Comtech Telecommunications Corp. (CMTL) Q4 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp.'s Fourth Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Friday, October 4, 2013. I would now like to turn the conference over to Ms. Maria Salerno of Comtech Telecommunications. Please go ahead ma'am.

Thank you, and good morning. Welcome to the Comtech Telecommunications Corp. conference call for the fourth quarter and fiscal year ended July 31, 2013. With us on the call this morning are Fred Kornberg, President and Chief Executive Officer of Comtech; Michael Porcelain, Senior Vice President and Chief Financial Officer; and Rob Rouse, Senior Vice President, Strategy and M&A. Mike and Rob are at our corporate offices, and Fred is dialing in from another location. Before we proceed, I need to remind you of the company's Safe Harbor language. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company; the company's plans, objectives and business outlook; and the plans, objectives and business outlook of the company's management. The company's assumptions regarding such performance, business outlook and plans are forward-looking in nature and involve certain 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 Chief Executive Officer of Comtech, Fred Kornberg. Fred?

Thanks, Maria. And good morning, everyone, and thank you for joining us on this call. As announced yesterday afternoon, we reported fourth quarter results of $84.4 million in revenues and a GAAP diluted EPS of $0.28. For the year, our revenue totaled $319.8 million and a GAAP diluted EPS of $0.97. Our adjusted EBITDA was $14 million for the fourth quarter and $52.2 million for the full fiscal year. We believe we ended fiscal 2013 on a positive note. During the fourth quarter, we achieved the highest level of quarterly bookings for the year and ended fiscal 2013 with consolidated backlog of almost $190 million. At this point, we are still navigating through a very difficult global economy and with strong headwinds from U.S. government funding pressures. However, with this in mind, we believe that revenues in fiscal 2014 will be in the range of $320 million to $340 million and GAAP diluted EPS will be in the range of $1.07 to $1.19. Our adjusted EBITDA is expected to be in the range of $53 million to $57 million. During fiscal 2013, we generated $37.7 million of operating cash flow. In light of both of our short- and long-term growth expectations, yesterday, our Board of Directors approved the dividend for the first quarter of fiscal 2014 of $0.275 per common share. This dividend is expected to be paid on November 19 to stockholders of record on October 18, 2013. To date and over the past 12 consecutive quarters, we have paid out approximately $66.2 million of dividends and continue to believe our dividend program is an excellent way to return capital to our stockholders. In addition, during the fourth quarter of fiscal 2013, we also repurchased approximately 104,000 shares of our common stock at an aggregate cost of $2.7 million. To date, we have repurchased approximately $15.7 million pursuant to our board-authorized $50 million stock repurchase program. Now let me turn it over to Mike Porcelain to provide an overview of our financial results, and then I will return and talk more specifically about each of our business segments. Mike?

Thanks, Fred, and good morning, everyone. I'll walk you through the Q4 results, make a few comments about the full year and provide some commentary on our expected 2014 financial results and business outlook. During Q4, we generated revenues of $84.4 million, of which 25.1% were for U.S. government end users, 56.4% were for international end users, with the remainder being for domestic commercial customers. For the full year fiscal 2013, we finished at $319.8 million of revenue, with nearly 35% being generated from the U.S. government and approximately 50% being generated from international end users. Net sales on our Telecom Transmission segment were $50.1 million in Q4 of fiscal 2013 as compared to the $53.8 million we achieved in Q4 of last year, representing a decrease of 6.9%. This decrease is attributable to lower sales of our Satellite Earth Station products, primarily lower sales to U.S. government customers, which were partially offset by higher sales on our over-the-horizon microwave systems product line. Sales of our over-the-horizon microwave systems in Q4 include sales related to our performance on an ongoing 3-year $58.6 million contract to design and furnish a telecommunications system for use in a North African government's communications network. During Q4 of fiscal 2013, we received an additional $51.1 million contract to design and furnish the next phase of this same end customer's communication network. For the full year fiscal 2013, net sales in our Telecom Transmission segment were $194.6 million, down 7%. Looking to fiscal 2014, we expect that sales on the Satellite Earth Station product line will be slightly higher than the level we achieved in 2013, with a weighting towards the latter part of fiscal 2014. For our over-the-horizon microwave system product line, based on our expected performance on both North African and other contracts currently in our backlog, we expect net sales in fiscal 2014 to be slightly higher than the level we achieved in fiscal 2013. We expect sales of our over-the-horizon products to be higher in the second half of fiscal 2014 as compared to the first half of fiscal 2014. As such, when you add it up, we are looking forward to reporting revenue growth in this segment during fiscal 2014. Net sales on our RF Microwave Amplifier segment were $25.1 million in Q4 of fiscal 2013 as compared to $30.8 million in Q4 of fiscal 2012, a decrease of 18.5%. Although challenging overall market conditions and U.S. government funding pressures resulted in various order reductions and delays by many of our customers towards the tail end of fiscal 2013, we finally received a number of long-awaited bookings, a large majority of which are expected to ship in fiscal 2014. For the full year of fiscal 2013, net sales on our RF Microwave Amplifiers segment were $86.9 million, down 15.2%. Based on our current backlog and the anticipated timing of new orders we expect to receive, we expect sales in fiscal 2014 to be slightly higher than the level we achieved in fiscal 2013. Turning to our Mobile Data Communications segment. As expected, sales in Q4 of fiscal 2013 were $9.2 million as compared to $28.1 million in Q4 of fiscal 2012, a substantial decrease of 67.3% from Q4 of last year. As discussed on prior conference calls, this anticipated decrease is attributable to a substantial decline in MTS and BFT-1 sales to the U.S. Army and our fiscal 2012 decision to wind down our microsatellite product line. Microsatellite products revenue were almost $3 million in Q4 of fiscal 2012. For the full year of fiscal 2013, net sales on our Mobile Data Communications segment were $38.2 million, down 66.1%. Looking to fiscal 2014, based on the level of BFT-1 sustainment services anticipated to be performed, including the expectation of 12 months of intellectual property licensee fee revenue, we expect that sales on our Mobile Data Communications segment will be significantly lower in fiscal 2014 as compared to fiscal 2013. As a reminder, sales in fiscal 2013 include the last shipments of orders that we had for mobile satellite transceivers. Now let me walk you through our gross margin and operating expense line items. Our gross profit in Q4 of fiscal 2013 as a percentage of net sales was 41.9% as compared to 43.6% in Q4 of last year. Our consolidated gross profit this quarter reflects a lower gross profit percentage in our Telecom Transmission and RF Microwave Amplifier segments, partially offset by the benefit from changes in overall mix of products and services within our Mobile Data Communications segment. For the year, gross profit was 44%. Looking forward to 2014 and despite all the various mix changes that are more thoroughly described in our 10-K, we believe gross profit as a percentage of consolidated net sales in fiscal 2014 will be comparable to the percentage we achieved in fiscal 2013. On the expense side, SG&A expenses were $15.6 million or 18.5% of Q4 fiscal 2013 net sales as compared to the $23.4 million or 20.7% we achieved in Q4 of last year. The decrease in our SG&A expenses in dollars was primarily due to overall lower spending associated with the lower level of consolidated net sales during Q4 of fiscal 2013 as compared to Q4 of last year. In addition, SG&A expenses during Q4 of last year reflect $1.3 million of restructuring costs associated with the wind-down of our microsatellite product line and a benefit of $900,000 related to a change in the fair value of a contingent earn-out liability associated with the acquisition of Stampede Technologies. The large decrease in SG&A expenses year-over-year reflects the impact of our overall cost reduction actions. For the year, SG&A expenses were $63.3 million or 19.8% of net sales. Excluding the net benefit of $2.8 million, SG&A expenses would have been 20.7% of net sales. In light of expected modest consolidated sales growth, SG&A expenses in dollars in 2014 are only expected to slightly be higher as compared to the amount we reported in fiscal 2013. Research and development expenses were $8.3 million or 9.8% of consolidated net sales in Q4 of fiscal 2013 versus $9.9 million or 8.8% in Q4 of fiscal 2012. We expect that research and development expenses in dollars for fiscal 2014 will be comparable to the amount we invested during fiscal 2013. Total stock-based compensation, which is recorded in our unallocated segment, was $900,000 for the fourth quarter of both fiscal 2013 and fiscal 2012. Based on the amount and type of outstanding equity awards, stock-based compensation in fiscal 2014 is expected to be higher than fiscal 2013's amount. Amortization of intangibles with finite lives was $1.6 million for the fourth quarter of both fiscal 2013 and fiscal 2012. Consolidated operating income in Q4 of fiscal 2013 was $9.8 million or 11.6% of consolidated net sales as compared to $14.3 million or 12.7% in the fourth quarter of last year. For the year, reported operating income was 10.8% as a percentage of net sales. Excluding the net benefit of $2.8 million, our operating margin would have been 9.9% of -- operating income as a percentage of sales. We believe we have rightsized the business for current market conditions. Given expected sales growth in fiscal 2014 and the actions we took, we believe that our consolidated operating income in fiscal 2014 as a percentage of consolidated net sales will improve from the 9.9% amount. We are targeting operating income in fiscal 2014 to be at least 11% of consolidated net sales. Interest expense was $2 million in the fourth quarter of fiscal 2013 as compared to $2.3 million in the fourth quarter of fiscal 2012. Looking to fiscal 2014, we expect that our 3% convertible notes will be converted or paid off at the first put date in May 2014. As such, we currently anticipate that interest expense in fiscal 2014 will be lower than fiscal 2013 and substantially lower in Q4 of 2014 than any other quarter during the year. Interest expense -- interest income and other was $289,000 in the fourth quarter of fiscal 2013 compared to $295,000 in the fourth quarter of fiscal 2012. Interest income and other for both periods is primarily generated from interest earned on our cash and cash equivalents. Turning to income taxes. Our GAAP effective tax rate for the fourth quarter of fiscal 2013 was 36.1%. We expect that our GAAP tax rate in fiscal 2014, excluding the impact of these discrete tax items, will approximate 36.5%. Adding it all up, on the bottom line, as Fred mentioned, we delivered GAAP diluted EPS of $0.28 in Q4 of fiscal 2013 and $0.97 for the year. Now let me provide some financial metrics to help add color to our results. Adjusted EBITDA, as defined at the end of our press release that we issued yesterday, was $14 million in Q4 and $52.2 million for fiscal 2013. At July 31, 2013, our backlog was $189.7 million compared to $153.9 million at July 31, 2012, and $130.1 million at April 30, 2013. This backlog includes the benefit of our new $51.1 million over-the-horizon microwave system contract and includes $13.9 million of orders related to our BFT-1 sustainment activities. Now let me turn to our balance sheet, which remains strong. As of July 31, 2013, we had $356.6 million of cash and cash equivalents. This cash balance does not reflect our Q4 dividend that was paid in August 2013, which approximated $4.5 million. We generated $37.7 million of positive cash flow from operations during fiscal 2013 and expect to generate positive net cash flow from operating activities during fiscal 2014, although the exact amount will be impacted by the timing of working capital requirements, especially as they relate to our large contracts and our overall sales efforts. In fiscal 2013, we repurchased $27 million of our common stock, and we have $34.3 million left for repurchases that we can make pursuant to our existing authorization. Finally, before turning it back to Fred, I just want to remind you that our fiscal 2014 guidance provided yesterday does not reflect any additional stock repurchases that we may make pursuant to our stock -- share repurchase plan or any additional onetime items. Now let me turn it back to Fred, who will discuss our business and outlook in further detail. Fred?

Thanks, Mike. I will now -- I'd like to now discuss some of the new developments in each of our 3 business segments, which should also some -- add some color as to why we are very excited about fiscal 2014. The largest segment is the Telecommunications Transmission segment. Within this segment, the majority of our revenues have been and are expected to be from our Satellite Earth Station product line. Our strong leadership position and market share in the Satellite Earth Station is driven by our proven ability to deliver the most bandwidth-efficient modems to our end customers. These customers want their networks to be as efficient as possible in order to save on operating costs, both on the ground and in the space segment, by allowing them to send more voice, more video and more data through the same satellite channel. As you know, we have a long track record of being the innovation leader in this space. For example, more than 10 years ago, we introduced the first satellite modem using our patented TPC Forward Error Correction. Approximately, 3 years ago, we introduced our patented Carrier-in-Carrier technology, which allows our modems to use the same bandwidth over both the transmit and receive satellite channels simultaneously, thereby essentially doubling bandwidth efficiency. Unfortunately, the introduction of this groundbreaking technology coincided with the onset of the economic downturn and therefore, muted the potential sales that we believe could have been realized in a more favorable economic environment. Accordingly, we believe this technology has a long way to go. And although this technology has been in the marketplace for a few years, we believe there may be a pent-up demand, which will benefit us as the economy rebounds and government spending goes back to normal. Just last year, we also introduced a new line of product called advanced VSAT. These products combine a variety of technologies within our IP portfolio, including advanced Forward Error Correction, advanced coding modulation, header and lossless payload compression, RAN and WAN optimization and a managed bandwidth technology to provide an overall integrated solution. By listening closely to our end customers, we have been able to offer our advanced VSAT solutions into a market that has traditionally been served primarily by TDMA solutions. The good news is that, recently, we have seen certain TDMA users moved away from that technology since many users are demanding more dedicated, wider and more reliable bandwidth and are unwilling to tolerate the latency issues associated with TDMA. The contract we received from Harris Corporation last year to replace the Royal Caribbean Cruise line's TDMA systems with our advanced VSAT products is a good example of this. We believe other industry users may also follow in this direction, when they realize the limitations of TDMA and the advantages of using our advanced VSAT products. As you know, on the commercial side, most of our commercial Satellite Earth Station product sales are outside of the United States, and many international markets have continued to be impacted by economic conditions and in some cases, political and civil unrest. Europe, in particular, has been impacted by weak economic [ph] conditions. In addition to the impact that the European recession has had on European projects, it has also impacted large projects in Africa and South America, where much of the funding comes from the European telecom companies. On the U.S. government side of the Earth Station product line, procurement of our products practically came to a dead stop in the middle of fiscal 2013. A return to normalcy in the U.S. government communications equipment procurement process should also serve as an additional catalyst for growth in 2014 and beyond. Despite the overall downward pressure on government spending in fiscal 2013, we did receive a very significant contract from the U.S. Navy with a potential value of $29 million. We will be developing and then manufacturing the Advanced Time Division Multiple Access Interface Processor or ATIP for the Space and Naval Warfare Systems Command. This contract is very strategically important to us as it enters us into the protected MILSATCOM market. So in the Satellite Earth Station, area we believe we have pretty well weathered economic, political, regulatory and market-specific headwinds for the past few years. We have adjusted our operating expense levels accordingly while continuing to invest heavily in R&D. As a result, we believe that we are nicely positioned to capitalize on market opportunities if and when conditions improve. The other product line in the Telecommunications Transmission segment is our over-the-horizon microwave or troposcatter product line. We expect fiscal 2014 to be a strong year for our tropo business. Anchored by very strong backlog, we see a marked increase in revenues over fiscal 2013. To date, we have received contracts related to our North African end customer in excess of $340 million over the past [indiscernible]. There are additional large opportunities with this end customer that we believe will materialize in the years ahead. We hope to duplicate this type of relationship with other countries in the next few years as well. As our technology has advanced so has the number of potential users for tropo. In recent years, we have strengthened our marketing presence in many new international markets. We have begun to see these efforts pay off as evidenced by contracts that we have received in the Middle East and Sweden. We're also addressing and, in some cases, have already bid on large multimillion-dollar opportunities in Asia, South America, Middle East and Africa. These opportunities, as we all know, do take some time. On the U.S. government side of the tropo area, bookings of our SNAP terminals were strong and growing in fiscal 2012 but turned very soft in fiscal 2013. We now expect to receive tropo orders for additional SNAP terminals during fiscal 2014, with the related revenue most likely moving into fiscal 2015. We also believe that the U.S. Military spending for our transit case tropo will expand significantly in the coming years, as it is the only tropo system that has been qualified by all U.S. Military services, is backward-compatible with the current U.S. Military 170 -- TRC-170 tropo terminals, the price of these systems is significantly less than refurbishing and maintaining the equipment currently in service and their high mobility aligns with the new U.S. Military communications doctrine. On the commercial front, we continue to receive orders from industry-leading oil companies for tropo systems that are used on their drilling and exploration platforms. To repeat, our optimism about fiscal 2014 is based on the unprecedented amount of backlog we have, the number of quality international proposals that we have in the pipeline and our U.S. government business having nowhere to go but up given the virtual paralysis we experienced in fiscal 2013. All in all, we see 2014 as the year that our telecommunications segment will return to growth. Turning to our RF Microwave Amplifier segment. Fiscal 2013 was a challenging year. Difficult global market conditions and U.S. government procurement paralysis resulted in various order delays. However, we did receive certain important orders in the latter half of the year, with a large amount -- majority of these orders which will ship in fiscal 2014. In our traveling wave tube amplifier business or TWTA product line, we see delays on certain large military programs, such as FAB-T and WIN-T finally being resolved in the coming months. Both of these programs are expected to provide us with a nice revenue stream over the next few years. We also expect to continue significant business from the family of terminals program or FOT, which includes a mix of our TWTAs and SSPAs. On the commercial side of the TWTA product line, we see broadband high throughput satellite market and the direct-to-home satellite TV market as very exciting growth opportunities. We have sold our products into the most -- into most of the large North American and European broadband Ka-band platforms and are bidding, not only on the next-generation platforms with the same customers, as well as on new opportunities with new customers in new geographies. The direct-to-home or DTH market is poised for dramatic growth in the next few years as broadcasters are looking to replace aged, bandwidth-efficient klystron amplifiers in their existing networks with high-power, more efficient and more cost-effective broadband TWTAs to support high-definition and ultrahigh-definition program offerings. On the solid-state power amplifier side, our SSPA product line, our business has also been dramatically impacted by the weak U.S. government spending environment. In fact, in fiscal 2013, bookings relating to our IED-jamming products, which have been the largest single end use for our products in recent years were virtually 0. When and if this area, most notably the CREW 3.3 program, which we are on, will get back on track is not known at this time. Although a smaller part of our SSA -- SSPA business, our domestic commercial product lines serving the aviation and medical communities have continued to do well. Overall, bookings in our SSPA product lines did improve in the fourth quarter of fiscal 2013, and much of our projected sales for fiscal 2014 are already in backlog. In our third segment, Mobile Data Communications, our largest revenue contributor remains the sustainment work we're performing for the U.S. Army under the BFT-1 MTS contract. These activities continue to be funded despite the intense government spending pressures, which is continuing evidence of the important role our fielded technology plays with the -- within the U.S. Army. We are providing these sustainment services pursuant to a 2-year contract, which expires on March 31, 2014. And as you recall, under this contract, we receive a $10 million annual fee for the Army's ongoing use of our intellectual property, as well as just north of $10 million of engineering and support services, which are billed on a cost-plus basis. We expect to receive a new contract in our third quarter that will extend our sustainment activities. We're also continuing to pursue certain other specific markets for our services [ph], mostly assigned -- aligned with our existing product offerings. But we do not expect related revenues to be of significance in fiscal 2014. Most likely, they will be into -- going into fiscal 2015. Our primary goal in the mobile data communications market segment continues to be to provide the U.S. Army with outstanding support and in doing so participate [ph] in any next-generation BFT platform, if and when the U.S. Army pursues that path. Finally before turning it over to the operator, I would like to thank our employees and shareholders for hanging through a tough year. We believe better times lie ahead. With that, I would like to proceed to the question-and-answer period of our conference. Operator?

[Operator Instructions] And we'll go first to Joe Nadol with JP Morgan. Christopher Sands - JP Morgan Chase & Co, Research Division: It's actually Chris on for Joe. Couple of questions on capital deployment. First, I just want to confirm, it sounds like you started saying the convert will go away in the third quarter.

Well, the convert has a put of call date in the month of May of '14, so we would expect -- for our business outlook purposes, we're not expecting a conversion into stock, that it will either be matured or converted. So at the end of the day, it won't be around in our Q4. Christopher Sands - JP Morgan Chase & Co, Research Division: Okay. And then you made a comment in the 10-K that you would pursue one or more acquisitions, if the opportunities arise. Can you just talk about the environment and if you're looking at anything currently?

Sure, this is Rob Rouse. So the environment right now, certainly on the U.S. government side, is very soft. There's not a lot of properties out there for sale. We continue to look, we've looked at a bunch of things during the past year, and we're trying to obviously, look at as many commercial companies as possible. But I would generally describe it as relatively soft. Christopher Sands - JP Morgan Chase & Co, Research Division: Okay. And then last one on capital deployment. Mike, you bought back less shares that you have in recent periods, yet the stock is at a lower level, so just curious how you're thinking about that.

Well. I think that we're going to move forward with the dividend program as we talked about. We think the dividend program is a nice way to do that. And we do intend to continue to repurchase to the existing program that has about $34 million, $35 million left to go. And once we do that, then we'll revisit it and see what the right thing to do is. Christopher Sands - JP Morgan Chase & Co, Research Division: Okay. But no particular reason for the lower amount of repurchase this quarter?

Well, I think, at the last time -- maybe 2 conference calls ago, we kind of said that we thought we had bought a good amount back. But obviously, we continue to look at it. We have the program in place, and we do expect to use that repurchase program up and eventually, revisit it. Christopher Sands - JP Morgan Chase & Co, Research Division: Okay. And then last one. I think Fred alluded to this, but are you assuming nothing from JCREW 3.3 in fiscal '14?

Yes. I think as I mentioned, we see that kind of [indiscernible] up mode. The program is not dead, but it certainly is on hold.

And we'll go next to Tyler Hojo with Sidoti & Company. Tyler Hojo - Sidoti & Company, LLC: I was, first, just wondering if you could talk a little bit about portfolio-shaping initiatives, just really in context with the, I guess, recently announced sale of the SENS product line. Is there anything else that you don't think necessarily fits with kind of the portfolio today or is just kind of going in the wrong direction.

Tyler, this is Rob again. In terms of the SENS product line, it was a small product line for us. Just to be clear, it was a simplex or 1-directional device. All of our other product offerings are duplex. So for us, it just didn't have the scale to make a lot of sense. It's very much price-sensitive in terms of the hardware. I think for ORBCOMM, they have more scale in that area, and it made sense for them but wasn't strategically a good fit for us at this time. Currently, I don't really see any other anywhere near significant product lines that fall into that category, but we're always looking at our portfolio. Tyler Hojo - Sidoti & Company, LLC: Okay, great, Rob. And just on another topic, just in context with, I guess, Fred's discussion on the over-the-horizon product line. First, I'm just curious, just in regards to the $50-some-odd-million follow-on you got, what time period is that expected to be executed upon? And then kind of my follow-up is you mentioned a number of different bids out there in countries that you're kind of preliminarily working with, just curious if you would expect another large over-the-horizon booking in FY '14.

Generally, to answer the first part of the question, generally these 50 -- or let's say, they're -- rounding it just to $50 million. Generally, the $50 million programs for the North African customer go over a 3-year period, and that's -- it's been that way for the last 10 years. As far as new countries are concerned, I think in our tropo business, as we have become more recognized as the supplier of tropo and tropo has been recognized as a technique of communications that is very efficient as compared to satellite communications, we see more and more countries being interested in implementing this. Having said that, it is a long marketing sell, and we've been pursuing a number of opportunities, as I mentioned. And it may take 6 months, it may take 3 years, as you've seen in some of our programs, so it's very difficult to actually determine when those programs will fall into our lap. But we certainly have a lot of them in the pipeline, and we -- as I mentioned, we hope to kind of duplicate, hopefully, 1 or 2 countries in a similar fashion that we have with this North African customer. Tyler Hojo - Sidoti & Company, LLC: Okay. I guess I'll leave it there. And just lastly, I was hoping that you could perhaps discuss what your free cash flow expectations are for fiscal '14.

We're not going to put a specific number out there, but obviously, EBITDA is a good sense for kind of calculating that. And I think -- we generated $37.7 million worth of cash flow this year in '13, and we do expect to generate a significant amount. And given that everything is directionally higher, we hope that number would be higher. But given the timing of cash flows on the large contracts and so forth, it's very difficult to put a number out there.

And we'll go next to Rich Valera with Needham & Company. Richard Valera - Needham & Company, LLC, Research Division: First, for Rob, with respect to the M&A environment, can you just give us a sense of how you view seller expectations in terms of prices? Do you -- there was a period, I think, when things got pretty overheated. Have expectations come down as there has been -- some of these DOD headwinds? Just if you could give any sense of how you view the overall sort of M&A landscape at this point.

I would say, Rich, that anybody that has any defense portion of their business, looking at -- valuation is a function of 2 things, right, the base EBITDA and the multiple. I think, generally speaking, there's probably a pretty narrow range of expectations of what multiples are. The challenge is differences of opinion in terms of what a company's forward-looking EBITDA is going to be. So I think that's why you're probably not seeing a lot of deals getting done because there's just a difference between buyers and sellers as to what the outlook looks like. On the commercial side, I think that's kind of less of an issue, but we still have a weak economic environment, some of that is at play. But certainly on anything with government exposure, I think there's that same uncertainty that all public companies that you cover have. Uncertainty in the outlook drives uncertainty in terms of valuation. Richard Valera - Needham & Company, LLC, Research Division: Sure. That's helpful. Appreciate that. And then, Fred, with the North African contracts, are they strictly executed kind of in serial fashion? Or is there a chance of them overlapping at any point, where you would have kind of a bump in revenue?

Yes. I think, if you look at our last 2, the first one took forever for us to land, which we finally landed. And then the next one came much quicker than we would normally expect. So I think there will be an overlap in revenue as a result of it. Richard Valera - Needham & Company, LLC, Research Division: So like within fiscal '14, you could have some quarters where effectively you're working on both of them and recognizing revenue from both of them?

Yes.

Rich, to put some additional color on that, we just started working on the second contract. As I mentioned in my portion earlier, we do expect, in the second half of the year, to have a big bump in that product line. And then so for the year, that product line, and just to clarify, is going to be significantly higher in '14 than '13, and that should -- that trend should hopefully continue. Richard Valera - Needham & Company, LLC, Research Division: So for modeling purposes, should we think about that bump as sustainable? Or is that the period when you're simultaneously executing on both at higher rates and that will eventually taper down when you just get to one?

Well, it started from the second half of the year. We do expect to be running on both contracts pretty good, and that should, hopefully, continue in '15. And we'll leave it at that. Richard Valera - Needham & Company, LLC, Research Division: I got it. So the first contract, you expect will extend into and through '15. Is that fair?

It will have some tail, yes. Richard Valera - Needham & Company, LLC, Research Division: Okay. That's helpful. And then I'm guessing this is kind of a perfunctory risk disclosure, but with respect to the BFT maintenance contract, in your K, you talk about the possibility of not getting that as a risk. But it sounds like, in your prepared remarks, you're pretty confident you will get a follow-on there. So just wanted to see if you can put any color around that.

Well, nothing is -- nothing, obviously, is guaranteed with the U.S. government. But I think, unofficially, we have been told that the sustainment contract is likely to go, at a minimum, to FY '18 for us and most likely to FY '22. Given that, we go by the contract we have, which is typically a 2-year contract.

And we'll go next to Chris Quilty with Raymond James. Chris Quilty - Raymond James & Associates, Inc., Research Division: I was hoping perhaps you could help us with the -- what your expectations or range of expectations might be for the margins by segment. And specifically the mobile data, I guess there's a lot of variability there based upon the contract.

Yes. I think, Chris, I'd point you to the Q4 margins we reported for the year. For the quarter, our telecom segment was 15.2% and telecom -- or RF was 7.4%, our mobile data comm was 37%. When you aggregate it all, we did 11.6%. It was a very good quarter in terms of mix and so forth, like that. As I mentioned earlier, we're targeting about 11% in total for 2014. The Mobile Data Comm mix is pretty much going to be there. We do have that Q1 sale to ORBCOMM that is going to be in our Q1 numbers. But I do think what we did in Q4 sort of a good sense plus or minus, and we're targeting 11% for the year. Chris Quilty - Raymond James & Associates, Inc., Research Division: Great. And on the mobile data business, with the sales of the SENS and the shutdown of the AeroAstro business, I mean, is there anything -- I'm just trying to -- I didn't see in the 10-K, but is there anything left in the business beyond the sustainment contract? And is there any intent to try to leverage that portfolio? I know, in the past, you had talked about looking at commercial tracking opportunities. Have you just laid that to rest?

I think that's pretty well true. As you know, the SENS business and the AeroAstro business were kind of pieces of business that we inherited with the Radyne acquisition a number of years back and really didn't quite fit into our product portfolio. So both of those product lines are now out of the picture. I think the remaining mobile data comm area, the technology is there, certainly can be used on a commercial basis, but I think we're still studying that area pretty hard and don't really believe that we will be entering that -- into that arena. More so, I think we are going to try to take that technology on the government side and extend it into international applications. Chris Quilty - Raymond James & Associates, Inc., Research Division: Got you. And you talked optimistically about the outlook for the Carrier-in-Carrier technology in the past, that was sort of an exclusive technology based upon your license, but there's been some ongoing litigation with ViaSat and others. Can you give us an update on where you feel you stand with that technology in your competitive position?

I think we are still pretty well ahead of the oncoming competition in that area. I think the litigation between Raytheon and ViaSat on the patent applications, I think, is over. And both of us are free to go forward with that technology. We feel that we have taken that technology and developed it into a Carrier-in-Carrier modem capability in our products. At the moment, there are a number of companies that are trying to do something similar and trying to skirt the patent part of the technology, but we just don't see any competition at this point just yet. Chris Quilty - Raymond James & Associates, Inc., Research Division: Got you. And with regard to the free cash flow question earlier, can you at least address the capital expenditure side of that in terms of your expected CapEx for this fiscal year?

Sure, Chris. There's an exact range in our 10-K. But you'll see, for the year, we did $5.3 million in 2013, and it's fair to say we'll probably spend a similar amount and if not, maybe a couple of million dollars more in '14 depending on the types of projects we pursue. Chris Quilty - Raymond James & Associates, Inc., Research Division: And what type of products would actually require capital investment?

Well, we're constantly upgrading our machine and our -- machines and our PP&E in our Arizona facility. So really, we -- that's where the primary capital dollars were spent at the company.

[Operator Instructions] We'll go next to Mark Jordan with Noble Financial.

Just to follow-up a little bit more on the cash flow questions. You mentioned that -- or the caveat that, in fact, the over-the-horizon contracts would have milestone payments and that you could see those build -- receivables build up until you'd hit a milestone. Do you have a sense of what that peak level could be relative to your over-the-horizon contracts before you would get -- hit a payment milestone, which would then convert to cash and knock down that receivable?

Well, one thing to say, we generally try to be cash positive on the contracts. So as you're thinking about your cash flow model, that's the way we think about it, but obviously, sometimes there's hiccups or delays and so forth like that with international payments and so forth like that. But I think '13 is a good way for you to think about the free cash flow plus the growth that we're thinking about in '14. But it's difficult to put a number on it for those reasons.

Okay. Second question -- another question relative to the over-the-horizon business and the pipeline you have there. Obviously, with the Algerian contracts that you've had, they've been pretty much all in the 4s -- $40 million to $50 million range. As we think looking forward and as you have been marketing, is this the type of scale that you would typically sell as you hopefully bring on new countries as customers? Or is that template just unique to Algeria?

I think you have to look at it mainly with new countries. It will usually start more likely with a $5 million to $10 million effort, and then being proven on site, would then turn into a $50 million, $60 million effort from then on. So the early contracts, I think, will be probably in the $5 million to $10 million order. Similar to what we got last year from Saudi Arabia, which was a $10 million contract.

And we have no more questions at this time. I would like to turn the conference back over to the company.

Thank you very much for joining us today, and we look forward to speaking with you again in December. Again, thanks very much. Bye.

This does conclude today's conference. You may now disconnect, and have a wonderful day.