Q2 2023 Comtech Telecommunications Corp Earnings Call
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Welcome to Comtech fiscal Q2, 2023 earnings Conference call. As a reminder, this conference is being recorded Thursday March nine 2023.
I'd now like to turn the conference over to Mr. Robert Samuels of Comtech. Please go ahead Sir.
Good afternoon, everyone and thanks for taking the time to dial in today I'm, Rob Samuels complex head of Investor Relations welcome.
Welcome to the Comtech Telecommunications Corp conference call for the second quarter of fiscal year 2023.
Today I'm here with complex Chairman, President and Chief Executive Officer, Ken Peterman, We're also joined by Mike Bondi Our CFO .
Before we get started today I'll say I'll also say that both myself and Ken are always available to answer questions. Our investors may have so please get in touch if he wants to organize a meeting to talk about the company our results or our strategy.
We also have a DC a detailed discussion of the quarter in our shareholder letter available on our website and we have also been working to communicate directly about our business and our market between quarters in our block context signals.
Finally, let me remind you of the Companys Safe Harbor language certain information presented in this call will include but not be limited to information relating to the company to the future performance and financial condition of the company.
The company's plans objectives and business outlook, and the plans objectives and business outlook of the company's management.
The company's assumptions regarding such performance business outlook and plans are forward looking in nature, and all adult 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.
Now I am pleased to introduce the president and Chief Executive Officer of contact Ken Peterman Okay.
Hello, everyone and thanks for joining us today.
You may recall that in my first letter to you as context CEO .
Bulk of the enormous potential lifestyle at the company our talented people our innovative spirit, our history of technology leadership and the opportunity to bring context in our customers into a new era of communications convergence.
The digital divide connecting the unconnected and democratizing access to information in ways that leave no one behind.
More recently <unk>.
Sure my sense of urgency and driving transformational changes to assimilate our individual businesses together into two segments.
Prove our operational performance and deliver the value created by this transformation to you our shareholders.
Today I can report that over the course of these past six months. The team has fully committed to rapidly implementing these transformational changes into our new strategy and culture.
We call one content.
I'm going to talk a little more about what that means for our company and our investors today, but I don't want to Bury the headline which is simply this.
It's working.
This operational and cultural transformation is taking root and is delivering results and our financial performance is a direct direct result of these changes.
Now Mike is going to speak to our performance in detail, but I am pleased to report that during our second quarter. We recorded revenue of $133 7 million, marking our fifth sequential quarter of net sales growth.
Our EBITDA adjusted EBITDA was $11 3 million or eight 5% of sales representing strong year over year growth as well as the sequential increase over Q1 of fiscal 2023.
Our bookings of $167 5 million represented a book to Bill ratio of 125 times and our funded backlog of $702 million is now at a level that we've not seen since July of 2019.
While I am pleased with these results my leadership team and I remain laser focused on the potential for comtech to further expand margins and deliver not just topline growth but grow profitably.
We are fully committed to unleashing the yet untapped potential of one comtech to continually improve performance and enhance shareholder value.
Our one contact financial priorities are clear.
Grow revenues.
Increased margins and reduced leverage and investments in working capital.
In a challenging operating environment, achieving these goals will give contact more optionality when it comes to investing in our people our technology leadership and our future.
The assimilation of our Siloed businesses into two segments has provided clarity and the opportunities to manage costs streamline operations improve efficiency and accelerated decision, making by eliminating management layers and other redundancies, resulting in a reduction in our workforce.
We understand these decisions impact the lives of people respect and we care deeply about.
And we are never easy.
Nonetheless, these steps are critical to accelerating our anticipated growth and realizing our one comtech vision.
We are improving our internal collaboration implementing best practices across the enterprise engaging more effectively with our customers and identifying new market growth opportunities.
With this enhanced insight clarity and operational discipline, we can make more informed decisions about how to allocate the resources, we have and put context in the best possible competitive position.
Let me explain further how our transformation to one contact creates a sustainable competitive advantage for us.
Controlling what we can in a complex operating environment, we can focus our resources to continually drive technology innovation deliver enhanced customer value attract and retain the best people and exploit the enormous opportunity created by the ever evolving transformation of our global communications infrastructure and the continuum.
Expanding appetite for always on connectivity.
Finally encouraged by the progress that we have made related to our one comtech transformation, our launch of evoke which is our innovation foundry and our emerging growth opportunities. The board together with management adjusted the company's capital allocation plans and determined to forego com.
Stock dividend, thereby increasing our financial flexibility.
Before I talk a little more about what you can expect from US going forward, Let me turn the call over to our CFO , Mike Bondi. So he can walk through our performance this quarter.
Mike.
Thanks, Ken for Q2 fiscal 2023, we recorded a $133 $7 million of consolidated net sales of which $80 4 million were reported in our satellite and space Communications segment and $53 3 million were recorded in our terrestrial and wireless networks segment.
Our second quarter net sales represented a 2% sequential increase over last quarter and as Ken mentioned, our fifth consecutive quarterly increase compared.
Compared to the year ago quarter, our Q2 fiscal 2023, net sales increased $13 3 million or 11%, reflecting higher net sales in both of our segments.
Our consolidated gross profit percentage for Q2 fiscal 2023 was 34, 3% as compared to 35, 7% and 38, 1% for Q1 fiscal 2023 in Q2 fiscal 2022, respectively.
Our gross profit for Q2 fiscal 2023, primarily reflects an increase in net sales and overall product mix changes.
For example, in Q2 fiscal 2023 as compared to the prior year quarter more of our consolidated net sales were reported in our satellite and space Communications segment, which historically achieved a low gross profit percentage than the solutions sold by our terrestrial and wireless network segment, which generally includes more software based and recurring revenues.
Also.
Also our Q1 fiscal 2023 gross profit percentage benefited from increased sales of our next generation <unk> solutions during that period in support of the Ukrainian government.
As explained in more detail and reconciled in our Form 10-Q filed earlier today, we utilize a non-GAAP measure that we referred to as adjusted EBITDA.
Q2 fiscal 2023, adjusted EBITDA was $11 3 million or eight 5% of consolidated net sales as compared to $9 8 million or eight 1% in Q2 fiscal 2022.
The increase both in dollars and as a percentage of sales is primarily attributable to the increase in Q2 fiscal 'twenty to 2023 net sales.
Set in part by a lower gross profit percentage.
Q2 fiscal 2023, adjusted EBITDA exceeded our expectations for the quarter and represented a sequential increase from Q1 fiscal 2023.
While simultaneously investing in our one contact transformation.
As Ken previously mentioned bookings during the quarter totaled $167 5 million, representing a 62, 7% year over year increase in a quarterly book to Bill ratio of 125 times.
Our current our current revenue visibility is approximately $1 1 billion and is equal to the sum of our $702 million of funded backlog plus the total unfunded value of certain multi year contracts that we have received from which we expect future orders.
Overall, our consolidated Q2 net sales and adjusted EBITDA were in line with or better than our guidance provided last quarter and we're pleased to have increased our funded backlog from October of 2022.
Particularly in light of an economic environment that continues to be challenging Ken.
Ken.
Thanks, Mike.
I'm going to finish up shortly and get to everyone's questions, but before I do I want to talk a little bit more about where we are right now and what you can expect from US all in the context of guidance for next quarter.
As I said earlier, we are intensely focused on improving our operational performance and managing our costs. So that we can accelerate our growth.
And it's working thanks.
To the success of our work so far we believe that we will realize operational efficiencies that improve our margin profile, while simultaneously funding investments in innovation and accelerating growth.
Practically speaking, while we anticipate some variability from time to time as we move through this important transformational change for Q3 fiscal 2023, we expect to achieve sequential consolidated revenue growth in the range of 1% to 3%.
With consolidated adjusted EBITDA margins in the range of eight 5% to 10%.
A clear example of the investments made possible by our one comtech initiatives as the recent launch of evoke are innovation foundry.
Evoke extends the one comtech philosophy to our customers our partners and suppliers, bringing them together in a structure designed to foster collaboration and accelerate innovation and global connectivity infrastructures.
Not only will evoke enhance our existing technology and service offerings. We believe it will also allow us to pioneer entirely new ideas and opportunities with the benefit of combining multiple perspectives different industry backgrounds and diverse areas of expertise.
Our first publicly announced partnership speaks directly to the spirit of innovation. We are working on what we call smart operations with Seattle based Tech Pioneer circle.
Using context expertise in connectivity and real time location tracking smart operations applications are anticipated to allow enterprises the ability to leverage the real time data provided by internet of things devices to develop actionable business and operations insights and instantly respond to changing environmental and.
Market dynamics.
This has vast implications for everything from retail and office space management to agriculture heavy industry advanced manufacturing logistics education defense and more on a global scale.
You can expect to see Comtech foster, new and expanded relationships across multiple sectors as well as with leading universities around the world to ensure we are always at the cutting edge of the emerging technologies needed to continually innovate and create customer value.
Okay.
Before I take your questions, let me close by saying that this is an exciting time for comtech.
Does I believe the opportunities ahead of us are expanding dramatically. Our commitment is to continue to grow drive improved profitability and enhance long term shareholder value by continually striving to be the most innovative collaborative and customer focused company and our current and future global markets.
Finally, we love to invite everyone to meet with us and learn more at our Investor day, which will be hosting on Wednesday June 21 at our state of the art facility in Chandler, Arizona.
Please reach out to Rob for a formal invitation I think we're going to have a great time and learned a lot from each other.
With that let's get the questions.
At this time, if you would like to ask a question. Please press star one on your Touchtone phone you may withdraw your question at any time by pressing star two.
And we'll go first to Joe Gomes with Noble capital Your line is open.
Thanks, Good afternoon, Kevin Mike.
Hi, Joe Good afternoon, Joe.
So I wanted to start off on the gross margin you could give us a little more color.
You talked about it's down because of the increase of revenues as a whole.
On the satellite business.
How big is the delta between the satellite and terrestrial businesses. So if we do see satellite continue to outpace growth in terrestrial we didn't cut it.
Figure out where those gross margins may be going.
Sure I'll take that Joe in terms of the gross margins, we don't disclose each of the segments, but.
I would always offer this when you're looking at terrestrial and wireless that is software based there is recurring revenues in that revenue mix.
And the software that we have is developed on the 911 side of the house in terms of location based services. It's also cutting edge technologies that we're creating so we're getting a premium for the work that we do.
So there is more of a solution there that we're selling in terms of the gross margin on the.
Satellite and space side, that's more akin to our modems and amplifiers and other things that we're selling from a product perspective, but as we are looking forward.
Trying to move up the tier in terms of what we're providing and not just think of it as a box or a particular product, but more as a service that we can offer to the customer I think it will start to see a convergence of the gross margins in those two segments and then probably exceed what we're doing today.
In terms of historical run rates for the margin in satellite and space.
So I think the story here is it's a it's one of the change in mix.
Within terrestrial and wireless last year that we did have more lvs software sales in there.
<unk> has trends.
<unk> to now more than <unk>, one sales in the current period.
Returning on peace apps within our number one deployment. So there is a mix change going there going on there at.
At the same time, we also had.
Some increase in the first half for satellite and space with the comments that we had sold off to the Ukrainian government in support of their efforts. There. So we did have.
Good dose of <unk>.
Product go out in Q1, and some of it in Q2, but the bulk of it was in Q1, so when youre looking at satellite and space in terms of their EBITDA profile.
See you.
The impact from quarter to quarter sequentially.
Okay. Thanks for that in terms of <unk>.
Mentioned piece absent.
Where are we in terms of the numbers of those that are going live here over the first two quarters of the year.
Yes in terms of specific numbers I think.
I would focus in on a large customer like Pennsylvania, and South Carolina and Arizona.
They are making good progress getting out of the deployment phase of those contracts.
And turning on certain regions within each of the states.
In terms of a specific number of <unk> I'm not going to be able to quantify that for you today, but it is growing each.
Each period that we're reporting they are making good progress on those deployments and get and get you on schedule and moving into more of that recurring revenue phase that we like because the more recurring revenue that you bring on you have those fixed costs that were put in place on day, one and so we will see a better leverage model on the margin side.
Okay.
And can you talk a lot about a lot of the initiatives, there's a lot of potential there.
But as we're looking forward what are what are some of the near term milestones that that youre looking at to judge the success of the one contact program.
Sure Joe.
Of course in the in the short term as we assimilate our individual businesses into two segments.
We are identifying redundancies streamlining operations, we're able to perform more actually as a business and actually we have better clarity when we can make more informed decisions collectively and collaboratively.
On how to operate the business.
I will speak to the supply chain.
And an amplified voice, so we're able to to increase efficiency Thats why youre seeing us incur.
Increasingly adjusted EBITDA guidance as we move into Q3, Okay now.
With respect to revoke and our innovation foundry. It has two purposes that have immediate value. The first thing is that we are bringing our various technologies together from across the enterprise and you can think of those as a toolbox or as building blocks. So we're able to then collectively bring those building blocks together.
Compound.
Their individual value in terms of technology leadership.
And then create.
Value for comps to customers that is more comprehensive.
So we can move up into sub systems systems that even services and by putting those building blocks together, we're able to demonstrate or quantify.
Calculate.
Our value proposition is a comprehensive level to a customer. So for example, the net instead of talking about the technology advantage of our modem or an amplifier.
In DBS oriented technical jargon, we're able to quantify.
That value proposition to our customer in terms of for example, additional subscribers that might be supported on a satellite channel.
In order to raise the revenue given satellite channel can produce for that operator because.
Because we compounded the technology advantage of our modem with our amplifier with our antenna with the other equipments that we have that dialogue is ongoing and we're very encouraged by the feedback we're getting by some of our customers in terms of the excitement over that potential value creation. So the milestones I would forecast over the next.
Two quarters is that we will develop and are developed and have developed what we first call concepts. We move those to what we call minimally viable products or mvps that help the customer conceptualize the value proposition and to quantify it with us and our customer currency.
We then would move to a pilot where the customer is excited put some skin in the game and funds us.
To run a pilot where they can quantify and prove out.
The value creation that we forecast.
And then finally the customer would say this is exciting let's go live I want that value creation to be.
Come to me as quickly as possible.
And I can tell you that while we've not made any announcements yet we actually have mvpds that are created we have.
A couple of those.
They have gotten great customer excitement.
We're moving into the pilots, where we will see some.
Small contracts awards to move forward in that in the near future. So as we move toward our Investor day in June and then into our fourth quarter.
Going to hear news about that those milestones are in place the team is managing to that.
Like I say.
Pleased with the performance, we're seeing so far.
Great. Thanks for that insight can and I'll get back in queue, what signals out some questions.
Okay.
And well move next to Greg Burns with Sidoti Your line is open.
Yes.
And then in terms of the dividend usually you see a company company began as a defensive measure, but it seems like your databases.
We talked about some problem.
About a year ago.
So can you just talked about the thought process behind.
Eliminating the dividend and where youre going to reallocate that capital as youre going to go towards paying down the debt.
Sure this Ken.
I'll respond to that from a from a philosophy level okay.
Our responsibility of course is to deploy capital, where you will get the highest return and create the greatest value.
In fact, that's what a responsible board and CEO does.
And when we see a better use of capital than as responsible stewards of that capital.
Invested accordingly, given our vision and our strategy given our expanding opportunity set which I described in response to <unk> question, a few minutes ago.
We have the ability to really compound capital if we invested appropriately. So we're we're now informed.
And excited to some extent about the progress we've made in the future. We see so we're we're choosing to be responsible stewards and implement the strategies that we believe is most appropriate.
Okay.
In terms of the debt.
EBITDA margin guidance the improvement that you are projecting there.
Much of that is mix related versus the benefits you're seeing from.
One contact in that range.
When you look at that range up to 10% what are the puts and takes that might take you to the top end of that range.
And Greg in terms of the margin profile for the next two quarters as we're thinking about Q3, we certainly are being mindful of still an economic environment, that's challenging but at the same time as Ken mentioned, we're very excited about the progress we're making with evoke.
Other initiatives.
We did announced today some other actions that we're taking and I think when we look at the puts and takes I think we definitely moved forward and executing on the initiatives today.
Trying to secure that higher end, but I think we still have some work to do.
We still have investments that we're making the things that we announced today in terms of our workforce that is just one element we still have systems that we're implementing and processes that were streamlining and thats going to take some time. So as we think about puts and takes it certainly we have a nice book of business. If you will with.
Over 700 million funded backlog now which is a nice.
Accomplishment for the company going back several years, we haven't been at that level. So it's a function of us executing on that backlog.
Pursuing these new endeavors with evoke very excited to see.
These emerging growth opportunities.
As we're thinking of ourselves now as more of a growth story I think we're trying to invest.
Investing appropriately to capture that growth and move the company forward to the next chapter.
Okay.
Yes, I guess youre getting a little bit maybe more visibility on somebody.
The one contact initiatives. So do you have like a <unk>.
Or is there anything you can quantify for us in terms of.
Maybe where that margin might go or do you have a target range that youre shooting for over the next.
Yes.
A couple of years.
Yes first of all.
This is Ken that's a good question. Thanks.
So in the re segmenting of our business and assimilating our business units. We've moved the common tools common platform. So that our business is running holistically now.
And moving towards the same set of practice okay.
And in fact, we've we've restructured leadership teams centralized functional areas of responsibility like contracts operations supply chain management and that streamlined operations, it's improving performance, eliminating redundancy and enhancing collaboration and so internally we have established a set of key performance indicators metrics in <unk>.
While storms that we are working and managing to on a weekly and monthly basis and so we are hitting those and that's what's giving us the insight and confidence to forecast the improved adjusted EBITDA margin that you've suggested.
That you alluded to and Thats why were saying eight 5% to 10%.
Adjusted EBITDA as we move into the third quarter.
Now we do believe that we're on a path to get back to our historical EBITDA levels, which pre COVID-19, where in the 14% range. Okay. So so we're excited about the <unk>.
To get to get to there and then as we look at evoke.
And the initiatives that we see there many of those are going to be software systems and services solutions, where the business models are traditionally.
Profit margins that are more favorable than equipment sales. So we're looking forward.
In the future to going.
North of that.
Perfect. Thank you.
Okay.
And we'll take our next question from <unk> merchant with Citigroup. Your line is open.
Great. Thank you for any opportunity.
In your guidance should we expect.
In both segments.
Around the same or are you guys still expecting.
Correct.
A little bit more tempered.
And the same thing on margins as well like should we expect any one segment margin mix shift or otherwise.
Better.
Yes, I'll take that and then if Ken wants to add to it.
Yes, the way, we're thinking about Q3, certainly on the topline it's one to 2% to 3% you can see what the terrestrial and wireless business has been doing.
We did book some orders a quarter or so ago that are still yet to ramp up.
And as we continue to turn on those peace apps I would say you would continue to see that growth each quarter in terms of satellite in space I think in terms of the opportunities that we have just secured we just announced and we will have some more details in our press release soon to come but we just won a multimillion dollar contract.
We are very excited about its for us its a greenfield if a new relationship with a new customer at.
At our size, we haven't seen before or at least for a long time.
And that we believe will give us some nice uplift for.
For the second half of the year and so.
An opportunity like that and some others I think we'll see probably good growth in the satellite and space business, but at the same time.
We don't want to get too far ahead of ourselves and we're going to only one quarter out.
At this juncture with the 1% to 3% in total and consolidated.
Okay.
Go ahead sorry.
This is Ken I was just going to say that.
We have identified some of our more than tripling the early oriented growth minded leaders and those are the ones that are strategizing with us regarding evoke are innovation foundry.
And they are beginning to conceptualize these more comprehensive up tiered value propositions.
And using the evoke venue as a technology incubator and innovation foundry for the integration of other key ingredients.
Such as blockchain and cloud computing.
AI and machine learning and other things that we can implement on private networks to serve customers and create customer value.
We announced circle is our first publicly announced a technology partner and so those opportunities hold we think enormous promise for us.
Thank you.
Somebody earlier asked a question about the dividend.
Yeah.
Going to dividend this quarter and maybe perhaps even next quarter from what I understand in the press release.
What exactly is the cash outlay.
Thank you Sir.
That is involved in it.
<unk> shipped with a bulk.
How much cash and the balance from the cash flow you're planning to put into it.
That.
I think Walter and foregoing. The thing is it is it comparable to the dividend amount is it.
<unk> more just trying to get some clarity on that.
Well this is Ken I'll take that I'll tell you that.
Our technology leadership.
Across the enterprise in what were our individual businesses and are now aggregated in these two segments. Our technology leadership is astounding and it's broad and comprehensive it touches all different points of the terrestrial and wireless and location based services domain. So frankly, when we pull that together.
It just takes a little salt and pepper sprinkled on that in order to create.
Our blended solution that is.
That offer significant customer value. So as we as we launched evoke engaged with our critical strategic technology partners.
Established we've established advisory group that involves third parties that are experts in these domains and understand some of the military.
And commercial problems.
That needs to be solved.
We don't we don't find that we need to invest very much and we also are finding that it's an extremely accelerated timeline in terms of weeks to develop a minimally viable product that we can demonstrate to a customer and then work with them to envision how they can put that aggregated capability to work for them so from our <unk>.
<unk>, we're bringing mature technologies forward and we're just integrating them together in new ways, our technology partners enable us to bring mature companion technologies and integrate them rapidly. So we're not looking at long term high cost development cycles, we're much more agile.
And moving much more quickly than that.
Okay.
Okay.
Talk to you guys asking my colleagues just a little bit so I'm not quite sure why the dividend.
It's not that significant.
I think.
In terms of the financial flexibility that we get out of that easily it's $13 million in cash that we can redeploy into our initiatives to accelerate the things that we're doing.
We see growth ahead of us.
The sooner we get through the transformation the sooner we can tap into that growth and when we look back at interest rates being where they are.
And getting more rhetoric about more rate hikes. When you start to think about it with interest on top of it and where our leverage is and where our leverage is going into the next two or three quarters.
With the step downs on the facility. This just gives us the flexibility for us to move faster with these initiatives. This Ken I don't want to leave it with the impression that we're moving the money from the dividend to fund evoke.
Evoke is not consuming any any kind of anything like that.
We are preserving that cash so that we are better able to apply it and accelerate our penetration into new markets, our ability to create customer value.
After we get a customer that says yes, I want this we want to be we want to be poised and ready to go.
Just to preserve that flexibility so that we can capitalize on the growth opportunities we see.
Okay. Thank you for that clarification.
Okay.
And we'll move next to George Notter with Jefferies. Your line is open.
Hi, guys. Thanks, very much I guess I was just curious about the revolver. It looks like you grew the revolver about $19 million sequentially.
I haven't seen the cash flow statement, yet but.
So theres definitely some cash burn here I guess in that context, I certainly understand the move with the dividend.
Could you tell me what the cost is on the revolver right now I believe that's floating rate I'm, just kind of wondering where that where that is.
Yeah, there's two metrics I'll quote one is with the amortization of the deferred financing cost that's roughly eight 8% and if you strip that not the noncash portion of it the cash borrowing rate is about eight 4% right now.
Got it okay.
And then.
I mean have you guys thought about trying to do something on the cap structure here and try to get some more permanent financing in.
Anything that you guys are kind of noodling on that is worth chatting about right now and any options that you guys see here.
Without getting too specific about our internal plans I would say we're not.
We're not sitting idle.
Everything that we're doing is.
Coordinated to our plans we are focused on the growth and to be ready to move faster, we will need to address our facility back in November when we signed that it was a two year extension, but the reality is youll be negotiating pretty soon so with that in mind and seeing.
Our trajectory going in the right direction and hopefully the market starts to.
Ease up a little bit, but we're certainly mindful that it's we're not out of the woods in that regard we're going to try to time that appropriately. So that we're ready for the next stage of growth to address some new initiatives from Ken but we are we are not sitting idle.
We are putting thought into that as well.
On top of these one comtech tramps transformational type initiatives.
Got it Okay and then.
As you think about just the cost structure of the company.
You guys mentioned earlier, there were some head count reductions.
I know you guys are consolidating some ERP systems I know, there's a bunch of heavy lifting there, but can you talk about what that translates into in terms of improved cost structure or is there a target on annual savings that you guys are looking at or anything you can give us in terms of that benefit.
Well, we've clearly set internal targets, we clearly are managing to those key performance indicators.
Mike will give you a little bit of insight.
Sure.
Didn't put a specific percentage of number of heads in the disclosures.
We're trying to be mindful of that we're still making investments in our business, but to give you. Some context, we figured you guys would ask.
We would point to 2021, we had reduced our workforce at that time, it was about 10% and so the reduction that we're talking about here today is not as large as that.
A meaningful action that we took to move us forward youre seeing it in the EBITDA contribution in our guidance.
That's how I would think about it for right now.
Certainly when you think about Q3 versus Q4.
Actions that we're talking about we're undertaking them now so I would say youre not going to see a full quarter's benefit of them. So in Q4, you would see likely the full magnitude of that action plus the other things that we're looking at like you said ERP systems looking at our facilities.
And just streamlining our processes and getting improved it improved deficiencies.
Yes, Ken.
Is mentioning we also will be moved into our Chandler facility.
In the upcoming weeks, so that will also be behind us.
It would be nice to see that chapter closed and we can move forward all in one building.
Yes.
Got it okay.
Great. Thanks, very much guys I appreciate it.
Sure.
Okay.
And well take our next question from Chris Sakai with Dr. Research. Your line is open.
Oh hi, thank.
Research.
Just had a question on.
The supply chain, how are you seeing and how are lead times there.
Hi, Chris This is Mike.
In terms of supply chain I think we have determined that right now.
Part shortages don't seem to be the problem at lead times, certainly still seem to be long. We're mindful of that we do have a lot of backlog. So we are looking at that backlog and making sure. We're placing those purchase orders timely that part of the reason why you see the <unk>.
Use of cash.
As we are building backlog above the $700 million level, you also have to support that with inventory procurement and also.
Receivables so.
A supply chain perspective, I don't think we're out of the woods, yet I think Maria would also agree with me on that I think we still have.
Things to keep an eye on but I think it's getting better but we're not we're not fully behind that I'll say too. This is Ken.
I think it's getting better when we look at our core business.
Because we're learning how to manage that we're able to speak with an amplified voice now across all the businesses.
But in addition to that when we think of the uptick business and systems and.
And services.
Those supply chain questions are still a little bit open as we move into some of those new markets that we're excited about.
So thats why we say, we're still a little cautious we may see some variability from time to time, because we're stretching into some things.
That.
That are different than what we've traditionally done.
Okay. Thanks for that and then can you talk about your recent VSAT orders from the U S government.
Do you expect.
Do you expect more on how much more.
That's a snap.
Yes, Chris in terms of the VSAT. This is a contract we have had with the army for quite some time.
And we always say with the army they have a very unpredictable funding schedule and sometimes we don't always know exactly what they're doing and sometimes orders will.
Show up where we thought it would be a little bit later in the quarter, maybe it shows up earlier and vice versa. So.
I think in our disclosures today, we talk about the variability from time to time.
The VSAT equipment that we sold here or will be selling.
And shipping shortly it's a function of that.
Things that sometimes it's just hard to predict but we have the contract vehicle.
The army we have.
Good relationship with them over the years, and we would expect to see some more to come but.
Nothing to put a specific dollar amount on it.
And I'll just chip in because.
We are aggressively working that our technology.
As state of the art and things like Triple scatter as well as the VSAT terminals.
You saw the President's budget came out today and it's up it's trending upward. In addition to this as we are approaching fiscal year end for the government and sometimes with our contract vehicles that are in place. They sweep up funds that didn't get spent on something else and we benefit from that so while we're not forecasting that right. Now we are aggressively working to take advantage of those kinds of opera.
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Okay, Great and can you talk about how orders are coming in from.
Ukrainian government.
Are they continuing on the same pace as before or tapering off can you shed some light there.
I don't I.
I don't feel comfortable speaking to that directly at this time.
But I will tell you that.
As we've said before.
There is no better marketing testimony.
In the world.
Then.
Folks that are in the fight with a sophisticated peer adversary.
And the equipment that they are buying from us works.
That tough environment.
And so we anticipate that.
It puts us in a very strong position.
Okay. Thanks for the answers.
Thank you Chris.
Okay.
And it does appear there are no further questions at this time I would now like to turn it back to Robertson Samuels for any closing remarks.
Thanks, operator, and thanks, Ken and Mike and everyone for dialing in today as Ken said there are additional details about our strategy and performance available in our Investor letter and SEC filings, we will provide ongoing inside can our signals blog and as a reminder, we intend to be as responsive as we can with investors going forward so for anyone with questions.
Reach out to me directly and less connect this concludes our second quarter call. We thank you all for your continued support.
This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful evening.
Okay.
Yes.
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Thank you.
Thanks.
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Okay.
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Okay.
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Thanks.
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