Q2 2022 Comtech Telecommunications Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by welcome to.
To the Comtech Telecommunications Corp, second 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.
As a reminder, this conference is being recorded Thursday March 10 2022.
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 second quarter of fiscal year 2022 with us on the call today are Michael D porcelain, President and Chief Executive Officer of Comtech, and Michael Bondi, Chief Financial Officer.
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.
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 president and New Chief Executive Officer of Comtech, Michael porcelain, Mike.
Thank you, Jason and good afternoon, everyone. Thanks for joining US today, we've got a lot to talk about but first let's have a look at the headline numbers context consolidated net sales for the second quarter of $120 4 million up three 1% sequentially from the first quarter adjusted EBITDA, a non-GAAP financial measure was 9.8.
<unk> dollars $76 seven so quite sequential increase from the first quarter New bookings also referred to as orders were $102 9 million or 19, 2% sequential increase from the first quarter, resulting in a book to bill ratio of <unk> eight checks are Q2, ending backlog was $611 million compared to six two.
$8 $5 million as of the end of Q1.
Our revenue visibility is approximately $1 $2 billion. We measure this revenue visibility is the sum of our $600 million backlog plus the total unfunded value of certain multi year contracts that we have received and from which we expect future orders and we did generate $4 $8 million of cash flows from operating.
It is this despite making almost $3 million of cash payments for a subtle proxy contest.
Our second quarter of fiscal 2022 results showed sequential improvements in consolidated net sales bookings and adjusted EBITDA versus Q1 fiscal 2022.
Finally, although I wish we didn't have to do it we lowered our fiscal 2022 financial targets and are now shooting for $520 million of revenue and adjusted EBITDA of approximately $50 million, Mike Bondi will discuss these changes in a bit but first let me add a few more comments on the quarter and business environments.
The second quarter of fiscal year 2022 was clearly transformative for Comtech I took on a new role as CEO . We welcome new independent members to our board of directors. We further plans to deploy the proceeds of $100 million strategic growth investment and finally, we continued to solidify our position as a leading solution provider.
Our two key end markets are next generation 911, public safety product line, and our satellite and space communication product lines. Both are at the beginning of a long term investment and upgrade cycle and are expected to significantly grow over the next several years.
We see these two end markets are what Comtech will now call the fail safe communications market. This.
This market includes the critical communications infrastructure that people businesses and governments know they can rely on no matter, where they are on land at sea or in the air and no matter, what's going on outside from Oren conflicts to a natural disaster.
For more than 40 years concepts DNA was developing and manufacturing highly reliable communications equipment, but as markets change show did contact our customers who are next generation 911, and public safety providers mobile network operators governments and defense agencies and other enterprises require a communications and data.
<unk> solutions that work every time under the most demanding conditions as such over the past several years. Our DNA has evolved to include more secure and sophisticated wireless technologies cyber training in public safety software solutions with new leadership in place and the added flexibility to invest significantly in our strategic initiatives.
Our evolution will continue and we are optimistic as we look ahead.
Although we are optimistic we know that we face short term challenges and continued uncertainties in the second half overall fiscal 2022. We believe these items are appropriately reflected in our updated guidance for instance, the repercussions of the military conflict between Russia and Ukraine are significant.
For context, the current cost.
Impacting short term elements of our sales pipeline certain customers have Polish procurement and deployment of satellite and Trump are scattered communications systems, and instead began purchasing war fighting equipment, such as anti tank missiles and other lethal equipment.
The U S defense budget and defense budgets worldwide are now being adjusted in real time to reflect our priorities of war and changing European geopolitics on the other hand, our experience suggests that comtech will benefit from an uptick in demand as conflict and uncertainties create new and different opportunities for the types of communications solutions, we supply.
And like many other companies around the world.
We are working around supply chain constraints that include component shortages and quality issues as well as delays.
<unk> prices are up approximately 10% in the past several months and freight costs. In some cases have doubled we have had trouble getting certain parts like cooling fans and power supplies and some cases, we had depleted our stock inventory and are now on a waitlist for new components.
Finally, while we are a stronger and more powerful organization for it we are only just emerging from a drawing a proxy contest and the distraction of an unsolicited acquisition offer these events required time and focus from leadership and slow strategic execution, while competitors use the short term uncertainty to their advantage, we did experience a higher level of <unk>.
He stress and turnover some bookings and contract wings were delayed and in some cases, we lost them. Nevertheless, despite all these challenges contact face during the second quarter, our company achieved a solid quarter of financial performance that exceeded our bottom line expectations.
Now, let me turn it over our CFO , Mike Bondi for a little more details of the quarter and then I will come back and provide some more remarks on these key developments.
Thanks, Mike and thanks again, everyone for taking the time to join us today.
In our December nine 2021 earnings call Mike discussed the reasons why we believe fiscal 2022 is starting to shape up in line with our expectations for our second quarter and fiscal 2022.
Immediately following the army Kron, COVID-19, strained surged, causing further delays in an already strained supply chain.
Certain suppliers were forced to shut down production and six deliveries of expected parts.
Other parts, which did arrive fell below our quality standards and we declined to use them.
As a result, we were unable to get several millions of dollars of shipments out the door, but nevertheless in line with our thinking at the time, our second quarter results showed improvements in sales bookings and adjusted EBITDA versus Q1 of fiscal 2022.
For for Q2 fiscal 2022 we recorded a $124 million of consolidated net sales of which $81 $3 million were reported in our commercial solutions segment and $39 $1 million were reported in our government solutions segment.
Both segments reported slightly higher sales than achieved in Q1 fiscal 2022 but lower sales than Q2 of fiscal 2021 .
Of the $124 million and consolidated net sales roughly 75% were to U S based customers and the balance were to international customers compared to the year ago quarter. Our consolidated Q2 revenues declined $49 million or 25, 4% the large majority of which related to <unk>.
Lower revenue from field support activities associated with the withdrawal of U S troops in Afghanistan and other program changes.
Our gross profit margins in Q2, with 38, 1%, reflecting improvement from the 35, 7% we achieved in the first quarter of fiscal 2022.
This improvement related to a more favorable product mix as well as lower than expected warranty costs in our next generation 911 product line.
Gross margins in Q2 of 2021 with 34, 5%.
From an opex perspective, our SG&A for Q2 of $29 $8 million or 24, 8% of consolidated net sales reflect tight labor markets and our decision to continue to invest in both existing and new talent S.
SG&A costs also include $1 $7 million of restructuring costs to move and streamline our operations SG&A expenses in Q2 of 2021 with $29 $5 million or 18, 3% of sales.
On the R&D side, we continue to make long term investments R&D investments were $12 $6 million or 10, 5% of consolidated net sales.
R&D in Q2, 2021 was $12 $7 million or seven 9% of sales.
These expenses were generally in line unexpected with Q1 levels.
As it relates to our segments commercial solutions contributed roughly 67, 5% of net sales and $12 $5 million of adjusted EBITDA Government solutions contributed 32, 5% net sales and roughly $1 6 million of adjusted EBITDA.
Investors will also note that we reported a GAAP operating loss this quarter of $24 $6 million, which includes charges of $24 $8 million, including $13 $6 million of CEO leadership transition costs $9 $1 million related to our settled proxy contest.
$1 $7 million of restructuring costs, and Fortunately enough, we got $400000 COVID-19 epidemic.
Looking at the bottom line, our GAAP net loss attributable to common shareholders in Q2 was $23 $5 million or an 89 loss per diluted common share.
And our non-GAAP net loss was $694000 or three cent loss per diluted common share.
Details reconciling our GAAP to non-GAAP financial measures can be found in our Q2 shareholder letter and Form 10-Q filed earlier today with the SEC.
We continue to manage our balance sheet prudently.
Cash generated by operating activities in Q2, as Mike said was $4 $8 million and as of January 31, our cash and cash equivalents with $30 $9 million total debt outstanding was $114 $5 million and our secured leverage ratio was 195 times.
Although that will go up during the second half as we pay off a lot of the cost we incurred with the CEO transition and proxy contest, we have flexibility in our balance sheet, given the $100 million raised in October .
Before turning the call back to Mike porcelain to wrap up I have a few points to make about our updated guidance.
As we discussed in our prior conference calls reliable forecasting is challenging during.
During the quarter, the Russia, Ukraine military conflict and geopolitical uncertainty in Europe created a new set of pressures.
For us we have specifically changed our expectations related to bookings and revenues associated with large orders for our Comtech Comet troubles scatter systems that were originally going to be deployed during the second half of fiscal 2022, and one European country, which we are now disclosing as Ukraine.
This country had and still has an immediate need for wireless communication services for both defensive and communications reasons.
Funding for these systems was expected to be provided by the customer and by the U S government, despite ongoing and intense effort to obtain immediate funding to deploy comet and other satellite related systems. It has now become impossible for us to predict the timing or dollar amount of these awards for the remainder of fiscal 2022 .
Additionally, anticipated funding for other awards that we expected to book and ship has been shifted to other programs or temporarily delayed as a result of changes in defense spending priorities.
The aggregate amount of the aforementioned items approximated $35 million and we are no longer including these opportunities and our updated fiscal 2022 revenues and adjusted EBITDA talk targets.
Also as we thought about our adjusted targets for the second half of fiscal 'twenty 'twenty. Two we have tried to account for the impact of global supply chain disruptions on our customers and the possibility of extended purchase decision cycles or delays in execution like.
Like many businesses, we anticipate that global supply chain constraints, and COVID-19, pandemic aftershocks will continue to pressure, our component availability and pricing and impact logistical costs.
These disruptions have and are expected to continue to affect our satellite and space communications customers as well as our N G 91 customers.
We are also considering no new sales to Russia.
As a result of these issues, we are no longer including approximately $35 million of revenue in our second half of fiscal 2022. The large majority of which was originally expected to occur in the fourth quarter.
Adding these items together, you pretty quickly windup with around $520 million of revenues and adjusted EBITDA of $50 million or nine 6% of expected sales.
Q3 revenues and adjusted EBITDA are expected to be $122 million and $10 million, respectively with the remainder of our targeted fiscal 2022 revenues and adjusted EBITDA occurring in Q4.
While reliable forecasting remains a challenge we do believe our targets for the second half a reasonable.
Heading into the third quarter, we have approximately 85% and 50% respectively of our Q3 and Q4 targeted revenue and our backlog historically these percentages at any given time were lower.
With that now let me turn return the call to Mike porcelain.
Thanks, Mike and we'll get to some questions soon but I wanted to talk more about how we're positioned in contact to bridge the distance between our vision of the future and the opportunity that fail safe communications represent for US now I like to think I'm a realistic person. We know we're in the right markets, while having a view of the future is one thing.
Making sure a company that has the right products and services and selling them in the right channels to the right customers, there's another well.
We need to make sure. The company itself has invested in the right resources, making improvements to both our physical and human capital to execute against our long term plan change doesn't come easy and it takes some time to achieve success. When it comes to our products were ready you may have seen that we recently announced the launch of our new VSAT platform.
Although the scalable reliable software defined satellite communication system that will enable our customers to create private VSAT networks of any size and topology with infinite scalability.
We're incredibly excited about all of it as it will offer any use or the opportunity to build data and communications networks with full functionality on land at sea or in the air using next generation satellite constellations that are completely private fast and reliable.
They use cases for our elevate technology spend multiple industries, because it works everywhere aerospace agricultural land mobile maritime energy and any other application or geography, where our community government or an enterprise needs reliable secure failsafe communications in.
In a future defined by the increasing proliferation of so called edge devices, comprising the internet of things, we believe that elevate will give comtech and our customers a competitive edge.
And then our next generation 911 public safety product lines in March 2022, we announced that our new Smart response solution that we've been developing is now compatible with the rapid industrial west platform.
Smart responses, a cloud native solution for emergency communication centers that combines the most accurate location data available with color information live traffic weather routing points of interest in department of transportation camera feeds into a single common operating picture.
This product is data agnostic and can interface with any call handling or dispatch platform through its use of flexible application programming interfaces known as api's.
Rapid Usher washes and emergency response data platform that she truly links lifesaving data directly to emergency service providers and first responders together these solutions arm emergency communication professionals with the most accurate information available improving response time and performance in any situation.
Now onto some of our other initiatives.
While we have been judicious, we've been investing in our future and we will continue to do so this includes making significant capital expenditures and building out cloud based computer networks to support our previously announced next generation 911 contract wins, but the states of Pennsylvania, South Carolina, and Arizona, we have.
We'll also continue investments in capital equipment and building improvements in connection with the opening of a new 146000 square foot facility in Chandler, Arizona, the establishment of a new 56000 square foot facility in Beijing still United Kingdom, and we will also be making other investments in some of our other locations, although COVID-19.
Apply chain issues have extended our original Buildout schedule. Both manufacturer manufacturing centers are expected to support production of next generation broadband satellite technology and should be operational by early fiscal 2023.
With respect to capital investments for these and other initiatives, we expect to spend approximately $30 million in fiscal 2022 in the first half so far we spent $8 $8 million in property plant and equipment.
Another another initiative as segment reporting we're evaluating the change in segment reporting as we want to make sure our businesses on the way we present them to our customers and investors are aligned with the way the market itself is growing and changing and the way I intend to lead contact.
We are also reviewing use of non-GAAP metrics with a particular focus on the way we present non-GAAP EPS some companies in our markets eliminate amortization of intangibles and stock based compensation when calculating EPS. We historically have not done. So several investors have informed us that theres difference makes it difficult for them to compare.
Our results the competitors and we are seriously evaluating changing to this new non-GAAP EPS metric.
During the second half of fiscal 'twenty 'twenty. Two we also expect to continue to invest in our brand visibility and people. This includes new social media activities marketing and other initiatives that we believe will allow us to achieve our longer term business goals.
Our investment in people is important and.
It means continuing to invest in our employees and bringing on new talent. So far we have welcomed a new VP of HR and we have active searches ongoing for new talent in other key areas around the entire company I hope to announce some exciting new hires very shortly.
As an organization. We're also ensuring that we have the appropriate structure to serve our end markets. Most effectively. This many this means a renewed focus on increasing companywide collaboration to exploit emerging opportunities. It also means the creation of two new business units each of which will have its own agile and nimble business.
<unk> and more formalized and improve our ability to serve U S and allied governments as a defense contractor and establish a major innovation center for context growing VSAT platforms based in Canada.
This organizational shift which was first announced on January 27th 2022 is a Prime example of how we are transforming ourselves to anticipate and meet the changing needs of our customers.
I'll stop here for questions, but I want to conclude my prepared remarks by stating that this really is a unique an exhilarating time for comtech our markets our customers on the technologies. They need are all transforming as governments and communities everywhere make significant investments in their next generation Failsafe communications.
Sure.
Comtech well, we're transforming alongside them with new leadership significant investment capital for our strategic initiatives and advanced technologies that we believe put us in a leader position. We are optimistic as we look ahead to the future reflecting this confidence in our long term business outlook, our board of directors again declared a <unk>.
Even in a 10 cents per common share payable on may 20th 2022 to shareholders of record at the close of business on April 20th 2022 .
Now let me take your questions operator.
As a reminder, task a question over the phone that is star and one on your push button down.
You may withdraw yourself at any time by pressing the pound key.
Well go first to Joe Gomes with noble Noble capital markets. Please go ahead.
Yeah.
Good afternoon.
Hey, Joe.
Yeah.
So.
Obviously, a tough operating environment, a lot of things way out of your guys control, but you you mentioned you know a couple of times, Mike about you know your experience suggests.
That following these types of.
Using our are occurring in Europe right now.
That it is a positive for you guys I Wonder if you could give us maybe a little more color or detail or examples.
Where you've seen that in the past.
Okay.
Sure well you know I guess I'd, rather not talk about the past with the present I mean, if you look at the Ukraine situation itself.
We were really talking about the ability of timing right. Now we we took out approximately $35 million of revenue out of our forecast for 2022. The opportunities are still there there's ongoing conversations with various parties to obtain funding and logistical to get equipment over.
There is extremely difficult given given the situation there, but you know that's an opportunity that is probably actually growing.
You know no matter, who you know it depends.
Pending on how the outcome.
Cars are what's going to be there the communication infrastructure of the Ukraine country has now been destroyed. So our scatter equipment is perfectly aligned to to deal with a situation like that and again as you think about satellite communication systems and the need for upgraded terrestrial systems our satellite.
Indication will be be able to be deployed there at some point and.
An example of something that I would say is as the future, but what's sort of happening now.
I think you know another. Another example is you saw some news in the headline in the last two weeks that a major satellite system.
One of our competitors was jammed.
And we do a lot with the U S government and some of our allied.
Countries that really provides sophisticated.
Components and software and techniques and technologies that will prevent those things from occurring so again I think as satellite communication becomes really important and you saw that what do you on much shipping terminals over to the Ukraine to expand communications I think as you look out you're going to see that continued dimmed.
Man.
Sure well I guess I'll use our new buzzword Failsafe communications, but I really believe in it.
Okay. Thank you for that and then.
Talking about the satellite ground station.
You've talked in the past a lot about that.
Contract.
In that space, where you can't name the the other side of the contract, but can you just give us any update there what can you give us a in terms of that award.
I can't give you any update I guess is the best way of saying it given our agreement with our customer I I think I would just point out to you again I'll use the Elon Musk is the example, you could see the need for these types of satellite systems that are out there, we're a big believer that the.
The market's going to grow we believe we have the right next generation broadband satellite technology, we're building out our facilities to provide that that future demand, but I can't talk anything specific other than you know where you are hedged out.
We're working.
Well, we're working on it.
Okay.
In the past couple of quarters book to Bill below one.
Youre looking out here, especially in this type of environment do you see that that bid pipeline that you think you'd get that book to bill back over one year.
In the short term or do you think that's a longer term opportunity.
Well we.
The short answer is we actually still believe that our book to Bill will exceed one O for the year based on the opportunities in our pipeline.
It would be difficult to say what comes in Q3 and Q4 from a bookings perspective, but we do think our backlog is going to grow pretty nicely in Q3 and Q4.
We have some large orders that we still expect to close I think again the issue for US like every other company is gonna be can we get it out the door.
Some of these things we were I mean cooling fans and power supplies things that were you know available you know two months ago have suddenly just dried up so yeah. The short answer is we feel pretty good book to Bill We think will still exceed one O. If everything goes the way we're thinking about it you know we're trying to we're trying to be thoughtful.
Our approach, but that's still our target to exceed one point up.
Great I'll get back in queue. Thanks, Mike.
Yeah.
Yeah.
And well move next to Asia or chat with Citigroup. Please go ahead.
Great. Thank you very much.
Or the opportunity if I can.
Just ask the gross margins were a positive surprise in the quarter can you just elaborate on that and as you look out based on the.
Revenue guidance for the second half of the year you know if you can talk about the outlook for margins. There and then just on the SG&A side I think it went down a little bit more elevated than what I had in the model.
And is it expected to remain at this elevated level and you said you guys are investing and then lastly, just kind of what your free cash flow expectations or I'm, sorry fiscal 'twenty two thank you.
Okay.
Yeah. This is Mike Bondi I'll take that.
In terms of the first question in terms of the margin improvement in Q2, we.
We did.
See better product mix for sure and we also had a warranty reversal in the quarter that gave us some uplift there, but even without that we still would have been in the 36% range. So that's something as you asked about the second half of the year I would imagine that we would continue to be in that range.
As we have a mix shift in our business to more of a commercial.
In the second half in terms of your second question in terms of G&A being elevated and just would want to point out in terms of our SG&A and stock based compensation. We did have three retiring directors. This quarter. So we did have about $900000 of incremental.
G&A cost.
When you look at the EBITDA, though that's getting added back and in terms of restructuring costs. We also had some additional restructuring costs related to the facility move in Arizona as we're carrying duplicative rent as we're building out the facility.
But things are progressing nicely there.
So hopefully that answered that part of the question in terms of cash flows for the year, our I guess our expectations at this point in time, taking everything into consideration as we were expecting somewhere in between five and $10 million for the year end.
And obviously for the quarterly number is it subject to timing of cash collections and and things like that but you know I think when you take into account. The one time charges. We had taken in Q2, namely the proxy contest cash payments that we'll be making as well as the CEO transition costs. When you when you back that out of the number.
Think about it as adding back another $17 million of cash. So you can really be thinking about like 22 million to $27 million.
Darby you know in terms of our cash outlook for cash flows from operations for this year.
At this point in time.
Okay, Great and then just you know like I said on the.
The next generation 911.
If you can focus a little bit more on that is that like the competitive dynamic here or you know what do you think.
It's something that is requiring more investment there if I read correctly through my comment.
Now if you can just elaborate a little bit on the competitive dynamics in that seat. Thank you sure sure I think anybody in the satellite World is talking about Leos and and you know that's.
That's the topic of the day, along with the launching of new high throughput satellite HTS satellites are theres, a whole bunch, though with new frequencies coming on higher higher band frequencies, such as V band and you know people are spending that to go after that bandwidth because people need people need that additional.
<unk> capacity and speed.
From a competitive landscape. If you will at least my my my sense of it right now is that there's a little bit of a pause out there. So some customers are trying to figure out what they wanted to do with their network, which system theyre going to buy are they going to be an open platform are they going to go with a closed platform.
Our our strategy has been to date and we will continue to be date to be is we're going to be an open independent provider, we're going to service everybody that we we can service them. So I think from my own perspective, the launching of the Leo satellite systems and all of the conversations it's causing some people to pause and I think there's a little bit of.
Pressure on pricing if you will of overall in the marketplace as people are chasing things and again I think that's why when we look at it we sit back and go back to our acquisition of U H P and our entry into the TDMA market that we did in 2019, we view this as a huge opportunity because <unk>.
<unk> didn't provide TDMA technology into before so we're going after.
Enterprises around the world that have installed base, a very old TDMA networks and as they go to these new platforms, you need to change and upgrade and that's that's that's our that's our.
Sort of a.
Our playing field for us from a competitive perspective other competitors out there have to defend their platform and so long as we're investing in what we consider to be the best in breed TDMA technology platform combining it with the best in breed of our S. U P. C technology in our modulation techniques. We think we are.
Positioned well to gain I would say more than our fair share as the market grows. So again as these as these Leo launches in our systems get upgraded I think that's when we're going to see the growth that everybody has been talking about in this industry, but right now theres a little bit of a pause COVID-19 has slowed things down a army chron.
Clearly again.
Everybody thought it was coming back and still delay things, but I still think that there's this overtone of just a pause in the environment as people are making decisions on what they really wanted to know if that's helpful. But that that I guess is the color the way I'm viewing it from my seat.
Great. Thank you.
Okay.
Hum.
Too Chris Sakai with singular research. Please go ahead.
Hi, good.
Good afternoon, I just had.
I had some questions that I know in your prepared remarks, you mentioned.
Governments were changing their budget.
And I wanted to ask you.
How have you guys seen this already because of them.
Russia, Ukraine War and and.
And how is it affecting you.
Sure.
<unk> directly from the customer is how we're seeing it I mean, we we have been tracking in a number of opportunities not only the Ukraine.
Armitage, but other.
The types of equipment with.
Our customers and obviously that would include the U S government and again not to disclose specific you know things it's stuff that you're reading in the news are the javelin missile you know the Ukraine, Ukraine government is buying lots of Ukraine, Ukraine, Ukraine missiles.
So that's an example, where stuff that was supposed to go for our stock got temporarily shifted.
Yeah.
Okay.
And then.
I guess how.
Have you guys done some sort of sensitivity analysis or or something too I mean.
I mean to see if all this war expands.
Well, how much does that affect your.
Your revenue guidance going forward.
Yeah.
I think right now we're going to watch it play out live I again from our perspective, we think the second half of the year as we as we talked earlier, we're going to be able to book more than 1.0. So we think the opportunities that we're seeing will come in but you know what we'll have to see how it plays out live but I E.
Again, if you look at all of the wars that we've been experienced at least through my lifetime here. It's always it's always resulted in an increase in satellite communications.
At some point during the process. So I think I think that's their same time no deadline.
It cannot under emphasize it is in the 911 portion of the business I mean, you're reading every day about 911 system is being attacked and being you know something from a cyber war perspective. So you know as we talk to our customers.
We're finding that they have a need for increased services and stuff like that and how to best help them protect their networks and you know given that we do some of the major states in the United States, our customer numbers, they're talking to us about how we could help them and work with them to prevent the 911 system from being you know cyber attack.
So I think those types of things are they are just real examples of things that I think will benefit from.
Okay.
Okay, Great and then I guess the comment on these.
These next generation 911 system.
We had out of hopefully out of the pandemic.
Are you seeing or can you.
Thank you will expect more states to hop onboard.
Well, we we do yeah, I mean, I mean, the short answer is do we do our second half guidance does assume that you know we got a couple of I'll say smaller sized contracts, but we are expecting to receive funding for at least one new customer in the second half of our fiscal 2022.
There's another a number of opportunities that are out there, but there are those types of things are very lumpy and difficult to predict and not to forget about Ohio, Ohio is a contract that we've won its more than its north of $100 million, it's not in our backlog.
We have a contract that sign and we're working very actively with the state legislator and the government of Ohio to fund that contract and I think I mentioned to.
In our last conference call and if not it's certainly public knowledge.
No. This is a contract that has bipartisan funding support it's a question in Ohio, how much taxed or go to increase two to fund the contract.
As well as other initiatives that they're working through but they're making progress and our hope is still by the end of fiscal 2022 that contract will be awarded to us with funding.
Okay, great well thanks.
Yeah.
Yeah.
And well take our next question from Chris Quilty with Quilty analytics. Please go ahead.
Hey, Mike you had mentioned some of the supply chain issues.
No in the last month here are several of your competitors mentioned price increases is that something that you've done or are considering.
Christian I apologize it was a little low for us to hear the first part of that question.
I was just saying that several of your competitors over the last month on their conference calls have talked about the same supply chain issues and the fact that they're raising prices and I was wondering if that's something that you've done or are considering doing.
I would answer the latter we haven't done it yet.
We've been holding our prices that we've committed to for the items in our backlog.
There have been a few contracts that had been new debt, we actually have obtained price increases for.
Some of that will flow through the P&L in future quarters, but we are considering it but we haven't done anything yet.
Yeah, one of the benefits of our UHT product line for instance, it's a low cost product line.
So you know it was one of the reasons, we purchased back in 2019.
Because we felt that we could enter the market in such a way that will allow smaller customers to buy the TDMA platform and then scale up as they as they need to and you know I think we want to keep to that dynamic but look the short answer is we'd always like to raise our prices and you know when we can we will but.
We haven't done anything across the board yet.
Great and.
I for one commend you on the shareholder letter I think that's a good format a lots of information I could use some more time to read it before the call and to that point.
Like the mid point revenue came down by $70 million as I was scanning through the letter I saw a 35 million mentioned twice can you just give a breakdown oh.
Where you're taking the guidance down on the revenue side.
Sure. Chris This is Mike in terms of the $70 million reduction, we're thinking about it as 35 million coming from things stemming from Russia, Ukraine and defense budgets.
The other $35 million more in our commercial space supply tree, a change driven and disruptions and just timing, but overall yeah. As we're looking at the next two quarters, we're seeing Q3 being more similar almost exactly like Q2 at this point.
In time and with the uptick in Q4.
So most of the.
Reduction you could say as is in the current quarter Q3, with the peak quarter being Q4 still.
Thank you and.
And I know when you are looking to change your reporting but in the past you've kind of broken out language around the Earth station business and whether it was up or down in trends there or is there any.
Details you can provide.
Yeah.
I'd say, our satellite Earth station business is down versus last year, and that's really because of the supply chain component issues that we're seeing in the marketplace.
You know I think as Mike had mentioned when you look at year over year stuff and some of the guidance I mean, our revenue is going to be down versus last year. Most of that is going to be in our government segment, a significant portion of that due to the Afghanistan withdrawals and now of course, the lower comments not being in there as a replacement, but you know.
Our commercial segment as a whole is going to be slightly down I think at this point versus the <unk>.
2021.
Whether it's down you know, 5%, 8% or something like that I think we'll we'll see as the year progresses, because there's obviously, some pluses and minuses, but the short answer is our satellite Earth station business is down.
Our next generation business is doing well and you know I think that that trend will reverse as these supply chain issues leave us and hopefully we'll be able to get those comments in next year.
Got it and sticking with the the Earth station. The elevate product line is that a replacement for or is it separate from the heights platform, which is only a couple of years old.
Its really separate system, its taking a high to really I guess the way I would describe it is we've got we've got hedged to the point, where we think it's it's pretty pretty fully developed for what we wanted to be its really for very high very powerful networks that are say on the more smaller.
The campus is not necessarily something that would scale to 10015 thousand so what we're doing is with with our expertise in the type of technology that we develop in house were able to take that and sort of create a new product line called consolidate and so some of that will be backward compatible overtime.
Right, so, but you know the customers as well.
Well, we're going to continue to support them and there's many customers that have a need for a system that does exactly what <unk> is it's a very very sophisticated system.
We think that there is some government customers out there that are are very interested in doing it as well as <unk>.
Some international customers, so which is a good product line.
It's it's it's it's going to be there, but elevate is really a brand new product for us.
Brand new product, taking the best in breed for what we have out there and.
That's what we're focusing on.
And a final question on the Earth station Havent heard you talk much about five G networks and the impact of three G. P. P standards and I'm, assuming both of those capabilities are designed into the new platform.
What I would say to you is I I was just in Arizona talking about it and.
I don't want to say much except to say that we're pretty visible in the <unk> space.
You know our location business itself.
Has.
A lot of dominance in the <unk> space, particularly with the location side and as we take what we have in our relationships in there yeah. We're working on some things, but I don't want to share our our thoughts plans just yet.
Final question was that the theme song to frozen I heard on yourself phone.
[laughter].
I'm not sure.
No no comment okay.
[laughter].
Okay.
Okay.
Reminder, that is star one on your pushback.
Next to Mike Latimore with Northland Capital. Please go ahead.
Hi, This is <unk> on behalf of Mike Lattimore.
Could you tell me what percentage of your 911 business is recurring revenue and are you seeing some international opportunities for you on 901 technologies.
Sure I'll cover the first part about the recurring revenue.
That's something we've been watching we don't report anything specific but if we think about our 91 business a good portion of it is recurring.
Especially on the 911 call routing side those tend to be nice long term contracts that are pretty level in their revenue.
911 upgrade cycle those type of contracts have sort of two phases to them first is the implementation phase and then once you get into the recurring piece those contracts are as you run 357 years. So a good portion of the <unk> 911 business that we've won would fall into that recurring category.
And.
In terms of the second question could you just repeat the second question.
Oh International right.
International opportunities yet.
Yeah, I think in that in that area. We just to remind you we do full handling in Australia. So we do triple zero.
We do also work in New Zealand.
But we've also had been winning some coal handling work up in Canada. So in Canada, a lot of these cities have been upgrading to heart cyber harden their networks and putting in.
More robust Silicon Guardian call handling solutions, so we've been making good inroads there and there was a nice recurring type contracts as well a little bit of upfront implementation and then maybe one or two year.
Contract period that we look to get renewals on.
Alright can you also give some color on if you have acquisitions as an important plant for this particular area.
Well, Yeah, I think the short answer is probably yet.
But we're being very cautious about the market as a whole you know we raised $100 million for the reasons that we stated back in October of 2021, I think time has proved out the.
Intelligence of that investment in the sense of you know, we it's really provided us flexibility to our balance sheet in light of everything that's going on in the world. So I think that just turned out to be just a fantastic decision. Because you can see interest rates are now increasing and the availability for capital is difficult, but at the same time youre seeing some do.
Press pricing and in our M&A. So as a result of all of these.
The market conditions pricing I think on the M&A side has come down which could prove advantageous to us as we as we look through it but I would say our number one focus at the moment is execution of the things that we have in backlog securing the opportunities that we are chasing and really positioning the company for growth for next.
Year by itself and that's going to be my focus for the next six months, but certainly if something attractive comes along when you when you look into 2023 more.
Or maybe the second half of 'twenty to something something that makes sense.
Yes, we have the flexibility to do it so.
Is how I'd answer your question.
Alright, thank you.
And it does appear there are no further questions at this time I would now like to turn it back to the presenters for any closing remarks.
Well, Okay, I really that concludes today's call I really want to thank everybody for joining us today, we look forward to speaking with you again in June thanks, everybody.
Yes.
Thank you for your participation you may disconnect at any time and have a wonderful afternoon.
Okay.
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