Q4 2021 Comtech Telecommunications Corp Earnings Call

October 4, 2021

[music].

Ladies and gentlemen, thank you for standing by.

Come to Comtech Telecommunications Corp, fourth quarter fiscal 2021 earnings conference call.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session.

That time, if you have a question you will need to press the star and one on your push button found.

As a reminder, this conference is being recorded Monday October 4th 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 fourth quarter and full fiscal year 2021.

With us on the call today are Fred Kornberg, Chairman of the board and Chief Executive Officer of Comtech and.

And Michael D porcelain, President and Chief operating Officer, and Michael Bondi, Chief Financial Officer.

Before we proceed I need to remind you of the company's safe Harbor language.

Certain information presented in this call will include but not be limited to information relating to the future performance and financial condition of the company the company's plans objectives and business outlook and the plans objectives and business outlook of 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 good afternoon, everyone and thank you for joining us on this call.

Today is an exciting day.

I Hope you all saw in addition to announcing our fourth quarter results on a.

Full year results and our initial fiscal 2022 financial targets.

Also announced a leadership change.

Mike porcelain, our president and COO will become our Chief Executive officer by the end of calendar year 2021.

We will also continue as president of Comtech and joined our board of directors.

In making this change the board has asked that I take on a senior advisor role on technology matters and continue as a director.

And the nonexecutive chairman of the board.

As you know I've worked with Mike for many years and I have tremendous confidence in him.

Want to congratulate him on his well deserved appointment.

Mike brings to his new role a track record of professional dedication and achievement and a deep knowledge of Comtech.

Our board also recently has taken other important actions in July Judy Chambers was appointed to the board, bringing fresh perspectives and enhancing diversity.

Not only is Judy the second female member of our Board. Judy is also the first African American to join the board.

She is already making invaluable contributions to comtech and we're confident that she will continue to do so for many years ahead.

At the same time that Judy joined our board.

We also announced that our longest serving outside directors will be retiring as of the upcoming annual meeting.

These directors have been wise stewards of our business and I want to personally thank them for their tireless efforts on behalf of our shareholders.

And in August 2021, we announced that our refreshed board intends to submit a plan to comtech shareholders to eliminate a staggered three year terms for directors.

As the company continues building value for our shareholders. Our board remains committed to sound corporate governance practices and productive shareholder engagement.

Before we turn to the details of our fourth quarter.

Also want to acknowledge that we received notice from one of our shareholders Outerbridge capital management of its intent to nominate three individuals for the election to our board.

Our leadership team and members of our board have met several times without a bridge since June.

We have listened to their perspectives and so in a constructive dialogue.

Without a bridge privately proposed two director candidates at the beginning of August.

<unk> initiated initiated a thoughtful review of the individuals.

Our average lately.

Clearly nominated three different individuals to join the award.

The nominating and governance committee once again is thoroughly reviewing these proposed candidates and following a standard procedures for doing so.

At this time, we have nothing further to report on this and as always though we remain open to constructive dialogue with all of our shareholders.

With all that out of the way, let's get down to today's business, Let me turn it over to Mike Bondi.

Our CFO, who will provide a discussion of our financials and after that Michael porcelain, who will provide an update on our business bundle.

<unk>.

Thank you Fred and good afternoon, everyone.

We are incredibly proud of our performance during fiscal 2021 and ended the year slightly above our full year guidance. This was a tremendous feat as we continue to navigate the lingering effects of COVID-19 and related issues that have impacted our business since early in calendar year 2020.

Net sales were $153.0 million in Q4 of these sales, 72%, which are U S based customers with 28% to international customers.

But for the year net sales were $588.0 million now. These sales 76, 1% were to U S based customers with 23, 9% to international customers.

Bookings for the fourth quarter was strong we received a $170.0 million in orders, resulting in a book to bill ratio of 115 times for the quarter.

Yes.

For the year, we achieved bookings of $624.0 million, resulting in a book to Bill ratio of one point <unk> seven times for the year higher than what we achieved in fiscal 2020, which was <unk> 95 times.

The full year's performance was strong given the headwinds we faced from COVID-19, which impacted almost all of our global customers.

Our gross profit percentage in Q4 fiscal 2021 was 37, 8% and for the year It was $36 eight.

SG&A for Q4 for fiscal 2021 was $35.0 million or 19, 1% of consolidated net sales for.

For the year SG&A was $111 million $119.0 million or 19, 2% of consolidated net sales.

Turning to R&D, we invested $19.0 million in the fourth quarter or eight 1% of net sales.

For the year, we invested $50.0 million or eight 4% of consolidated net sales.

Total amortization of stock based compensation during Q4 fiscal 2021 was $14.0 million and for the year was $10 million.

Total amortization of intangibles was $8.0 million in the fourth quarter of fiscal 2021 and for the year It was $21 million.

Our GAAP operating income for the fourth quarter was $16.0 million and reflects $7.0 million of restructuring costs.

$5 million of acquisition plan expenses, and a half a million dollars of COVID-19 related costs.

Adding such costs non-GAAP operating income in Q4 would have been $14.0 million or eight 4% of consolidated net sales.

As disclosed in our earnings release and discussed on prior conference calls, we had large acquisition plan expenses and other costs during the year.

Excluding such costs non-GAAP operating income for the full fiscal year 2021 would have been $37.0 million or six 2% of net sales.

Our adjusted EBITDA was $30.0 million or 18, 1% of consolidated net sales for the fourth quarter for the year to $81.0 million of adjusted EBITDA represents 13, 2%.

Our consolidated net sales.

On a segment basis in Q4, our commercial solutions segment contributed $22.0 million of adjusted EBITDA or 24% of related net sales for the year. It contributed $69.0 million of adjusted EBITDA or 18, 4% of related net sales.

Turning to our government solutions segment, we had $6.0 million of adjusted EBITDA in Q4, or five 2% of related net sales.

For the year, our government solutions segment delivered adjusted EBITDA of $19.0 million or seven 4% of related net sales.

Interest expense was $7.0 million in the fourth quarter and for fiscal 2021, It was $14.0 million.

Our income tax expense in Q4 was only $578000 and for the year, we actually generated a benefit of $6.0 million.

On the bottom line, our GAAP net income in Q4, 2021 was $11.0 million or 28 cents per diluted share.

Non-GAAP net income for Q4 of 2021 was $8.0 million or 23 per diluted share.

For fiscal 2021, our GAAP net loss was $78.0 million or a loss of $88.0 per diluted share.

Non-GAAP net income for fiscal 2021 was $26.0 million or <unk> 86 of net income per diluted share.

Despite being impacted by COVID-19 for the full fiscal year, our fiscal 2021, non-GAAP net income and EPS represents substantial improvements as compared to fiscal 2020.

Details of our non-GAAP reconciling items can be found in the tables at the bottom of today's earnings release.

Cash generated by operating activities was $24.0 million for the fourth quarter for the year, excluding a $70 million merger termination payment our net cash from operating activities would have been $33.0 million.

Our balance sheet as of July 31, 2021 includes $39 million of cash and cash equivalents and our total debt outstanding was $201 million.

Our current secured leverage ratio as defined in our credit facility was 253 times.

Now before turning it over to Mike Let me provide some comments on our initial fiscal 2022 financial targets that we issued earlier.

We are targeting fiscal 2022 consolidated net sales within a range of $580 million to $600 million and adjusted EBITDA between $70 million and $76 million.

These targets reflect the strength of the company's backlog and a healthy sales pipeline offset by anticipated impacts of COVID-19, and tightening global supply chain constraints.

In addition, we expect to incur startup costs associated with the opening of two new high volume technology manufacturing facilities.

It is really tough to accurately estimate the extent of those costs because COVID-19 has caused delays in our move and increased our costs due to duplicate facilities that we have to maintain.

Also our fiscal 2022 financial targets reflect the impact of the recently completed withdrawal of U S troops from Afghanistan and other U S government program changes, we previously announced.

We estimate total fiscal 2022 amortization of intangible assets to be around 22 million stock based compensation expense is expected to range from 12 million to $14 million.

Interest expense is currently expected to be around $11.0 million in fiscal 2022, and our effective tax rate for fiscal 2022, excluding discreet items is estimated to approximate 22%.

Now some color on the cadence of our expected fiscal 2022 performance.

Q1 of fiscal 2022 is expected to be the lowest quarter of financial performance in fiscal 2022.

Based on our current expectations of revenues in our government solutions segment, we anticipate virtually no adjusted EBITDA in our government solutions segment in Q1 or Q2.

Additionally, with the recent spikes in COVID-19, and supply chain issues, our commercial solutions segment is being impacted.

These issues are expected to result in lower than typical revenues and adjusted EBITDA for our commercial solutions segment in the first half of the fiscal year, but a strong second half as we deliver on our backlog and new orders that are expected to come in.

Based on what we are seeing we believe these constraints represents significant performance headwinds and believe that our consolidated Q1 revenues will approximate $115 million with adjusted EBITDA in the neighborhood of $3 million.

We are closely monitoring our inventory needs and our supplier base and we cautiously expect these constraints to ease up during the second half of fiscal 2022.

As such we believe that quarterly results. After our Q1 will sequentially improve with Q4 being the peak quarter in 2022 by far.

With backlog of $667.0 million, which.

Which is $38 million higher than fiscal 2020, ending backlog and a strong sales pipeline, we feel pretty good about the full year.

Contributing to our confidence is our expectation that our government solutions segment will benefit from higher margin programs. During the second half of fiscal 2022, including the receipt of new orders for the contact Comet and other <unk> solutions.

These opportunities are well defined and feedback from the customer have been terrific.

Now I'll hand, it over to Michael porcelain, Mike.

Thanks, and good afternoon, everyone.

First let me start out by thanking Fred on behalf of myself the management team our employees, our board and our stockholders for his years of dedication leadership and service to Comtech and to its customers.

At the same time emotional honored that the board has appointed me as CEO.

Look forward to continue to work with them the entire contact team to implement a range of important initiatives already underway and to carry our strong momentum forward.

I do believe we are uniquely positioned to capitalize on the growing demand for satellite ground station infrastructure and next generation 911 system.

Although we continue to operate our business in an environment, where reliable forecasting remains challenging I am confident that we have the right long term strategy.

In this regard as you can see from our fourth quarter and fiscal year results that strategy is clearly paying off key.

Key bookings received in Q4 include multiyear contracts valued at $28.0 million and $23 million to deploy and operate next generation 911 services for the states of Arizona, and Iowa, respectively.

We certainly have a market leadership position in next generation 911 space during fiscal 2021, we were awarded multiyear contracts totaling over $200 million.

Also frost <unk> Sullivan, a leading industry research firm recognized contact for achieving the most significant year over year market share increase in this space.

We also have a strong leadership position in our satellite Earth station product line here.

Tier Northern Sky research, a leading consulting firm recognized comtech as a leader in the growing satellite cellular backhaul market.

Perhaps the best independent validation of our strength was the fourth quarter award of a multiyear contract from a large new customer to customize context next generation broadband satellite technology.

This was a huge win and our team did an awesome job in capturing this program.

Our next generation satellite Earth station product line technology will be customized for this large customer so that it can be used with thousands of low earth orbit or Leo satellites expected to be launched.

Based on our current pipeline of opportunities. We believe we have well over $1 billion of visibility to future potential revenue and importantly, this does not include Leo opportunities associated with this new large customer, which could amount to several hundreds of millions of dollars of incremental orders to comtech.

Let me now talk about our team's successes in terms of business performance and other contract wins I also want to touch on the direction of where we see things headed in.

In our commercial solutions segment net sales were $101.0 million in Q4, and $361.0 million for fiscal 2021, an increase of one 8% over fiscal 2020.

We received orders totaling $128 million in Q4, and $444.0 million for the year, resulting in a very strong book to bill ratio for the year for this segment of one to three.

Looking forward, we expect fiscal 2022 sales in this segment to be higher than the level, we achieved in fiscal 2021.

We continue to see positive momentum in our public safety and location technology product lines.

Net sales during the quarter were higher than last years comparable quarter and for the year was slightly higher reflecting increased sales of next generation 911 solutions offset in part by the absence of 911 wireless call routing sales to AT&T.

Now, let me highlight some great wins this year that position us for growth with.

We previously announced a $100 million plus statewide contract to design deploy and operate next generation 911 services for the Commonwealth of Pennsylvania work under this contract is expected to increase in fiscal 'twenty, two as compared to 2021.

We also received additional orders from our $54 million contract to design deploy and operate next generation 911 services for the state of South Carolina.

We also won a multiyear statewide contract award valued at $43.0 million to design deploy and operate next generation 911 services for the state of Arizona.

The total contract value includes a multiyear contract extension.

The contract with Arizona includes implementing our next generation 911 solutions to provide citizens with advanced communication capabilities, when calling for emergency services, including police fire and emergency medical services.

Through use of our next generation core services technology, Arizona will be able to offer a seamless coordinated and efficient next generation 911 system to each of the states local 911 centers.

At the same time. The award includes an ability for our result of the purchase contact solar Com call handling solutions for P shops, as well as our new cyber security software training program that will be available for first responders on a statewide basis.

This was the first cyber contract win that included our security software training and solutions and we hope to have more to come.

We also announced the contract award to provide Engie nine one in services for the state of Iowa. This multiyear statewide contract include includes extension options and is valued at up to $53.0 million initial funding for the contract which $23 million.

Additionally, and as mentioned on prior calls contact has been selected as the winner of a multiyear engie 911 contract for the state of Ohio, We do anticipate that this contract will be initially funded in our fiscal 2022.

Other notable in key contract awards in our public safety and location technology product lines. During Q4 include the following a $8.0 million contract for the deployment of a cellular based wireless emergency alert solution with AT&T.

We'll allow citizens in the designated area to receive government issued alerts on their mobile devices wanting them are imminent threats to life and property based on location similar to severe weather alerts that you're currently receive on your cell phone.

Next we received a contract from a channel partner valued up to $11.0 million to supply new software releases to messaging applications used by a U S. Tier one mobile network operator separately, we received another $4 million maintenance renewal to continue to provide messaging application support also for a U S tier.

One mobile network, operator, and the growth in messaging demand.

Lastly, we received $5.0 million of additional funding related to our next generation 911 modernization project for a U S military end customer.

Solar Com will provide this customer with our Guardian call management solution, a full turnkey solution <unk>.

This solution will be deployed in a redundant multi geo diverse configuration system, ensuring the highest possible service availability with a intuitive user interface. It will allow government call takers to quickly assess prioritize and handle landline wireless and voice over IP emergency calls.

Call takers can quickly create conferences transfer costs determine the location of callers and replay recently recorded conversations and as you can see our coal handling solution is extremely robust.

As I have stated on prior calls we are ideally positioned to continue to build out various situational awareness data products for our 911 customers and are working on several exciting initiatives in the public safety area.

In addition to incorporating our first cyber security software training program and next generation 911 contract win with Arizona, We have now begun marketing a new solution called Smart response. This is a newly developed cloud based solution that offers a common operational solution that offers a <unk>.

First responders and effective data driven response for security agencies and others.

This solution can provide live feeds from traffic cameras caller information criminal history and other key critical information at the top of a button.

These smart response solution empowers piece up employees to ensure the appropriate resources around machine to better service. The public emergency situations sales of this product are expected to be nominal in fiscal 'twenty, two but we are investing R&D and this product line in 2022 to meet a critical and growing need of nine.

One operators all in all we do believe that potential customers are increasing their funding for next generation 911 suite solutions, recognizing the critical importance of upgrading 911 systems.

I cannot underestimate understate that 911 service is a vital part of U S government's nationwide emergency response and disaster preparedness system initial.

In this regard I want to point out to you that satellite services are playing a more important role in the nationwide 911 network not only in rural areas, but as backup for public answering points or peace apps and individual callers as well for instance in August 2021, It was reported that Apple.

Was working on incorporating satellite capabilities for its iPhone models that will allow users to call and or text and emergency systems.

I believe that our satellite systems, including our CPC and TDMA networking platforms will be incorporated into 911 systems without a doubt given our expertise in public safety systems and satellite ground station equipment. I believe we are uniquely positioned to be a leader in this growing market.

At this point, let me provide some updates on our satellite ground station business itself.

Net sales for both the quarter and the year were higher than last year, even though theres product line continues to be impacted by the pandemic effect on customer demand, particularly in international markets. What constitutes a large majority of end users for these solutions.

As you know we did complete our acquisition of <unk> networks in March and we believe USPS Revolutionary technology has the potential to transform the growing very small aperture terminal market and our participation in it.

With end markets.

High speed satellite based network significantly growing we are excited to have extended our product offerings to include USPS TDMA satellite modems.

We are educating our sales force and modifying our sales efforts to establish ourselves as a leader in both TDMA and CPC solutions.

Our customers and the industry are clearly just excited as we are for example, because of our <unk> acquisition, we were able to announce a strategic technology partnership with <unk>, a mobile antenna company working together with them, we have expanded distribution of our TDMA modems and strengthen our ability to offer.

Integrated VSAT solutions.

This partnership expands our solutions and capabilities offered to both our government and military user base and we expect it to benefit both of our segments over the long term.

Other awards for our satellite ground station product line included the following multiple contracts aggregating $9.0 million for high power 500 Watt <unk> band Tw Tas for high throughput satellite systems.

Multiple contracts aggregating $9.0 million from our U S systems integrator for X band solid state power amplifiers and block up converters for transportable satellite communication terminals.

And a multimillion dollar order from a leading system integrator in the South Asia for Wan optimization equipment to be utilized utilized by administrative defense in that region.

Despite the impact of COVID-19 supply chain issues, we still believe our satellite Earth station product line is set for growth. We continue to see strong sales pipeline growth for for satellite based cellular backhaul services due to increased penetration of <unk> and <unk>, particularly in developing parts of the world.

There remains a growing need to use satellite network technologies in remote areas with terrestrial network infrastructure is lacking.

Yeah.

Now, let me turn to our government solutions segment, where we continue to navigate challenging dynamics dynamics, including lumpy order flow.

Sales in this segment were $52.0 million as compared to $71.0 million in Q4 of last year.

Revenues in this segment were significantly impacted by the April 2021 announcement of U S troop withdrawals in other U S government program changes.

Revenues in this segment for each of the first three quarters of fiscal 2022 are expected to be slightly lower than the $52.0 million achieved this quarter.

Thereafter, the segment is expected to benefit from increased revenue and higher margin programs, including the receipt of new orders for the contact comment and other <unk> solutions.

For the full fiscal year net sales were 22, $226.0 million, which represents a decrease of 15, 8% from the prior year.

Bookings in our government solutions segment for Q4 were $52.0 million with a book to Bill ratio of one point or two.

For the full fiscal year bookings were $189.0 million with a book to bill ratio of <unk> 82.

Sales and adjusted EBITDA contributions in this segment in the future are expected to come from sales of joint cyber analysis cost training solutions.

<unk> anticipated awards for high reliability Tripoli's space ports in engineering services, including those used to support NASA missions.

Anticipated orders for our high power amplifiers, many of which are used in funded electronic warfare programs large awards for <unk> systems, including the comment and deliveries of existing backlog for VSAT satellite equipment, an XY satellite antennas.

With respect to our joint cyber analysis cost training solutions I am pleased to report that earlier today, we announced that we were awarded a five year Ivy IQ contract from the U S government for joint Cyber analysis cost training solutions valued at almost $125 million.

This award was a renewal and acknowledges our excellence in developing and delivering complex cyber security operations.

Training at the <unk> operations and at the scale required by our federal government customers.

Given that this is one of our nation's top priorities, we do expect to receive additional funding on this contract over the course of fiscal 2022 and beyond.

We're honored to continue to perform this important work for our customers.

Given the expected low level of revenues in this segment and the startup cost relating to the opening of our UK manufacturing Center as Mike had mentioned adjusted EBITDA. In this segment will be unusually low for the first three quarters, but as we look to the second half we are seeing strong interest across the board for a common <unk> terminals and.

Other new VSAT solutions that we are actively discussing and demonstrating with our customers' trials and demos are well underway and in several instances. We have been told we have been selected as the sole source for their needs.

Timing on these comments and other large <unk> programs have always been difficult to predict and lumpy in 2022 was no different that said, we view it not as a matter of if but when.

Overall, it will be a challenging year for this segment, but we are optimistic that we are on the right track now let me turn it back to Fred who will provide some closing remarks.

Thank you Mike.

As I mentioned before I am very pleased with our how our business is performing in spite of continuing COVID-19 headwinds.

Particularly some great wins in the fourth quarter.

Our 2021 results demonstrated our success in executing our plan the strong market leadership positions, we have and the resilience of our business.

We navigated challenging market conditions delivered strong financial performance with significant year over year bookings and backlog growth, giving us significant comfort with our outlook and visibility into the future.

Despite continuing.

Covid headwinds I continue to be excited about our prospects going into fiscal 2022 and beyond including a strengthening positions on the large developing near term opportunities that Mike just mentioned.

I believe our achievements and prospects confirm that we have the right strategy the right team and the right focus to create long term value for our shareholders for many years ahead.

Reflecting this confidence in our business outlook, our board of directors once again declared a dividend of <unk> 10 per common share.

Payable on November 12, 2021 to shareholders of record at the close of business on October 13th.

'twenty one.

Now I would like to proceed to the question and answer part of our call operator.

Thank you I would like to ask a question. Please press the star one.

One on your Touchtone phone.

You may withdraw your question at any time by pressing the pound.

Once again that is star one.

And we will take our first question from Joe Gomes with noble capital markets.

Go ahead.

Good afternoon, Fred or Mike Congratulations.

<unk> announcements.

Thank you Joe.

So.

You talked a lot of a lot about some of these supply chain constraints and I was wondering if you might give us a little more detail there.

As much as you can as to.

What exactly are you referring to here, where it's impacting the most on the on the company.

How quickly you might be able to get past these here.

Sure if.

If you go back a few months ago.

We announced our Q3 call we disclosed in our 10-Q10-Q that we saw some.

Sort of extended lead times in as the quarter continued things sort of got a little worse.

I would say to you that we've seen lead times for parts that are normally 20 to 30 weeks being extended to $90.0, and in some cases 60 weeks and we sort of saw that in the Q4.

We probably have about five or six key vendors that have.

<unk> chips to everybody in the industry. So we're not not something unique to us.

The good thing is that we have pretty good relationships in the sense that we are one of the larger manufacturers of satellite equipment, especially on the West coast. So we feel we have pretty good visibility as to when supply chain will be coming in and it's really reflective in the guidance that.

We put out so we do think for US it is going to ease up really towards the tail end of our Q1 and then as the quarters come in we think we've got a good good visibility to the parts coming in and our ability to ship.

In the latter part of the year.

Okay. Thank you for that insight.

And you mentioned.

Some significant capex expenditures for the year I was wondering if you could kind of quantify for us what was the capex in fiscal 2021, and how much higher do you think it should be in fiscal 2022.

Hi, Joe I'll take that.

In terms of the Capex requirements and investments we plan to make next year.

Our releases today, we did highlight that we expect it could get up to about $30 million.

Timing of that is spread out over the course of 2022 and possibly even into 2023, but those investments are spin.

Specific to a few things that we have going on concurrently we have the <unk> 901 programs that we won and we have booked over $200 million in contract value. This year. So these investments are to support those great wins that <unk> had this year and then also we have the two new facilities.

That we're getting online this year to support our high volume manufacturing.

Sure.

The next generation satellite ground station equipment that we expect to sell.

So the timing of that.

It's a little tricky to pinpoint the exact dollar amount by quarter, but we do see that probably in Q2 and Q3 being at its peak and then tailing off in Q4.

Okay. Thanks for that and one more for me and I'll get back in the queue.

So obviously last quarter, you announced the big satellite Earth station win.

<unk>.

Going through the release, it looks like Youre, not including much of anything outside of the initial 13 million order in fiscal 'twenty to 'twenty two results.

I was wondering if you could talk a little bit more about that how that that.

Project is done.

Unfolding, so far and also.

Are there other opportunities there.

Companies are pursuing.

Yes, Joe it's a great question, so I would love to share as much detail as possible as I could about the contract because the excitement that we have internally is just tremendous.

It's a large new customer.

And certainly you know thousands of satellites are expected to be launched and you could.

We refer to public documents about that and.

Look when we sit back the best we can tell you is that this is hundreds and hundreds of millions of dollars of opportunities and we.

We're the only ones that we're aware of that.

<unk> has announced an award of such size.

Can tell you that work is well underway.

With this customer.

We're working hand in hand with them I can tell you that relationships with this customer are growing every day and are fantastic.

Meet with them regularly.

<unk>, we just had a satcom show, where we had very good conversations about their needs and some of the things that.

We can provide to them.

As you know we are an expert not only on the satellite ground station side, but experts on manufacturing.

And certainly our decision to build a new manufacturing center in Chandler should speak for itself.

At the same time.

We're also I would say best in class related to the U S military and Vod when it comes to satellites. So I think if you just take all of the data points that we have to offer and what I can share with you you can kind of connect your own dots, but I am very subject to strong non disclosure with this customer in.

That's about the best I can say, but theres nothing about excitement nothing nothing but good things happening and let me leave it at that.

Alright sounds good thanks, Mike.

We'll take our next question from Mike Latimore with Northland Capital. Please go ahead.

Thank you, Mike and Craig Congratulations on your new role there.

Sounds great. Thank you.

So I.

I guess, Mike you talked about the pipeline and commercial being strong can you just elaborate on that a little more is that is it.

On next Gen 901, like winning more states or would it be enhancing.

Services that you're providing a current state wins and then on the satellite Earth station side does that where does that strong pipeline reflect this large customer specifically are there others kind of in the mix there.

So, yes, I guess, one way to answer it is the latter part of what you just said, Mike Our satellite Earth station pipeline is as strong or 911 pipeline is strong and that excludes those opportunities with our large new customers. So the basic business of selling satellite modems amplifiers our networks.

<unk> is very strong as strong on the commercial side and on and on the defense side. So we do see a growing pipeline.

We also have the benefit of the UHT acquisition, and we're offering the UHT satellite network technology to customers training, our sales force educating them about our capabilities of how we're going to integrate our uhm.

Technology, if you will with our nights, our heights platform and so that process is well underway on our 911 business I can say and again I'm not going to point out to you. The specific states that we're chasing although as I always say if you look hard enough you will find it but there are several states out there that have big opportunities out there.

And we do think that these big opportunities could translate into orders.

During fiscal 2022.

And I would categorize our pipeline is pretty strong adding that on top is this.

Large new opportunity with our.

Large new customer.

Mhm.

Okay great.

And then in terms of the.

The Afghan withdraw you quantify that a little bit last quarter, I guess any any more detail on how we should think about the revenue impact from that withdrawal in.

2022 versus 2021.

Sure Mike I'll take that in terms of the impact of that troop withdrawal. That's now complete and other program changes that we saw.

As we were going into Q4, we're expecting that to continue into the third quarter of fiscal 2022, and when we're looking at what we see out there for right now it's going to roughly be what we did similar to Q4, probably a little bit below that level.

Or at least the next quarter or two before it starts to pick up.

As we start moving into higher margin higher margin programs later in the year.

Mike If I if I can also just give you another data point just to look at public numbers. If you look at what our government segment did last year in Q1, and Q2 and just sort of averaged it out you can see on the average for Q1 and Q2 of last year, we did about $129.0 million of revenue and if you'll look.

If you look at Q3 Q4, it came quite quite shutting the impact, but you can see we did less than $50 million of $48 million in Q3 dollars $46 million in Q3, and as we said in our.

Prepared remarks, we do think we're going to bounce around the $40 million level for Q1, Q2, Q3 that difference on a quarterly run rate is about is about the difference we're seeing due to the withdrawal and the other.

<unk> and the government programs and the one thing again timing is always difficult for us to predict but we're assuming we're going to be able to get these comment orders in the second half and ship them in Q4 that could come in earlier.

Maybe Q3 is a lot better than what we're thinking but we'd like to think we're taking a cautious view at the moment in terms of timing, but we use the word lumpy because the programs are difficult to predict.

Alright, okay.

And then just last on international.

How is the housing sort of pipeline activity internationally.

Or are some of these annual comment turbo Scott opportunities there as well just a little more color on international would be great.

Yes on the <unk>.

Telco side and the comment there are international opportunities as well as regular troper scatter opportunities. Despite COVID-19 restrictions, we were able to as I call sneak in a couple of travel.

Digits overseas and I don't mean sneak in where we did something improper, but we were able to get them in before the restrictions came back into place. So we were able to get some demos overseas done and we've been told in some cases, we're sole source and those opportunities are moving so.

It's on the <unk> side, it's both.

On the international side.

We're definitely getting impacted on the satellite ground station part of the business. The Satcom show that took place in September had virtually no one from Europe there.

So that was that was a little disappointment that we do think it will impact our 2022 thought process, but thats reflective in the guidance we're giving.

Right right, Okay, great. Thanks, a lot good luck.

Thank you.

We'll move next to Caleb Henry with Quilty analytics. Please go ahead.

Hi, two questions from me first I don't know if its too earlier or not but we're kind of seeing some momentum with the space development agency on their own military Leo constellation.

They've talked about that one going up to I think 1000 Mac. So separate from your commercial project, but was just curious if you see any opportunity with the SBA or if the U S. Military interest in Leo constellations is having any impact on the ground equipment that you are providing or even doing R&D on.

I don't want to tell you what we're doing from a competitive perspective I'll refer to my remarks about our strength in the defense side and I think we could be a thought leader in the <unk> space, but let me just keep it at that.

Okay and then my other question was just on the cyber security of the $125 million <unk> IQ can you talk about some of the demand drivers for cyber training and I guess, where you are seeing.

Or are you seeing that come from if it's just within its just for military applications or if you're also seeing this from.

State and local government or even satellite operators.

Yes, it's really it's really two pieces to $125 million contract is is somewhat of a renewal, but increased funding versus what we've had in prior years. So we're expecting to get funding throughout the year of that $125 million and again continue to work that we've done with truly the department of Homeland security and <unk>.

Special operations over the course of the.

The year, that's where that contract really focuses in on and the contract award that we actually got did exceed our original thinking.

Bye bye multiples of millions and that is evidenced to us of the demand for cyber courses related to the government at the same time, we've taken our competencies that we've learned on that contract and applied it to the public safety market.

<unk> that we've been working over the last 12 months and we were successful in getting the state of Arizona to include the cyber training offering two.

Peace apps in the state of Arizona. It was our first contract win.

And we're in the process of talking to other states, including those states that we do business with and we are optimistic that we could really build a new product line in the public safety market given our expertise as it relates to cyber training I mean, clearly as I mentioned the 911 service is a.

Vital part of the government's emergency response and disaster preparedness system, it's going to be hacked it will be hacked.

Time, and time again and to make sure that it's not hacked or that employees are trained on how to handle it. We think we can help our 901 customers deal with it both on a pre <unk>.

A reactive basis on a proactive basis as well.

Alright, thank you.

Yeah.

And we'll take our next question from Kyle Mcnealy with Jefferies. Please go ahead.

Alright, great. Thanks, a lot for the question.

Congrats from us as well on the management announcements best of luck in the new roles all around.

I guess I wanted to ask a little bit about TDMA and CPC and wanted to see if you could give us a sense for how your satellite ground station revenue mix of TDMA type use cases is tracking versus your internal plan for heights and uhm.

I guess I can consider that to be heights, which could be targeted at previously TDMA use cases and new HP.

Is there a way for you to quantify how much is heightened new HP as a percentage of total ground station right now and where that might go in the future maybe into 2022.

Yes, it's actually a good question.

I would say our early read we've only owned the UHT business since March of 2021, and I think our early read is that there's a lot of demand for TDMA solutions and maybe there is a bigger market on the TDMA side versus maybe our heights product line, though I think we're adjusting that as we as we speak to <unk>.

Customers in terms of what they prefer a TDMA solution versus the heights. So I would say to you that this had been a tilt in our thinking more towards TDMA than our highest just in terms of is it a 5% swing 10% swing in the thought process too early for me to say, but that's an early observation that I think we have.

We'll see how that point, we will see how that plays out.

Okay.

Is there an approximate like overall mix of the.

Uhm.

There are sites that you have in your revenue stream right now like as of Q4.

Yes, I would prefer not to disclose that again for competitive reasons. It's a very small portion of our business. I mean, we've talked about USB itself being a small product line additions and I just think at this point.

I just want to stick to the qualitative comments rather than the quantitative piece, Okay, Yes fair enough Thats fine and then what's your assumption for the Covid and supply chain issues that you mentioned continuing to weigh on 2022 do you have a specific timeframe when that will normalize as contemplated in your guidance like when does it.

Get better I mean, you talked about the second half being much bigger than the first half so perhaps it's around the middle of the year, but what should we think about.

Mechanic keep being passed the worst of it or when you start seeing it normalize within the 2022.

Fiscal year.

I think it will being at the start of our Q3.

I think look we're seeing we definitely have visibility, we think to our supply chain constraints that we're seeing again, we've kind of working with our with our vendors and Mike Mikes thinking revenue for Q1 is going to be about.

About 15 in terms of revenue and we talked about nominal improvement in Q2, you could probably take that number up by 10% in Q2, just to show to give you a sense of the way we're thinking about it but it's going to be a Q3 Q4 event, where we do think.

Things will start to get back back back to normal if you will and certainly by Q4, we should be humming again.

Okay.

Maybe it comes earlier, but what are you using the words, we'd look we're taking a cautious view and maybe a realistic view at the same time.

Okay, great. Thank you.

Once again for your questions today that is star one.

One.

Next to RCM merchant with Citibank. Please go ahead.

Hi, Congratulations again, Mike and Craig.

Most of my questions have been answered here, but.

In terms of EBIT as it relates to Q clearly the supply chain disruptions and the Covid.

Anticipated.

Can you kind of.

Talk a little bit about what that.

I have been without the <unk>.

Probably in your commercial segment and that's because alethia government lots of revenues from the Afghan.

Program.

At least if you can guide us on what you have commercial.

Commercial backlog.

It can be.

The supply chain disruption that you guys are thinking about now.

So let's say this is Mike I'll take that.

Terms of the first quarter.

We have definitely a few things going on with respect to COVID-19 in the supply chain. We are seeing the impact of that we also.

In terms of our EBITDA guidance. We're also considering that we're migrating our production to a new facility and that's ongoing during the first half for sure.

In terms of what it could have been.

Had these.

Supply chain issues, not sort of surfaced in recent months.

I'd say, we'd be back to our historical EBITDA margins.

<unk> those events.

Just with where we are two months into the quarter already.

It's basically what we see today looking out for the next month.

Okay, and then in terms of cash flow, Mike I know you talked about.

A heavier capex cycle.

Cycle in fiscal 2010, how should I think about cash flow generation.

Okay.

As a percentage of revenues.

2010.

Yes, I think it's early in the year to give a number a precise number but we're thinking as we normally do have strong cash flows for the full year from operations, we do see.

Things rebounding.

Leveraging our balance sheet collecting our receivables and.

In the first couple of quarters of the year. So I think when we boil it all together and we do expect to see traditional cash flows from operations that we normally would throw off to.

To support our cash investments in Capex and other endeavors.

Okay. Thank you wouldn't be taking on any additional debt.

Throughout the quarters, there is a likelihood that we could borrow on our facility we have room on our facility to support the cash investments that we're incurring to build out the facilities as well as the MG 91 projects, but I think it's.

It's going to be more in the Q2 Q3 timeframe, we will see maybe higher levels of debt and then El throttled down.

Back to existing levels that we see today towards the end of FY 'twenty two.

Okay. Thank you.

Okay.

It does appear there are no further questions at this time.

Okay that concludes today's call. Thank you again for joining us today and we look forward to speaking with you again in December Thank you very much.

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

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Ladies and gentlemen, thank you for standing by.

Welcome to Comtech Telecommunications Corp, fourth quarter fiscal 2021 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.

As a reminder, this conference is being recorded Monday October 4th 2021.

I'd 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 fourth quarter and full fiscal year 2021.

With us on the call today are Fred Kornberg, Chairman of the board and Chief Executive Officer of Comtech.

And Michael D porcelain, President and Chief operating Officer, and Michael Bondi, Chief Financial Officer.

Before we proceed I need to remind you of the Companys Safe Harbor language.

The company's assumptions regarding such performance business outlook and plans are forward looking in nature and involve significant risks and uncertainties.

Thank you, Jason and good afternoon, everyone and thank you for joining us on this call.

Today is an exciting day.

I Hope you all saw in addition to announcing our fourth quarter results, our full year results and our initial fiscal 2022 financial targets, We also announced.

Announced leadership change.

Mike porcelain, our president and COO will become our Chief Executive officer by the end of calendar year 2021.

We will also continue as president of Comtech and joined our board of directors.

In making this change the board has asked that I take on a senior advisor role on technology matters and continue as a director.

And the nonexecutive chairman of the board.

As you know I've worked with Mike for many years and I have tremendous confidence in him.

Want to congratulate him on his well deserved appointment.

Mike brings to his new role a track record of professional dedication and achievement and a deep knowledge of Comtech.

Our board also recently has taken other important actions in July Judy Chambers was appointed to the board, bringing fresh perspectives and enhancing diversity.

Not only is Judy the second female member of our Board. Judy is also the first African American to join the board.

She is already making invaluable contributions to comtech and we're confident that she will continue to do so for many years ahead.

At the same time that Judy join our board.

We also announced that our longest serving outside directors will be retiring as of the upcoming annual meeting.

These directors have been wise stewards of our business and I want to personally thank them for their tireless efforts on behalf of our shareholders.

And in August 2021, we announced that our refreshed board intends to submit a plan to comtech shareholders to eliminate a staggered three year terms for directors.

As the company continues building value for our shareholders. Our board remains committed to sound corporate governance practices and productive shareholder engagement.

Before we turn to the details of our fourth quarter.

Also want to acknowledge that we received notice from one of our shareholders Outerbridge capital management of its intent to nominate three individuals for the election to our board.

Our leadership team and members of our board have met several times without a bridge since June.

We have listened to their perspectives and so in a constructive dialogue.

Without a bridge privately proposed two director candidates at the beginning of August.

<unk> initiated initiated a thoughtful review of the individuals.

Our average lately.

Liquidity nominated three different individuals to join the award.

The nominating and governance committee once again is thoroughly reviewing these proposed candidates and following a standard procedures for doing so.

At this time, we have nothing further to report on this and as always though we remain open to constructive dialogue with all of our shareholders.

With all that out of the way, let's get down to today's business, Let me turn it over to Mike Bondi.

Our CFO, who will provide a discussion of our financials and after that Michael porcelain, who will provide an update on our business bundle.

<unk>.

Thank you Fred and good afternoon, everyone.

We are incredibly proud of our performance during fiscal 2021 and ended the year slightly above our full year guidance. This was a tremendous feat as we continued to navigate the lingering effects of COVID-19 and related issues that have impacted our business since early in calendar year 2020.

Net sales were $153.0 million in Q4 of these sales 72% were to U S based customers with 28% to international customers.