Q1 2022 Comtech Telecommunications Corp Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Comtech Telecommunications Corp, first quarter fiscal 2022 earnings conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
At that time, if you have a question you will need to press the star and one on your push button phone.
As a reminder, this conference is being recorded Thursday December night 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 Comtech Telecommunications Corp Conference call for the first quarter of fiscal year 2022.
With us on the call today are Fred Kornberg, Chairman of the Board and Chief Executive Officer of Comtech, Michael D porcelain, President and Chief operating Officer, and Michael Bondi, Chief Financial Officer.
Before we proceed I need to remind you of the company's safe Harbor language certain information presented 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.
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 in this call.
Before we turn to our results for the first quarter of fiscal 2022, I wanted to take a moment to acknowledge that for both comtech.
And our end markets. This is a time of significant and exciting opportunity.
As we head into January the start of a new calendar year.
See the beginning of a long multiyear cycle of communications infrastructure improvement and investment.
Comtech is well positioned to take advantage of this not only because we have the right products, but also the right people and the right strategy.
We've refreshed our board and then Mike porcelain have appointed a CEO, who has demonstrated both operational acumen and a skill for execution.
Mike has been very instrumental in leading context, when significant long term contracts.
Also as you know, we recently secured a 100 million of it.
Mm $100 million of investment capital to underwrite our long term strategy.
This was from a committed common stock shareholder who will bring not only a wealth of knowledge experience and relationships to the company.
From where I sit.
Future is very bright.
Given all these transformative steps comtech is uniquely positioned today as a secure wireless technology leader poised to capitalize on tremendous growth opportunities ahead.
Before I hand, the call over to our in our new incoming CEO, let me provide an update on another event that took place in the quarter.
And that event was the receipt of an unsolicited non binding proposal from <unk> research cooperation as was first reported in the financial industry media several weeks ago.
Shareholders should know that context board has been considering and continues to evaluate the proposal in consultation with our independent advisers.
The board will recommend and pursue the course of action is believed to be in the best interests of Comtech stockholders.
Best interest that will maximize shareholder value.
Unfortunately, that's all the detail we can provide at this time, but we'll continue to keep you all updated on the process.
We want to deliver much value as possible to all of our shareholders. We strongly believe we have the strategy the management team and the board in place to do it.
With that let me turn the call over to Mike.
<unk>, our incoming CEO Mike.
Thanks, Fred and good afternoon, everyone.
<unk> talked about this being in an exciting and transform transformative time for Comtech and our investors and he's right I've said this before but I continue to believe we are uniquely positioned to capitalize on growing demand worldwide for solid ground station infrastructure and next generation 911 systems, we believe the total addressable market for <unk>.
Satcom communications equipment based on a study by Northern Sky Research is expected to grow from 5 billion to 9 billion by 2029. We also believe that the N. G 911 market based on a study by Frost <unk> Sullivan is expected to grow from $689 million to $1 $7 billion by 2026 and as we.
Work from Covid and global supply chain issues, we believe we will capture our fair share of this growth.
Although we have a we used to go fiscal 2022 is starting to shape up to be in line with our expectations. We delivered a solid start to the year with net sales of $116 8 million and adjusted EBITDA of $5 5 million.
Our team continues to do an excellent job navigating the impacts of Covid and supply chain disruption across our end markets and as a result of these efforts our financial performance appears to be running slightly ahead of schedule.
Although reliable forecasting remains challenging in this environment, we continue to target fiscal 2022 net sales to be in the range of $5 $80 million to $600 million and adjusted EBITDA between 70 and $76 million. These targets reflect the strength of our backlog and strong sales pipeline offset by the impacts of COVID-19 and timing consider.
<unk> associated with the global supply chain constraints and startup costs associated with the opening of two new high volume technology manufacturing centers.
There were several large deals that we still expect to close in the second half of fiscal 'twenty, two and we have seen progress towards capturing them I'll provide some more color on these and other key developments in our sales pipeline and end markets and product innovation, but first let me turn the call over to Mike Bondi, Our CFO, who will comment on our financials Mike.
Thank you, Mike and good afternoon, everyone. As Mike mentioned Q1 results were slightly ahead of plan net sales were $116 $8 million.
<unk> sales 78, 6% were U S based customers and 21, 4% were to international based customers.
Bookings for the first quarter were $86 4 million, resulting in a book to bill ratio of <unk> 74 for the quarter.
While period to period fluctuations in bookings are normal in our business. We see evidence that COVID-19, and supply chain constraints are continuing to impact the timing of new orders deliveries and installations.
Nonetheless based on anticipated new orders, we expect to achieve our fiscal 2022 book to bill ratio in excess of one.
Our gross profit percentage in Q1 of fiscal 2022 was 35, 7%.
SG&A for Q1 of fiscal 2022 was $28 2 million or 24, 1% of consolidated net sales.
Turning to R&D, we invested $12 $5 million in the first quarter or 10, 7% of net sales.
Total amortization of stock based compensation during Q1 was <unk> 9 million.
Total amortization of intangibles was $5 $3 million in the first quarter of fiscal 2022.
Our GAAP operating loss for the first quarter was $6 5 million and reflects $2 $2 million of proxy solicitation cost.
$700000 of restructuring costs and $700000 of COVID-19 related costs.
Excluding such costs, our non-GAAP operating loss was $3 million for the quarter.
Our adjusted EBITDA was $5 5 million or four 7% of Q1 consolidated net sales.
On a segment basis in Q1, our commercial solutions segment contributed $9 $1 million of adjusted EBITDA or 11, 5% of related net sales.
And our government solutions segment contributed $600000 of adjusted EBITDA or one 6% of related net sales.
Interest expense was $1 $6 million in Q1, and our income tax benefit was $2 1 million.
On the bottom line GAAP net loss in Q1 was $6 million or <unk> 43 per diluted common share.
Non-GAAP loss in Q1 was $4 million or <unk> 15 per diluted common share.
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 $4 $8 million for the first quarter, our balance sheet as of quarter end includes $39 million of cash and cash equivalents and our total debt outstanding was $108 million.
Our current secured leverage ratio as defined in our credit facility was 157 times and reflects a substantial reduction from 253 times as of July 31 2021.
This ratio in our Q1 debt levels reflect the benefit of the $100 million strategic growth investment that we announced in October that investment significantly enhances our financial flexibility and strength strengthens our ability to capitalize on large recent contract awards and to meet the growing demand for our.
Technologies and next generation 911 public safety solutions.
Now before turning it over to Mike Let me provide commentary on our fiscal 2022 financial targets that we are reconfirming. Today, we are still targeting fiscal 2022 consolidated net sales within a range of $580 million to $600 million and adjusted EBITDA between 70 million and $76 million.
We continue to estimate total fiscal 2022 amortization of intangible assets to be around $22 million and stock based compensation to range from 12 million to $14 million.
Interest expense is now expected to be around $5 million in fiscal 2022, and our effective tax rate. Excluding discrete items is now estimated to be about 21%.
There was little change in the cadence of our expected fiscal 2020 to financial performance that we discussed in October.
The first half of 2022 is expected to be significantly lower than the comparative period of fiscal 2021 with our second half of fiscal 2022 expected to be significantly higher than the comparative period of fiscal 2021.
We continue to expect our quarterly results to build sequentially throughout the fiscal year with the fourth quarter being the peak quarter by far.
Specifically, we are expecting Q2 revenues of approximately $125 million with adjusted EBITDA of around $8 million, both metrics representing sequential improvements from Q1 of fiscal 2022, and both reflect our current assessment of various supply chain issues.
We may do better, but we think we are being prudent with these targeted amounts.
As global supply chain constraints have extended lead times for certain parts. We are closely monitoring our inventory levels and supplier base and cautiously anticipate that supply chain constraints will ease during the second half of fiscal 2022.
With a strong sales pipeline and backlog of $628 $5 billion at quarter end, which is $23 million higher than our backlog a year ago, we feel pretty good about the full year.
You need to book, some large orders to achieve our second half targets and timing remains difficult to predict that said these opportunities are well defined and they include new orders for the contact comet and other triple scatter solutions now I'll hand, the call back over to Mike porcelain.
Thanks, as I said earlier I want to take some time to talk about the developments. We see today that we believe are strong indicators that content gets the right strategy to deliver long term growth.
I am confident that we do have the right strategy.
One key indicator is our strong backlog and long term visibility a clear indication that our customers recognize comp because the right products and services to meet critical communication needs for satellite ground station infrastructure and next generation 911 systems.
We certainly have a market leadership position in the next generation 911 space as evidenced by our fiscal 2021 multiyear contract awards totaling over $200 million.
As evidenced of our industry expertise some of even called our next generation 911 product line, a crown jewel and we don't disagree.
Our industry expertise has also enabled us to develop a strong leadership position in our satellite Earth station product line, while we have been recognized as a leader in the growing satellite cellular backhaul market.
Perhaps the best independent validation of our industry experience and our strength, which is the fiscal 2021 award of a multiyear contract to customize context next generation broadband satellite technology.
No doubt our team has built a complete product portfolio that should serve us well for many years ahead.
Based on our current pipeline of opportunities. We believe we have over $1 2 billion of visibility into future potential revenue.
I'd like to first highlight our team's successes in terms of business performances and new contract wins, and then also touch more on the direction of our markets.
In our commercial solutions segment net sales were $78 9 million in Q1 of fiscal 2022, we received orders totaling six totaling $60 8 million in Q1, resulting in a book to Bill ratio for this segment of <unk> 707 X looking forward, we expect fiscal 2022 sales in the segment to accelerate over the course of the year.
And ultimately be higher than 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 year's comparable quarter, reflecting increased sales of our next generation 911 services and location based technology solutions.
Now let me highlight some recent wins that demonstrate our competitive position and set us up for long term growth.
We previously announced $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 2022 as compared to 2021.
In fiscal 'twenty. One 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 have won a multiyear statewide contract award value of $35 8 million to design deploy and operate next generation 911 services for the state of Arizona.
The total contract value includes a multiyear contract extension option.
Contract also includes implementing our next generation 911 solution is to provide citizens with advanced communication capabilities, when calling for emergency services, including police fire and emergency medical services.
Through the use of our next generation system, Arizona will be able to offer a seamless coordinated and efficient and G 911 system to all of the states local 911 centers at the same time. The award includes an ability for Arizona to purchase context solar come call handling solutions for peace apps as well as offer on.
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 solutions, and we hope to have more to come.
We have also previously announced the contract award to provide next generation 911 services for the state of Ohio, Iowa. This multiyear statewide contract includes extension options and is valued up to $48 5 million initial funding for the contracts was $23 million.
Additionally, and as mentioned on prior calls contact was selected as the winner of a multi year next generation 911 contract for the state of Ohio, and we do anticipate that this contract will be initially funded in our fiscal 2022 for clarity the state of Ohio is not included in our backlog.
Other notable contract awards in our public safety and location technology product line. During Q1 include a $5 6 million dollar contract with a U S. Tier one mobile network operator to continue providing messaging application support a $1 7 million dollar contract with a U S tier mobile network, operator for trusted location services and another.
$1 3 million dollar contract with a U S tier four also precise location services.
We are clearly ideally positioned to continue building out various situational awareness data products for 9 million customers and are working on several exciting initiatives in the public safety area. In addition to incorporating our first cyber security software training program like we did in the Arizona contract. We have now begun marketing a new solution.
Called Smart response.
This is an innovative cloud based solution that offers a common operational platform to first responders for an effective data driven response for security agencies and others.
This solution can provide live feeds from traffic cameras caller information criminal history and other critical information all at the top of a button.
The smart response solution empowers Pea shop employees to ensure the appropriate resources around machine to better service the public in emergency situations.
While sales of this product are expected to be nominal in fiscal 2022, we are investing in R&D in 2022, because it is clear to us that our solution meets a critical and growing need of 911 responders all in all from everything we see both our current and future customers. We're seeing increased funding for next generation.
<unk> 911 solutions, given the broad recognition of the critical importance of upgrading the country's 911 systems.
I simply cannot overstate the vital role that 911 service plays as part of the U S. Government's nationwide emergency response and disaster preparedness system. We think it is clear to governments at all levels that aging 911 infrastructure needs to be addressed and that comtech as a leader in the deployment of next generation 911 solution.
On this topic in a particular value to comtech given our expertise in satellite ground station infrastructure I want to point out that satellite services are playing a more important role in the nation 911 network.
Not only in rural areas, but as backups for peace apps and individual calls as well.
As I discussed on our last conference call in August of 2021. It was reported that Apple was working on incorporating satellite capabilities for its iPhone models and models and this will allow users to call and are taxed in emergency systems using satellite.
Even starlink is rumored to be developing a plan to offer phone services over satellites. These services will need trusted location information and ultimately I believe that satellite systems, including our CPC and TDMA networking platforms will be incorporated into 911 systems given the importance of these systems given.
Our complementary expertise in public safety and satellite ground station equipment. I believe we are uniquely positioned to be a leader in this growing market and to leverage our solutions across segments to drive new business opportunities.
At this point, let me provide some updates on our satellite ground station business here things remain challenging net sales for the quarter were lower than last year's comparable period. As this product line continues to be impacted by the COVID-19 pandemic on customer demand, particularly in international markets, which historically represents a large majority of end users.
For this product line.
I should say that we believe demand has simply been delayed as companies and governments alike grappled with responding to the pandemic and that over time. This business will not only resume its growth trajectory with that trajectory will actually accelerate.
As you know we completed our acquisition of <unk> networks in March and believe this revolutionary technology has the potential to transform the growing very small aperture terminal or VSAT market as well as our participation within it.
With end markets for high speed satellite based network significantly growing we are really excited to have extended our product line to include TDMA motives.
Despite the impact of Covid and global supply chain issues on this product line, we remain confident in our satellite Earth station product line is set for growth. We continue to see strong sales pipeline growth for satellite based cellular backhaul services due to increased planned penetration of <unk> in developing parts of the world.
There remains a growing need to use satellite network technologies in remote areas with terrestrial network infrastructure is simply lacking.
Finally, we are looking to enhance our focus on addressing U S government needs.
In this product line as is evident in the news our military is very concerned about supply chain risk and cyber warfare issues. Specifically they are concerned about counterintelligence efforts by outside actors from certain countries and whether they can penetrate the supply chain in a manner similar to the worldwide solar incident that occurred.
In 2020.
In response and in discussion with our customers. We are looking to set up a focused satellite Earth station group based in the United States that will cater to this need we have shared our plans with certain government customers and so far feedback is good and we are taking specific guidance from them to protect their critical supply chain.
At the same time now that we continue to get more experienced with our USP products. We are looking at ways to further accelerate sales of these products and expect to form a new group within our satellite Earth station product line that is focused on satellite networking platforms. This will include new branded efforts, along with focused marketing and specialties.
<unk> R&D efforts as the year progresses, I hope to share more news on these developments with you.
Now, let me turn to our government solutions segment, where here sales were $37 8 million a decline from last year as we previously disclosed and as anticipated net sales in this segment reflect the impact of the U S. Government's decision to fully withdrawal of troops from Afghanistan. In addition to other U S government program changes.
Although still difficult to predict with precision we expect that net sales in this segment for the second and third quarters of fiscal 'twenty two will approximate the amount achieved in Q1.
Thereafter, the segment is expected to benefit from increased higher margin programs, including the receipt of new orders for the contact comment and I'll, let <unk> solutions book.
Bookings in this segment for Q1 were $25 6 million.
Sales and adjusted EBITDA contributions in this segment during the second half of the year are expected to come from sales of joined cyber analysis cost training solutions anticipated awards for high reliability or triple lease space parts in engineering services, including those used to support NASA missions and.
Anticipated orders for our high power amplifiers, many of which are used in funded electronic warfare programs.
Large awards for Copa SCADA systems in the European part of the World and also deliveries of six existing backlog for VSAT satellite equipment, an XY satellite antennas with respect to our joint cyber analysis cost training solutions. We previously announced that we were awarded a five year <unk>.
Contract from the U S government valued at almost $125 million.
This award was a renewal that acknowledges our excellence in developing and delivering complex cyber security operations training at the scale and demanding operational tempo required by our federal government customers and we certainly have the industry expertise to do so given that this is one of our nation's top priorities we have.
Expect to receive additional funding on this contract over the course of fiscal 'twenty two and beyond.
In our first quarter of fiscal 'twenty, two we received approximately $4 9 million in funding and we are honored to continue performing this work.
Given the expected low level of total net sales in the segment as well as the startup costs relating to the opening of our UK manufacturing Center as Mike had mentioned adjusted EBITDA in the segment will continue to be unusually low for the first three quarters of fiscal 2022.
But as we look to the second half, particularly Q4, we expect that the orders for our common <unk> terminals, both in the European part of the World and other parts of the World and New VSAT solutions that we are actively discussing with our customers will benefit our Q4 quarter.
Trials and demos are well underway and in many instances we've been told that we've been selected as a sole source for their needs timing is always difficult to predict and 2022 is no different that said as we said on our last call. It's not a matter of if but when and that is exactly why we are making the necessary investments in this.
Category <unk>.
The numbers and given the timing of investments versus oriented anticipated returns. We continue to have modest expectations for adjusted EBITDA margins in the segment for the year, but we are confident that we are on the right track to deliver meaningful future growth in several years ahead.
Now before I turn it back to Fred I would like to comment on one more topic.
On our last earnings call, we announced that I will be taking over as CEO and president of Comtech and joining the board at the start of the new calendar year.
I am very excited about this great opportunity to lead Comtech and I am very eager to hit the ground running in my new role.
I have discussed plans with the board and our management team that I think will result in more shareholder value down. The line. Some of these initiatives have been underway for quite some time.
First and of utmost priority because fiscal 2022 was a difficult year. The entire management team is focused on successful execution.
It is critically important that we successfully execute on our $1 2 billion plus of revenue disability as well as our new contract for customized next generation satellite technology.
In order to take advantage of these opportunities we are committing more than $30 million of capital investments, including the build out of two new state of the art production facilities.
Make no mistake. This is no easy task and getting a new high technology center built out during COVID-19 with higher labor costs and high construction costs and a focus on safety has been difficult yet our team is doing an admirable job.
Second I intend to increase companywide collaborations to exploit emergency emerging long term opportunities for example state and local nine one agencies clearly have a need for cyber training and preventing outages here I believe we have untapped capabilities and can meet requirements that are viable.
As I mentioned earlier on the call I'm working with our subtly team to establish a focused U S defense group as well as a focus satellite network group here as the year progresses, I will talk more about our plans going forward.
Third I do believe we can modernize our corporate branding we built a very recognized product brands, but I've always believed that is confusing to both customers and investors alike. In my new role I intend to make very visible changes here.
As such we are working to enhance our marketing, including a new contact website to leverage scale and establish a prominent social media presence, we've been beta testing, improving our site and functionality with many customers and the feedback we're receiving has been terrific.
Fourth I do expect to expand the talent pool across the company as part of my taking a new role we are actively seeking to fill a new chief operating officer role and a strategic industrial relations professionals.
Both searches are well underway with outside agencies and just last week.
We announced the hiring of a new company wide HR professional to energize corporate culture and help further align our employees.
Fifth I am continuing to conduct an evaluation and assessment of all product lines, and revisiting and reviewing all acquisition opportunities to establish strategic priorities to optimize and deploy our we our recent $100 million should strategic growth investments.
Finally in both my old and new role I've been evaluating and discussing with our board on potentially changing our segment reporting and revisiting our non-GAAP EPS calculations.
Our current segment reporting was put in place years ago, and while the segment reporting has served us well given the different growth dynamics of some of our product lines I've always believed it makes sense to revisit this and make a change and we've been spending time, because we want to make we want to do it right I've been working with both Mike Bondi, Our board to develop some metric.
That will better highlight the value of certain businesses.
Everyone will be pleased when we do so and we hope to announce news on this down the road at some point during the year.
With that let me finish and take one more opportunity to thank Fred on behalf of myself the management team our employees customers shareholders and board of directors for his years of tireless dedication leadership and service to Comtech.
So it is 40 plus years of history here Fred No doubt, please contact blue and he's achieved many great accomplishments and position the company extremely well for continued success.
Very much for me to you Fred Thanks, and with that let me turn it over to him who will provide some closing remarks.
Thank you Mike for their warm sentiment.
As I look back over the years I'm very proud to have served as CEO and president of this great company.
It truly has been a privilege and honor.
What's going on.
As for Rolls.
I have never been more.
We're confident that our company has the right board and management team the right strategy 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 again declared a dividend of <unk> 10 per common share payable on February 18th.
<unk> 22 to shareholders of record at the close of business on January 19 2022.
Now I would like to proceed to the question and answer part of our call operator.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
You may withdraw your question at any time by pressing the pound key.
Once again for your question that is star one.
And we'll move first to Joe Gomes with Noble capital. Please go ahead.
Okay.
Good evening, and congrats Fred and Mike how the new roles.
Thanks, Thank you Doug.
So just wanted to.
Talk a little bit about the.
Next generation 911 business.
Got a couple of multi part type of question here.
David.
Giving us all the contracts that have been won.
So kind of a first question on Ohio.
Whats kind of the hold up there and the funding for that.
Also I was wondering maybe you could talk has there been.
Potential projects that you've lost and if so maybe give us a little.
Insight as to why you have and then.
A couple of years ago, you got an award over in Australia, and we really haven't heard much or anything about that business. I was wondering maybe you can give us an update on that.
Sure.
Yeah in terms of Ohio. It is strictly a question of funding and then I will say is the good news is from our understanding it's a pretty bipartisan funding effort thats going on the governors in full support of the contract as we understand in both the Democrats and Republican leadership on the legislative side.
<unk> are working together to pull together the funding.
Without going into the intricacies of how the state tax system works in Ohio, and the funding mechanisms. There is a requirement for the legislated actually pass something and the Governor signed it. So there's just a question of the mechanics that theyre working too and it took some time for them to come up to agreement, but it is possible that data award actually.
<unk> done in December if not by April and so there is just they have to work through the mechanics, but I think everybody that is connected to the contract as well as the state of Ohio is anxious to get the program going on so.
That's the Ohio issue.
In terms of contracts, we lost I mean look I.
Have to go back probably to California for maybe a year ago or so.
Did you, California was a unique state they broke up the state into multiple regions.
Certain certain counties within California had.
Call. It incumbents, if you will in contact wasn't one of those incumbents. So we were coming at it from a <unk>.
<unk> perspective, and then ultimately.
I will say in a very.
Odd way the state of California chose a company that was based outside of the United States.
From our understanding is the state hasn't made much progress.
That vendor or with their new system in.
You can assume that we're reminding the state of California is that every day and we're standing ready to help them.
Get their contract going on and I think we.
The successes.
We bring in the wins, we've won is because we've had successes both in terms of the rollouts and lack of outages and issues and just getting the projects up. These are very complicated systems and so youll states are very careful of how to roll them out but that would just be an example of one contract that we lost that's of note.
And other than that.
As I said before every time, we announce a solar Tom contract, which is a good way to Australia every time, we announce a solar contract contract would generally picking market share because most states and local municipalities have some type of call handling software. So every time, we announce a new customer that's really you win and I don't recall.
Any any losses of note if not even of significance in the solar coal handling part of the business.
Which is a good segue to Australia, it's known as Triple zero.
It's an emergency system, we have a partner with Telstra who is.
Call. It the prime if you will I can just tell you you haven't heard anything because it's going very good.
We're rolling out and installing the stuff, we're working with customers on enhancing certain functions and features features in.
Functionality.
Looking and talking with them about New Zealand and other types of things so.
Hopefully youll hear more about that.
We are working with some.
In connection with Smart response in some of the video and technology in imaging requirements that.
Australia as well as U S. States are looking for we are working on a whole bunch of enhancements and obviously if you look at the R&D spend that we're doing this year you can see that we continue to invest in this product line.
For for growth, so hopefully that answers your questions.
Since they did thanks, Michael one other one if I may.
You talked about.
The comment and the Trump scatter.
Potential contracts here of new orders.
In the second half of the year.
Maybe you could give us a little more insight as possible as to.
No.
Why you're confident in receiving those.
And has the continuing resolution.
Have any impact I guess, not just on that but in some of your other government type of contracts.
Well I don't want to disclose the specific country.
We're focusing on because that would provide some information to potential competitors out there, but this particular country does have a need.
For communication services for a variety of both defensive reasons and communication regions.
And I can tell you that the.
Award is really split into two pieces, it's one with the government directly and one that is effectively being funded through the U S government. So again.
Both the both the foreign government and the U S. Government are working very closely together and again without specifically calling out the country.
Think we just feel pretty good that they need the equipment and there is an intense intense focus to make it happen that being said we call. It out because as you know some of these things are just difficult to predict because of timing and lumpiness.
Okay, great. Thanks, I'll, let someone else ask some questions get back in queue.
And next to Mike Latimore with Northland Capital. Please go ahead.
Yeah.
Okay, great. Thank you.
Interesting.
One a little bit more about the satellite backup services for SaaS.
Can you just provide a little more color there.
Are there rfps are already work.
The revenue per per piece App.
What's the catalyst to get.
These kind of services.
Yes, Mike.
Yes, there is.
Roughly 4000 piece apps, if I'm not mistaken in terms or 6000 I forgot the exact number is in our slides so bear with me on the difference but.
A large majority of those shops are in rural areas, where.
Telephone lines, where connectivity is not great to begin with but it comes back it really just comes up to backup and I can tell you that state and local governments for the most part.
They don't have backup.
Which is why when you see on the news sometimes the 911 system go down for a variety of reasons and the 911 system just doesn't work and you have to call a local number directly to that piece up so the market is pretty big.
Got it.
It's going to be a question of funding and getting the states and local agencies really on a onesie <unk> type basis to fund. These things, we think programs and funding such as the infrastructure Bill as well as some of these 911 builds that are floating around in the Senate and the house will be helpful to making that.
Initiative.
Take off if you will.
I can tell you that there are states like for example in the state of New York. There are states counties are up in the rural parts of New York that you use satellite backup systems and in some cases use satellite as the primary method of transmitting cost over the 911 system. So there is definitively a market. It's a question of funding.
But the thing thats going to drive it as not only funding by the federal government in the state, but the fact that you are putting 911 systems now with video and text messaging and imaging.
Like any regular.
Enterprise <unk>.
Reliability and redundancy becomes important.
And again the states are learning that as they go through this process and so yes. Some states are looking at putting out in the RFP, but I will also tell you. It's in the infancy stage from that perspective, because the state first needs to get the next generation nine one system up so again some of the some of the stuff I'm talking about is not going to be revenue.
That's going to hit in 2022, maybe not even 'twenty three although I would like to be a little bit more optimistic but these things will take some time and look you can do your own math.
And I'll use I'll stick to the low end 4000 piece stops times $100000 worth of equipment.
Such a market size.
And.
You could you could double that if you want if it's 200000, maybe there is a recurring revenue it's a new business model that we're working on to roll out and again, we will report back to you.
As and when we get success in that market, but we are working on it.
Great.
And then on the current 901 deployments are they basically hitting the plan or has some of the.
Labor shortages slow deployment.
Hi, Mike in terms of the deployments they are moving along as planned.
According to the milestone set with the customers so.
Fortunate for US right now, we don't see any issues with that certainly as like in Pennsylvania being mindful of the winter and this is work that's being done outdoors laying fiber and stuff like that might slow things down, but I'd say overall things are looking pretty good there.
Okay, and then just last one.
I guess, what is your interest level in making more acquisitions than maybe what technology areas would be top of interest.
Yes, certainly.
Acquisitions do.
And our part of our thinking.
Both on a tactical basis and within each each of the product lines. It's one of the benefits of having a $100 million strategic growth investment and the benefit of having folks like white had capital and magnets are associated with the company because both given the given the industry expertise that.
We now have access to as well as the relationships and partner network. If you will it's really going to be helpful to bring in better deal flow. If you will and also the capability and expertise to do some of these things.
I kind of look at our markets and the sort of dose.
<unk> is a little bit the way, we're thinking about the segment information, but look we've got 911 and location products, which we know very uniquely tied together.
Although you do have cross pollination with the satellite business and redundancy in some of the cyber training staff. We have a product line that is really satellite in space components and when you sit back and you look at the 911 business you have certain market dynamics that are growing there and we feel there are some software companies that are out.
There are some additional features and functionality from a technology perspective that we could add to our systems.
And that you can then sort of take that out is there is things such as evidenced tracking and dispatch systems and other things that you could add to the 911 system. If you start extending in talking to your customer, but I would say to your local spot Smart response is the reason why we developed.
That type of a system.
Because I don't want I don't want to say, it's like a plug and play but similar to you have an API with software that you could take certain functions and feed it into the sport Smart response system like we are doing with cameras for a particular customer.
That's how we're going to sell and we think I think we're going to go to the states that we currently do business with first and Thats the best way to do it right. We've got states like Washington Commonwealth of Massachusetts, and Pennsylvania, and South Carolina. So we have what I would call very good relationships with these customers in there.
Getting good and growing every day and as we're talking to them about their unique needs, we're able to find out what they need and if we don't have the technology in house or we can't develop it in house, we will certainly go acquire it if we think the ROI is there and Thats an Avenue Thats, an example, where the 100 million.
This is good for us to go to go to do that at the same time satellite and space communication market look there are thousands of Leo satellites that are being launched we're getting into the TDMA market. We've been very pleased with.
<unk>.
The market reaction to our TDMA products at the same time, we're very focused on building out what we call a focus U S defense group to respond to supply chain risks that the U S government is seeing and concerned about and so as we build out both the U S government piece of it related to our satellite Earth station business, we may add some additional products.
In future sites, whether it's additional security and software or certain things that the U S. Government customers may want we may tap in there and at the same time on the commercial side with our TDMA and our Heights platform. We are working on a new product set.
Sure.
Bringing the best of.
The TDMA and Sep's, new technologies that we have and you will hopefully hear about that later on this year, but as we continue to talk to our customers.
We're getting feedback from them and we'll probably do some some tactical acquisitions in that space and we are we are revisiting M&A as I said, it's one of the things that we're doing and as we as we look to how to deploy the strategic growth investment in the most optimal manner, that's going to be one of the year.
Is that we will use our use of proceeds.
Okay got it thanks, very much and congratulations Mike.
Thanks, Mike.
Okay.
Okay.
And we'll move next to Kyle Mcnealy with Jefferies. Please go ahead.
Alright, Thanks, a lot I'm on for George Notter I also want to say congrats on the transition Fred and Mike and thanks for the additional clarity on your initial priorities. After the change I wanted to see if you could give us any clarity on the incremental R&D and sales and marketing investments opex overall that youre, making on the new opportunities that you have that arent.
Fairly generating revenue yet.
Could you give us some clarity on a dollars basis or a percentage of revenue basis, we're trying to understand the split out of what the base business is doing.
In relation to revenue versus new opportunities that you're investing in like Leo and MEO and then any new next Gen 911 wins that flow in.
Sure Kyle.
In terms of the investment I would say thats not generating revenue at this point would be around $3 million, if youre thinking about it for.
Where we're spending that money, it's focused on as you mentioned the Leo EMEA space.
Upgrading like Mike was talking about smart response.
Areas of the business like that that's where we're focusing on that just to be clear that's incremental spending versus last year that we are spending more than that in those areas, but it's incremental versus last year.
Okay is that a quarterly basis that the annual figure that $3 million.
That's an annual number.
Okay, Great do you have any additional anything additional in terms of the timing on when you know bigger step ups in that Leo and MEO revenue opportunity can ramp up or any larger and genome one deals that might be on the horizon that can meaningfully and flex sales in that business as well.
Well, let me let me specifically told you on my large contract for next generation contract is not.
I'm not going to discuss anything for that.
My customers extremely sensitive towards.
What we can say and talk about that so I just would like to.
Punt on that issue and obviously when we get the order.
We will be able to talk about it.
In terms of the 911 stuff again, we're thinking about the second half of the year.
And that's what we're thinking.
Okay, Great one last one for me and I'll jump back into queue.
You are guiding for a pretty big step up in the back half for this fiscal year I know that thats typically what.
Our year does in terms of shape, but this seems to be a bigger even bigger ramps in most years I'm curious how much of the kind of post pandemic normalization is required to achieve that back half like would you say, there's still conservative or is it dependent on face to face meetings are opening up back up in a bigger way and some kind of a bigger inflection.
And satellite ground station satellite ground station business, that's been relatively slow for the last few quarters or a year.
I would say the number one.
Thing for us for the Q4 really is in the common and the Troper Scott those opportunities that I was referring to.
We have conducted in country trials already so that's been that's been taken care of so we've actually been in country and now we're out of the country.
And we're trying to work with the customer to get those fundings. So again sitting here in December it takes a couple of months to hopefully work out those contracts if not sooner but.
Like I said, the contracts kind of being split into two funding mechanisms and that's what we're working with so I don't think it requires a reopening per se.
And I think this is a matter of just getting that particular product funded and.
With the customer.
The rest of the stop Covid and supply chain.
I think we haven't factored in.
It's not a pretty situation out there at least from our perspective on the international front.
If you look at.
Our revenues in Q1 in our commercial segment again, we kind of almost did the same in Q1. This year as we did last year. So the big drop in Q1 year over year is really almost all in the government side of the business due to the Afghanistan and other program changes on the revenue side. So.
Again, I don't want to use the word muddle along if you will this year, but look it's a challenging year no no last when you look at the comparative years comparative view that we have but we need those strokes got orders for the second half.
Okay. Thanks, very much that's helpful.
Okay.
Okay.
And as a reminder, that is star and one will move next to Asia merger with Citi. Please go ahead.
Oh, great. Thank you for the opportunity congratulations on the go.
Quick question.
<unk> had been asked but.
Q1 are off to a great quarter and good.
For you guys.
Ahead of expectations as you guys talked about was there any pull in that happened from <unk> into <unk>. It seems like the guide for 125 on the top line and eight on the adjusted EBITDA is a little bit shy of what I was expecting.
Just wanted to see if there was any quarterly.
Changes that happen in a pull in from <unk>.
If it did.
Segment without them. Thank you.
Hi, Assia.
In terms of the Q1 results I mean, there is a lot of puts and takes but nothing that was.
Pulling from Q2 is just timing of when we could get stuff out and based on parts that we had and what we could get out the door. So.
Certainly if we could get something out we will.
Okay.
Okay. Thank you and then also on adjusted EBITDA anything that you can be mindful off for the second quarter.
I would just say and we said it in the prepared remarks of our script our government segment is.
Going to be very similar to what we did in Q1.
And we will continue to be that way, even in Q Q3 before really.
Bouncing up in Q4.
Our hope is that we might be able to get these orders in for the Troper scatter stuff early and that May help us and that's one of the comments, we make if we get these things.
Earlier in the year it might be helpful to making Q4 not as high as it is but when we set the initial guidance at the beginning of the year we.
We're mindful of Covid, we're mindful of the global supply chain issues were mindful that things could go wrong. So yeah I.
I think Carlos earlier point in his earlier question, Yes, Q4 is higher than it normally is and I'd like to think that that's conservatism, but I think I said on the same.
So I'll use the same word I think I used on the Q1 conference call or certainly I've said is I think we're being pragmatic and realistic.
And if we if we're able to get the orders in earlier.
The quarters will be better, but we're just we're still.
We're navigating a very challenging environment on the supply chain side as well as Covid and again just as recent spike with Omicron is just causing people to get get all nervous and countries. Some countries are shutting down and you've got to go through testing currently in again so.
Not a good time to be building satellite network systems and even in the U S. It's just it's not a good time to.
To go into a piece up into upwards.
Okay. Thank you.
Okay.
Okay.
Ken once again that is star one.
To follow up from Kyle Mcnealy with Jefferies. Please go ahead.
Yeah.
Okay.
Kyle Your line is open you may be on mute.
Hey, Thanks, a lot.
Squeezing me at the end again.
A lot of your bigger success for <unk> has been for core services I know the telecom has been doing well, but.
But the big contract wins have been core services related what traction are you getting now for Soma Com you mentioned, a few things on the call but.
There are an opportunity for your core services deals to pull through more solar com for pizza call handling and I'm thinking in states like Washington, Massachusetts, Pennsylvania, South Carolina anywhere that Youre deploying core services like what's the outlook there in terms of opportunities to kind of get some synergies between power.
Call handling and integrations with core services that might be.
You know might work better with with everything from a single vendor.
The integrate cargo.
Thanks for the softball question.
State of Arizona is great. Great example, we just won that contract.
And to do the core services and with that I call. It we get a hunting license, we get permission to go to the Pea shops and sell the silicon, calling on software and that initiatives well underway and you're exactly right. Our hope is that we are going to be able to extend silicon into the state of Arizona, There's lots of counties in south in Arizona that do not do.
Do that and we think again every time we win.
Our contract in the state of Arizona, It will be basically taking market share and youre exactly right customers like to have the same systems.
Connectivity is more seamless one vendor to point too and that's been part of our strategy South Carolina same situation.
And I can tell you that that's a.
<unk>.
State that we've been executing to that strategy. So again some of these contracts are small, but <unk> basis may not hit that individual press release threshold, but yes.
We're executing to that.
Alright, thanks very much.
Okay.
And it does appear there are no further questions at this time.
Okay that concludes.
Today's call I'm going to.
Thank everybody for joining us today.
Look forward speaking with you again in March.
But in the meantime, as a reminder, our 2021 annual meeting is scheduled for December 17.
And we strongly urge you to vote the blue proxy card.
Thank you very much.
This does conclude today's program. Thank you for your participation.
May disconnect at any time.
Okay.
Okay.
Okay.
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Hmm.
Hum.
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Mhm.
Okay.
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