Comtech Telecommunications Corp. (CMTL) Q4 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Comtech Telecommunications Corp. Fourth Quarter Fiscal 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Friday, October 10, 2014. I would now like to turn the conference over to Ms. Maria Ceriello (sic) [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, 2014. 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. 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. Good morning, everyone, and thank you for joining us in this call. As announced yesterday afternoon, we reported our fourth quarter results of $89.4 million in revenues and a GAAP diluted EPS of $0.48. For the year, our revenues totaled $347.2 million, and our GAAP diluted EPS was $1.37. Our adjusted EBITDA was $16.7 million for the fourth quarter and $61.3 million for the full fiscal year. We are extremely pleased with our fourth quarter and full year financial results. After several years of revenue and operating income decline, fiscal 2014 was a year of meaningful growth, and we are optimistic that this momentum will continue into our fiscal 2015. We believe that our revenues in fiscal 2015 will be in the range of $355 million to $370 million. We expect our GAAP diluted EPS to be in the range of $1.70 to $1.86 and our adjusted EBITDA to be in the range of $63 million to $67 million. During fiscal 2014, we generated $34.6 million of operating cash flow, and in light of both our short- and long-term growth expectations, yesterday, our board of directors approved a dividend for the first quarter of fiscal 2015 of $0.30 per common share. This dividend is expected to be paid on November 19, 2014, to stockholders of record on October 24, 2014. To date, and over the past 16 consecutive quarters, we have paid out over $85 million of dividends, and we continue to believe that our dividend program is an excellent way to return capital to our stockholders. In addition, during the fourth quarter of fiscal 2014, we repurchased approximately 398,000 shares of our common stock at an aggregate cost of $12.6 million. From inception to date, we have repurchased approximately $436.7 million of our common stock, and we are currently -- we currently have approximately $13.7 million available for additional repurchases, pursuant to our current board authorization. As you know, in August of this year, we confirmed, in response to media reports, that our Board of Directors is exploring strategic alternatives to enhance shareholder value. There can be no assurance that any transaction or other strategic change will occur as a result of the current exploration of alternatives. And since this process is ongoing, we will not have any further comment at this time, and we respectfully ask that you do not ask any questions about this ongoing process. Now let me turn it over to Mike Porcelain to provide an overview of our financial results, and then I will return to talk more specifically about each of our 3 business segments. Mike?

Thanks, Fred, and good morning, everyone. I'll walk you through the Q4 results, make a few comments about our full fiscal year and I'll provide some comments on our expected 2015 business outlook. During Q4, we generated revenues of $89.4 million, of which, 27.9% were for U.S. government end users, 60.4% were for international customers, with the remainder being for domestic commercial end customers. For the full year fiscal 2014, we finished at $347.2 million of revenue, with 28% being generated from the U.S. government and slightly more than 59% from our international customer base. Net sales on our telecom transmission segment were $59.3 million in Q4 of fiscal 2014 as compared to $50.1 million we achieved in Q4 of last year, representing an increase of 18.4%. This increase is attributable to higher sales in both our satellite earth station and our over-the-horizon product lines. After several years of decline, our satellite earth station product revenue increased for the year as we benefited from increased sales to both the U.S. government and international customers. Sales of our over-the-horizon microwave systems in Q4 of fiscal 2014 primarily related to our ongoing performance on both our 3-year, $58.6 million contract and our 4-year, $57.4 million contract to design and supply over-the-horizon microwave systems and equipment for use in a North African government's communications network. For the full year fiscal 2014, net sales in our telecom transmission segment were $231.5 million, up $36.9 million or 19% from the $194.6 million we achieved in fiscal 2013. Looking to fiscal 2015, given the number of large jobs that are in our pipeline, we expect sales in our satellite earth station product line to be higher than the level we achieved in fiscal 2014. For our over-the-horizon microwave system product line, based on expected performance on both North African government and customer contracts, other contracts that are currently in our backlog and other contracts that we anticipate receiving, we expect net sales in this product line in fiscal 2015 to also be higher than the level we achieved in fiscal 2014. Growth for each of these product lines is expected to be weighted towards the second half of fiscal 2015. Net sales in our RF microwave amplifiers segment were $23.3 million in Q4 of fiscal 2014 as compared to $25.1 million in Q4 of fiscal 2013, a decrease of 7.5%. For the full year 2014, net sales in our RF microwave amplifiers segment were $88 million, up $1.1 million or 1.3% from the $86.9 million we achieved in fiscal 2013. Bookings for our RF microwave amplifier products during 2014 were higher as compared to fiscal 2013. We recently announced several large orders and, based on these orders, orders in our backlog as of 7/31, and the timing of orders we expect to receive, we expect net sales in this segment in fiscal 2015 to be significantly higher than the level we achieved in fiscal 2014, with growth occurring in the latter part of fiscal 2015. Turning to our mobile data communications segment. Sales in Q4 of fiscal 2014 were $6.8 million as compared to $9.2 million in Q4 of fiscal 2013, a decrease of 25.7%. This anticipated decrease is primarily attributable to lower sales of our SENS technology-based solutions, which we no longer offer. Sales in both periods include $2.5 million of revenue related to our $10 million BFT-1 intellectual property license fee. For the full year 2014, net sales in our mobile data communications segment were $27.7 million, down $10.5 million or 27.5% from the $38.2 million we achieved in fiscal 2013. Sales in both periods include $10 million of revenue from our BFT-1 IP license fee. As discussed in more detail in our 10-K, during the first quarter of fiscal 2015, the U.S. Army funded an incremental $6.1 million related to our 2 3-year BFT-1 contracts, which completes the $23.6 million of funding for the base year for both our BFT-1 sustainment and BFT-1 annual IP license contracts. The base year of both of these contracts expires March 31, 2015. And although future funding is difficult to predict, given the ongoing U.S. government budget pressures, we currently expect that the U.S. Army will exercise the 2 12-month option periods for both contracts and that we will receive incremental funding beyond the base year. Now let me walk you through our gross margin and operating expense line items and provide some metrics to give you some perspective on our results. Our gross profit in Q4 of fiscal 2014, as a percentage of consolidated net sales, was 44% versus the 41.9% we achieved in Q4 of last year. Our consolidated gross profit percentage this quarter reflects a higher gross profit percentage in all of our business segments, attributable to changes in the overall mix of products and services when compared to the fourth quarter of fiscal 2013. For the year, gross profit was 43.6% as compared to 44% in fiscal 2013. Looking forward, and despite all the various mix changes that are more thoroughly described in our Form 10-K, we believe that our consolidated gross profit in fiscal 2015 as a percentage of consolidated net sales will be slightly lower than the level we achieved in fiscal 2014. On the expense side, SG&A expenses were $17.3 million or 19.4% of Q4 fiscal 2014 net sales as compared to the $15.6 million or 18.5% we achieved in Q4 of last year. The increase in SG&A expenses in dollars is primarily related to an increase in cash-based incentive compensation expenses associated with the overall increase in our net sales and profits and certain legal and other professional fees, including costs associated with our current strategic process. SG&A expenses for fiscal 2014 were $67.1 million or 19.3% as compared to $63.3 million or 19.8% in fiscal 2013. Excluding a $200,000 benefit in fiscal 2014 resulting from a change in the fair value of a contingent earnout liability related to our acquisition of Stampede, SG&A expenses would've been $67.3 million this year. Excluding a net benefit of $2.8 million in fiscal 2013, including a $3.3 million benefit associated with Stampede and a $0.5 million charge associated with the wind-down of a microsatellite product line, SG&A expenses would've been $66.1 million in fiscal 2013. In light of consolidated net sales growth expected in fiscal 2015, SG&A expenses in dollars are expected to be higher in fiscal 2015 as compared to fiscal 2014. However, we do expect SG&A expenses in fiscal 2015 as a percentage of consolidated net sales to be slightly lower than fiscal 2014. R&D expenses were $8.4 million or 9.4% of consolidated net sales in Q4 of fiscal 2014 versus $8.3 million or 9.8% in Q4 of fiscal 2013. We expect company-funded R&D expenses for fiscal 2015 in dollars to be slightly higher than the amount we invested during fiscal 2014 and, as a percentage of consolidated net sales, to be slightly lower in fiscal 2015. Total stock-based compensation expense, which is recorded in our unallocated segment, was $1.2 million for the fourth quarter of fiscal 2014 as compared to $900,000 for the fourth quarter of fiscal 2013. Based on the amount and type of outstanding equity awards, stock-based compensation in fiscal 2015 is expected to be higher than fiscal 2014. Amortization of intangibles with finite lives was $1.6 million for the fourth quarter of both fiscal 2014 and fiscal 2013. Consolidated operating income in Q4 of fiscal 2014 was $12.1 million or 13.5% of consolidated net sales as compared to $9.8 million or 11.6% in the fourth quarter of last year. For the year, operating income as a percentage of net sales was 12.6%. Currently, we are targeting operating income as a percentage of consolidated net sales in fiscal 2015 to be slightly higher than the 12.6% we achieved in fiscal 2014. Interest expense was $300,000 in the fourth quarter of fiscal 2014 and $2 million in the fourth quarter of fiscal 2013. As previously reported, as of May 5, 2014, none of our 3% convertible senior notes remain outstanding. As such, we expect interest expense for fiscal 2015 to be significantly lower than fiscal 2014. Interest income and other was $156,000 in the fourth quarter of fiscal 2014 compared to $289,000 in the fourth quarter of fiscal 2013. Turning to income taxes. Our GAAP effective tax rate for the fourth quarter of fiscal 2014 was 33%. Looking forward, we expect that our GAAP tax rate in fiscal 2015, excluding the impact of discrete tax items, will approximate 35%. Adding it all up on the bottom line, as Fred mentioned, we delivered GAAP diluted EPS of $0.48 in Q4 of fiscal 2014 and $1.37 for the year. Now let me provide some additional financial metrics to add some more color. Adjusted EBITDA, as defined at the end of our press release that we issued yesterday, was $16.7 million in Q4 and $61.3 million for fiscal 2014. At July 31, 2014, our backlog was $133.4 million compared to $189.7 million at July 31, 2013. This decrease is primarily due to our performance on our 2 large North African country end customers -- contracts. Our balance sheet remains strong. We had $154.5 million of cash and cash equivalents, and none of our 3% notes were outstanding as of the end of the year. This cash balance that I just stated does not reflect our Q4 dividend that was paid in August, which approximated $4.8 million. We generated $34.6 million of positive cash flows from operations during fiscal 2014. And although we expect to generate significant positive cash flows in fiscal 2015, the amount is currently expected to be lower than fiscal 2014, almost entirely due to expected performance on our over-the-horizon microwave system contracts. In fiscal 2014, we repurchased $70.7 million of our common stock, and we have $13.7 million left for repurchases that we can make. Finally, before turning it back to Fred, I just want to provide some other comments on our fiscal 2015 guidance. First, our revenue, EBITDA and EPS guidance will be significantly weighted towards the latter half of fiscal 2015 for the reasons I addressed in my comments. In fact, we expect Q1 revenues and EBITDA in fiscal 2015 to be lower than what we posted in Q1 of fiscal 2014. These fluctuations are largely driven by timing of orders in our backlog and orders that we expect to receive. And second, and finally, our fiscal 2015 EPS and EBITDA guidance provided yesterday does not include any additional expenses associated with our current strategic process. Now let me turn it back to Fred, who will discuss our business and outlook in further detail. Fred?

Thanks, Mike. Now let me discuss some of our growth drivers and recent developments in each of our 3 business segments. As always, let's start with our largest business segment, telecommunications transmission. This segment is comprised of 2 product lines: satellite earth station products and over-the-horizon microwave systems. We remain the undisputed leader in the satellite earth station SCPC modem area, driven primarily by our proven ability to deliver the most bandwidth-efficient modems to our end customers. We've maintained our reputation as the innovation leader in this space by continuously introducing groundbreaking technologies that have enabled applications for our end customers that were not considered possible. We are increasingly more excited about our new line of products called Advanced VSAT. These products combine a variety of technologies within our IP portfolio to provide an integrated solution, including advanced forward error correction, advanced coding modulation, compression, RAN & WAN Optimization and our bandwidth management technology. By listening closely to our end customers, we've been able to offer our Advanced VSAT solutions into markets that have traditionally been served by TDMA solutions. Although we just started our major marketing efforts relating to these products a little more than a year ago, we have begun to see our efforts pay off. Recently, as well, we have seen certain TDMA users move away from that technology since many of the users are now demanding more efficient, more dedicated reliable bandwidth and are unwilling to tolerate the latency issues associated with TDMA. In addition to the introduction of new product lines, such as Advanced VSAT, we have recently refreshed our core low-, middle- and high-end modem lines. As a result, our modem portfolio today offers even greater bandwidth efficiencies to our end customers. As you know, the majority of our commercial satellite earth station product sales are in international markets, some of which continue to be impacted by macroeconomic conditions and, in some cases, political and civil unrest. On the U.S. government side of our satellite earth station product lines, we are beginning to see signs of a return to normalcy. We're also seeing a lot of proposal activity and are awaiting some significant U.S. government-related orders. Despite the continuing pressure on government funding, we did receive a very significant contract from the U.S. Navy with a potential value of almost $30 million. We're in the final phases of the development on this contract, and we'll be manufacturing, in fiscal 2014, the Advanced Time Division Multiple Access Interface Processor or ATIP for the Space and Naval Warfare Systems Command. Just this week, we announced the receipt of our first production order and related engineering services for $5.5 million. The ATIP contract is strategically important as it enters us into the protected MILSATCOM market, where there are several sizable opportunities in the Navy and other U.S. branches of the military as well as foreign MODs. So in the satellite earth station area, we believe we have weathered economic, political and regulatory and market-specific headwinds that impacted our growth for the past few years. We believe that we are now in a nicely positioned situation to capitalize on market opportunities as conditions further stabilize and improve. Turning to the other component of our telecommunications transmission segment. Fiscal 2014 was a banner revenue for our tropo business, and fiscal 2015 is expected to be a strong one as well. Anchored by backlog from programs with our North African end customer, we enter the year with a strong base. We're also aware of additional large opportunities with this end customer, which we expect to materialize -- will materialize in the years ahead. Beyond our traditional customer base, we are addressing and, in some cases, have already bid on large opportunities in the Middle East, Australia, Asia, South America and Africa. We are increasingly confident that some of these opportunities will result in substantial contract awards in fiscal 2015 and beyond. Our goal is to find a few large long-term customers that can serve as significant and steady revenue contributors, similar to our current North African end customer. On the U.S. government side of the tropo area, bookings have been very soft for the past year or so. However, our tropo system has recently completed additional network integration evaluation or NIE testing by the U.S. Military. The successful NIE test is expected to significantly increase the potential number of deployable tropo units by standardizing the DoD on our product portfolio. And as a result, we expect significant U.S. government tropo orders in the second half of fiscal 2015. Also on the commercial front, we continue to receive orders from industry-leading oil companies for tropo systems that are used on drilling and exploration platforms. Our optimism about the tropo business is based on: one, the significant amount of backlog we have; the significant additional international opportunities we see in the pipeline; the successful completion of the U.S. Army NIE testing; and our U.S. government business having nowhere to go but up, given the paralysis we have experienced during the past 1.5 years. All in all, we remain confident that our telecommunications transmission segment will continue to grow in fiscal 2015. Turning to our microwave amplifiers segment. We expect revenues to be significantly higher in 2015 as compared to fiscal 2014. Although 2014 was not a standout revenue year, we received certain important orders, which provide a solid base for fiscal 2015. In our traveling wave tube amplifier or TWTA product line, we have recently received orders relating to the FAB-T and WIN-T programs, which, when combined with additional FOT and SWAN orders already in backlog, will provide a strong base for us of U.S. government-related revenues for the next several years. On the commercial side of the TWTA product line, we see the broadband high-throughput satellite Ka-band market and the direct-to-home TV market as very exciting growth opportunities for us. We have already sold our products into most of the large North American and European Ka-band platforms, and are bidding on next-generation platforms with the same customers as well as new opportunities with new customers in new geographies. The direct-to-home or DTH market is also poised for dramatic growth in the next few years, as broadcasters are looking to replace aged bandwidth-efficient klystron amplifiers with high-power, more efficient broadband TWTAs to support high-definition and ultra high-definition program offerings in their existing networks. In addition, these broadcasters as well as other new entrants to the DTH market are looking to emerging markets as significant growth drivers as these same services are rolled out to a brand new group of potential end-users. We believe that our product offerings will be uniquely positioned to serve these dynamic market opportunities. On the solid-state power amplifiers side or the SSPA product line, our business has also been dramatically impacted by the weak U.S. government spending environment. We've also experienced delays in the receipt of certain international SSPA orders as a result of the end customers being in areas of the world that are experiencing unrest. Having said that, we're beginning to see signs that activity is heating up again. In fact, during the first quarter of fiscal 2015, we booked $6.7 million in orders from international customers. On the government side, also in our first quarter of fiscal 2015, we signed a master purchasing agreement with a major domestic OEM for Identification Friend or Foe solid-state power amplifiers. The master purchasing agreement is valued approximately at $6 million and, so far, we have received multiple funded orders totaling to $3.7 million. Although a smaller part of the SSPA business, our commercial product lines serving the aviation and medical communities continue to do well. Also on the commercial sides, we're also making inroads into the flight entertainment and communications space, which is expected to grow exponentially over the next decade. As of today, a significant amount of our projected microwave amplifier sales for fiscal 2015 are already in backlog. And based on orders already received and those expected to be received in the near future, we see this segment growing significantly in fiscal 2015. In our third segment, mobile data communications, the largest revenue contributor remains our BFT-1 sustainment work for the U.S. Army. These activities continue to be funded despite government spending pressures. We believe this is a continuing and tangible evidence of the important role our technology plays within the U.S. Army. During fiscal 2014, we received 2 new 3-year BFT-1 sustainment contracts aggregating $68.2 million. The first contract, which has a not-to-exceed value of $38.2 million, relates to our ongoing engineering and satellite networks operation services. The base for this services contract is from April 1, 2014, to March 31, 2015, and the government has 2 12-month option periods that it can exercise. The total value of the base year services contract is $13.6 million, which, as of today, has been fully funded. The second contract is a continuation of our IP licensing agreement. This agreement requires the Army to pay us a $10 million annual license fee, with 2 12-month option periods exercisable by the Army. In addition to our sustainment activities on BFT-1 there are other well-defined opportunities that we are pursuing, both in the U.S. Military and certain international military markets. Our primary goal in the mobile data communications segment continues to be to provide the U.S. Army with outstanding support, and doing so should position us well to participate in any next generation BFT platform if and when the U.S. Army pursues that path. In fact, we have recently responded to 2 government RFIs that effectively are requesting alternatives to the BFT-2 transceiver. One RFI is for a BFT 2.5, looking to replace the current L-Band BFT-2 transceivers. The second RFI is for a dual-frequency BFT-3 transceiver operating at both L-Band and X-Band. We have responded to both RFIs, and we believe we are uniquely qualified to offer the best, most cost-effective solutions in responding to the government's request. With that, I would like to proceed to the question-and-answer period of our conference call. Operator?

[Operator Instructions] And we will go to our first question from Joe Nadol of JPMorgan. Christopher Sands - JP Morgan Chase & Co, Research Division: It's actually Chris on for Joe. Mike, I was hoping you could elaborate on the back-half-loaded profile. You mentioned that some of it was due to the timing of orders already in backlog, but also that there's orders out there that you need to receive. Can you give us an idea, relative to one another, are there more orders that you still need to get? Or is most of it already in backlog?

Well, it's a combination of both. As we sit here today, post our 7/31 year-end, we did receive a couple of large orders, both in our satellite earth station group for the ATIP. Some of those production orders are not going to ship in the first part of the year. We also had some orders that come in, again, post 7/31 in our amplifiers segment, which is not going to ship until the latter part of the year. So just really -- we do have some stuff in the backlog that's really time-sensitive or that's going to drive the timing, and then the large opportunities that we see in our satellite earth station side are not expected to result in revenue during the first half of the year. So it's really going to be heavily weighted towards the back end. Christopher Sands - JP Morgan Chase & Co, Research Division: So from the opportunity perspective, you'd say that it's mostly in the satellite earth station that you're more comfortable with the RF second half outlook?

Yes. I'm not sure I fully understand. I -- literally, if you took -- and with the exception of our mobile datacom business segment, both the telecom and RF are both going to be heavily weighted towards the second half of the year. Christopher Sands - JP Morgan Chase & Co, Research Division: Right. I was just trying to say that it is more of the second half weighting in RF already in backlog versus satellite earth station?

Yes, yes, that is accurate. Christopher Sands - JP Morgan Chase & Co, Research Division: Okay. And then can you give us an idea what the telecom transmission backlog x over-the-horizon was in the quarter sequentially? Just the movement. Was it down a certain percent or flat?

Yes. I guess, let me give you some color on the backlog itself by segment, first, as we normally do on the call. In our telecom segment, we finished with backlog of $83.3 million, RF was $39.5 million and mobile datacom was $10.6 million, for a total of $133.4 million. And if you look at the imputed bookings that we did during the quarter, almost all of that was satellite earth station bookings. So really, the decline in our backlog in that segment was primarily driven by OTH. Christopher Sands - JP Morgan Chase & Co, Research Division: Okay. And then, just one more on the over-the-horizon. You mentioned that there could be awards from 2 new or a few new long-term customers this year. Can you provide any more color on that?

Yes. As I mentioned, we have bids outstanding in a number of areas of the world and in a number of countries. We expect to, or hope to, kind of get into the similar situation as we have in -- with our North African customer for a nice, long association. Christopher Sands - JP Morgan Chase & Co, Research Division: And do you have a sense for when those decisions may come?

I think, as I mentioned, we expect somewhere in the latter part of 2015 and beyond, really. It's, as you know, it's very difficult to predict timing on these large tropo programs.

And our next question will come from Mark Jordan of Noble Financial.

A question on the mobile data. You talked about the 2 opportunities, the 2.5 and then the dual band. Do you believe that there'll be any potential revenue for those programs in fiscal '15? Or is that more likely '16 and beyond? And then secondly, in the BFT-2 bid, one of the sticklers was sort of ownership of intellectual property. Is that an issue with these 2.5 and 3.0?

I guess, Mark, the answer to the first question is we don't expect much revenue in 2015 other than maybe some development work on either one of these, and this is based on an assumption that the government does find the funding to go forward with these 2 RFIs and convert them into actually RFPs. As far as the IP is concerned, yes, the original BFT competition requested that IP be given to the U.S. government for the BFT-2 transceivers. As we understand it, that seems to be a problem area for the U.S. Army. And whether they come out on the 2.5 or the 3, I suspect, definitely on the 3, they will be asking for the IP. It's harder to tell whether on the 2.5 because that seems to be almost a stopgap solution to the present problems that they may ask for the IP. So after a long-winded answer, we really don't know.

Okay. A question relative to the share repurchase. Obviously, you've been very active over the years, but as you go through the current process of looking at strategic alternatives, should we assume that, that would be on hold until there's some form of resolution of your current process?

Yes. I think that's fair. I mean, I'd refer you to our earlier conference call where we kind of assessed where things were and kind of put things on hold. So I think that's a fair way to look at it.

Okay. Final question for me, relative -- Michael, your guidance on gross profit margins seemingly, just potentially, being up a few basis points versus fiscal '14. Given the fact that you're seeing growth in telecom, tropo and RF and mobile data has that solid slug of intellectual property, what is the -- why isn't there a little greater improvement in operating margin?

Yes, it really just is anticipated products mix changes. I mean, I would tell you from an operating margin perspective, we're shooting for around 13%. Based on, again, the stuff that we have in backlog, some of these are larger-type orders, so you don't -- you're not getting to get the same margin that you may get on a smaller order. But at the end of the day, we're shooting for 13%. Could we do better? Time will tell as the orders come in, and the mix. But right now, that's the number that we're going with.

And our next question comes from Tyler Hojo of Sidoti & Company. Tyler Hojo - Sidoti & Company, LLC: Yes. I want to talk about backlog and bookings a little bit more. When you look at your backlog level for this year, I mean, it's quite a bit lower than the coverage you had last year, and I understand that obviously you have less backlog from Blue Force Tracking, but could you just talk about kind of confidence levels, just given kind of the backlog dynamic? And maybe just talk a little bit about kind of bookings expectations for fiscal '15.

Sure, Tyler. I guess, again, I always guide folks to look at the backlog by segment, and if you do some quick comparisons, our RF amplifiers segment, for instance, is almost the same as it was at the end of FY '013, around $40 million. And we do see lots of opportunities in our RF amplifier segment. As you switch to mobile datacom, that's just a question and a function of the BFT-1 sustainment contract, which is heading lower. So if you look at, say, FY '013, we finished $15.6 million down to $10.6 million at the -- to the end of the year. And again, we certainly believe, in March, we'll get that -- the second year of the BFT-1 sustainment contract. So we do feel very, very confident that we'll get that booking. So then, you switch over to telecom segment, and the year-over-year decline is strictly related to the troposcatter side of the business. We have the lumpy over-the-horizon microwave contracts, and we do see those coming in, in the second half of the year. So with that said, that really is the explanation for all the flux that's occurring. Tyler Hojo - Sidoti & Company, LLC: Okay, great. And maybe just a follow-up to your commentary on OTH MS, can you talk about what the expectation, just from a volume standpoint, is for '15? Are sales to North Africa expected to be up year-over-year? Or what are the expectations there?

I guess the expectations in that area -- as Mike just mentioned, it's pretty lumpy to try to predict exactly when the timing of orders are in. On the North African customer right now, we're working off 2 major large contracts, and so that's why you see the backlog kind of trending down. And it's always been that way, a couple of years of orders and then, the backlog seems to be going down and then we get another couple of large orders and the backlog is at its record high again. So it's kind of a lumpy business. Do we expect some orders in the immediate near term? I would say in the latter half of the '15 or beyond. Actually, in terms of our North African customer, I think we do expect to see some large contracts. In other countries, yes, we have the same opportunities, a very large pipeline at this point, much more than in years past, but again, it's very, very difficult to predict exactly when the contracts will come in.

But we do expect, Tyler, in the second half of the year -- Fred mentioned on the NIE testing, that was wrapped up over the summer. So we're expecting it to take 3 to 6 months to turn that into orders, and those, we do expect to receive, and there is a kind of defined demand for those products that we expect to generate some revenue at the end of this year. Tyler Hojo - Sidoti & Company, LLC: Okay, got it. And just a question on free cash flow. I get that your expectation is for that to be lower year-on-year for '15. Just maybe if you could expand the commentary into CapEx. '14 was, I think, a historically low year for CapEx spend. Are there more requirements for that in '15? Or what should we expect?

No. I think if you look at fiscal 2014, it's a good proxy for what we would do for FY '015. We feel pretty good about our -- say, if you look at our Cap expense spending in the last several years, we've got to where we need to be right now. So there's not a lot of CapEx requirements in the company at this point. Tyler Hojo - Sidoti & Company, LLC: Okay, got it. And just last question on RF. I know you expect significant growth in '15, and I guess when you guys report your Q1, the bookings numbers will be pretty good there, but you mentioned other opportunities kind of related to some of your development initiatives there. Are those anticipated in the growth expectations? Or is it basically just what you've already won?

Well, in the RF -- in the amplifiers segment, what I think I mentioned was that we just recently won the FAB-T program and the WIN-T program and, along with the FOT and the SWAN programs that we've already got in backlog, these 4 are major ongoing programs. And so yes, we have the backlog on the 2 programs, we just won the second 2, so that backlog is already here, but the expectation is for those programs to continue for a number of years.

[Operator Instructions] Our next question comes from Chris Quilty of Raymond James. Chris Quilty - Raymond James & Associates, Inc., Research Division: Fred, just as a follow-up on that RF amplifier discussion. Can you remind us, were those WIN-T, FAB-T orders, were they competitive wins, takeaways or add-ons to existing contracts?

No. They were -- well, I shouldn't say competitive. Most of our programs are competitive. The FAB-T program, we happened to be working on that program for at least 6 to 7 years, and we were heavily involved in the initial, let's say, development of the components for that program, initially with Boeing, and then this last program award was from Raytheon who beat out Boeing for the final FAB-T program. So we've been involved in that program with Boeing and Raytheon for quite a while, and so we were in a position of a sole-source position. The WIN-T was a competitive program. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay, great. Also, could you talk a little bit more about the Advanced VSAT product line? I think you got one nice-sized order from Harris. But what do you view as the opportunities for selling that to other customers and where it's positioned in the end market in terms of either applications or within the price scale of solutions that are out there?

I think, in a general way, what we can give you as some color in terms of -- this is not just a modem. It's more of a network box that provides a number of services and applications. I think our main thrust today is to introduce that product mainly into those programs and those applications that are presently using the TDMA concept, and we think we can kind of get into that market with that product pretty heavily. And also... I'm sorry, go ahead. Chris Quilty - Raymond James & Associates, Inc., Research Division: I was going to say, is it specific to maritime VSAT? Or are these fixed-site cellular backhaul solutions? Is there a particular end market where it best plays?

It's really all of the above. It's a network box that's not only applicable to maritime. We just happen to get an opportunity in the maritime area and we were able to replace the TDMA solution there. But it's a box that's really applicable throughout the spectrum. Chris Quilty - Raymond James & Associates, Inc., Research Division: Got you. And just I think, more generally, when you look at the market opportunities in the earth station product area, do you think most of the growth is going to be driven by direct-to-home and international markets? Is it cellular backhaul? Is it maritime? Is it government MILSATCOM applications? Is there something that stands out?

I think from a number of items that you mentioned, we certainly see the backhaul, the satellite backhaul as a very, very large market and continuing. The maritime, I think, is new for us, and I think that has the wherewithal to become a large market for us. DTH, although we supply the amplifiers for DTH markets, we're really not in the satellite earth station products other than that. So that's not a market that we see for, let's say, our modems and so forth, but we do see a very heavy portion of the market for us in the amplifier business. So it kind of varies with the different products that we have. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And it sounds like you're getting good customer wins on the RF side serving the HTS satellites. But where do you see your positioning on the modem side? How does HTS impact you?

HTS impacts us only on, as far as the modem side is concerned, is it's just developing new modems with a higher bandwidth throughput, which we have done. I mentioned that we've kind of upgraded our products and so forth. We just recently finalized one of the product developments or upgrades to go past the 300 megabits per line that we have in the modem. So it's just more bandwidth, obviously. There's more bandwidth at RF, then there's got to be more data that can be put through the pipe.

At this time, there are no further questions. I will now turn it back over to Comtech communications for closing remarks.

Okay. Thank you very much for attending our session today, and we'll speak again in 3 months. Thanks.

This concludes today's program. You may now disconnect, and have a wonderful day.