
And this dialogue and various programs that were just shut down during that period, specifically the international area, where it's just impossible to do any business and that's where our satellite business with with mainly.
Operating and and I think having having you know that's hopefully solve that will put us hopefully back into at least the 2019 type of business business situation internationally. The other thing that I might mention is.
As Mike mentioned, the USP acquisition, just took us so long so long we were hoping to get obviously, the Russian business with it but and the and we just made a decision.
The world is the business, especially with the market opening up should come first and we pulled the trigger and we acquired the Canadian operations and not the Russian operations, we still think we can perform into Russia and.
And do well however, we don't want to wait anymore on the Mi and the market and the rest of the world now USP gives us Prada.
Product and technology.
And our platform to operate within a TDMA market as everyone knows we've been operating and the S. E. P C market, which is the.
Long channel, but smaller market the low channel TV EMEA market, we haven't even been operating and that is <unk>.
And three times as big as and he has a PC market. So even though it's a small acquisition I think with our sales force and our remaining product lines combined with your H B.
And it will enable us to really attack the larger market.
TVA I'm sorry.
COVID-19 notwithstanding.
Great I appreciate that thanks for taking the questions guys.
Thanks, Joe.
Okay.
And again as a reminder, if you would like to ask a question and I'll, let star and one.
We will take our next question from Kyle Mcnealy. Please go ahead. Your line is open.
Hi, guys. Thanks, a lot for the question.
Yes, I'm wondering if you could give us a sense for the current growth rate of satellite ground station products.
We heard that it is positive and the January quarter, but can you give us anything more precise than that in terms of a number around it.
And that last quarter has it gotten better this quarter.
Yeah, Kyle and I know.
I know you always try to put us down our numbers as precise as you you do but right.
Right now, it's we view this business as probably a low single digit growth business on an annual basis and then there is these large projects on top and we just can't tell you when those large projects could could.
It could come in and what those numbers may be but from a modeling perspective, we think the trend.
And putting COVID-19 aside and the timing issues of it we think that business at about a low single digit market for us.
Okay, great and.
And next one is around the heights platform and it kind of connects to the last question and with that I know the idea. There was that you could cover some traditional TDMA use cases and cover some aspects from the TDMA segment of the market I'm wondering if you have any kind of sense for what kind of penetration you're getting into use cases that would've otherwise selected and PMA.
But it may have gone with Hyatt and what's the mix.
And they like applications versus CPC for Hiseq and so far.
And we don't really see any cannibalization, if you will between the hoist business and what the the UHT business brings to the table.
Clearly heights was getting into higher.
Call it the mid part of the market, where TDMA or the <unk>.
Volume of data was higher than then.
Call it low and TDMA, but uhm really allows us to go into the small enterprise market and multiple terminals. So youre talking about thousands and thousands of terminals with call. It lower data rates. That's the market that we were never in and Fred mentioned it to you that the market is probably three to four time.
And the size of S. C. P C and again not naming you know other competitors out there, but we just didn't play in that market because we didn't have a product and there, but as the Internet protocol and continues.
Use to expand and in rural areas around the world and.
And the need for transmission of <unk> and <unk> is rolled out in remote areas of the world.
The only really where you could do it as satellite and so we really have a.
Our system of TDMA based system that can be worked and that areas and then when he gets it a large cities, which is where we have traditional strength, that's where our CPC modems com and so we believe we're going to be the only company in the world to be able to offer a comprehensive integrated solution to our customers over time, you want us and you want.
And go into the rural areas. The TDMA USP product is good product as that volume increases and us and sophistication of that network increases you might go to a height system.
We're going to you know.
That's what our customers are excited about that they have options and they have options to work with one customer with a strong brand and comtech being a much bigger companies and new HP.
That we think is going to be give a big uplift to people that were making purchasing decisions of which brand to go with.
We contact didn't have one before now we do.
Okay, that's great.
Given the strong bookings and backlog this quarter and the overall January quarter result, and we would have thought you would have more confidence in the full year.
And as holding you back there in terms of change and the full year guide and.
And taking it up at all.
It really driven by the push outs and the government segment.
Yes, I guess, you're suggesting maybe slower through the Q.
Q3 Q4 period.
Yeah, I mean, it's certainly not a lack of confidence where we're just as confident as we were before if not even more and to your point.
The backlog increased almost 9% and Q2 versus Q1. So we do have a shifting of products from Q3 to Q4 and Q4 into 2020. Two so we're just as confident and I would say more confident about 2022.
And we were just three months ago, So look.
Read the newspapers and you see starting the reopening and the United States, it's not like that in the international World. They don't have the vaccines, yet and parts of Africa and parts of South America, and Latin America. So you know there are a couple of months. There are a couple of months behind where the U. S is we think it's going to break break free and.
Post pandemic recovery is going to happen and that will make us you know.
Do better.
Got it.
We're pretty confident on where we said and you know if shifts happened motions happened and we just deal with them.
And maybe we have some shifts from 2022 into back into 2021 as Fred mentioned, we did have customers that have said don't share we don't want people and our facility maybe they start telling us.
To bring this stuff today, we don't we don't know, we'll just deal with that as it comes through and that's how we manage the business.
Okay. Thanks very much.
Okay.
And we have a question from Chris Quilty. Please go ahead. Your line is open.
Okay.
Alright. Thank you I wanted to follow up on you HP and was hoping you could talk a little bit about.
Both the branding strategy of how you intend to brand and I guess channel.
And as well as the manufacturing I mean, how do you intend to fold it in and position their product line, which is a very different product line than your traditional.
C P C products.
Look from a manufacturing perspective, it's clear we have the skill to do motor manufacturing. So I would say to you. It's very much like our existing product set to build a modem, but we know how to do that pretty well so.
We're going to obviously build those modems, where we can and the the lowest lowest cost <unk>.
Space, and whether that is true and outsource manufacturer or doing it and our new facility and Chandler.
That's our that's our strategy in terms of the brand.
Everybody knows comtech in our space and everybody knows you HP.
The reaction to our customers to keep it simple is now comtech USP product.
No the UHD as revolutionary TDMA technology, they know what it is.
I think customers and the past had concerns over the small nature company that you HP was and or could they provide the support and service necessary you put that comtech name in front of it changes the game for those customers. So yes.
Simple branding strategy right now its comtech you HP as we look.
So the future might we tweak that a little bit maybe but right now that's our branding strategy and we think it's going to serve us well.
Gotcha, and and how does adding the U H P line impact your R&D strategy in terms of.
Product areas that you want to invest in or end market applications and.
Does it allow you or cause you to shift your R&D focus and anyway.
Well, we're really focused on integrated solutions and network solutions, whether it be heights, or whether it be UHT and how those products will work together.
That is an area of focus, but I don't see any significant change and how how we think about R&D.
And you know, we definitely take a long term view and.
We're going to deliver a product that our customers want.
Very good thank you.
Yeah.
And we do not have any further questions and thank you I will turn it back over to the speakers.
Hey, Thank you very much.
And that's the end of today's call. Thanks, again for joining us today, and we look forward to speaking with you again and <unk>.
This concludes today's program. Thank you for your participation and you may disconnect at any time.
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