Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp.’s First Quarter Fiscal 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Thursday, December 7, 2017. I would now like to turn the conference over to Ms. Maria Ceriello of Comtech Telecommunications. Please go ahead, ma’am.

Thank you, and good morning. Welcome to the Comtech Telecommunications Corp. conference call for the first quarter of fiscal year 2018. With us on the call this morning are Fred Kornberg, Chief Executive Officer and President of Comtech; and Michael D. Porcelain, Senior Vice President and Chief Financial Officer. Before we proceed, I need to remind you of the company’s Safe Harbor language. Certain information presented in this call will include, but not be limited to information relating to the future performance and financial condition of the company, the company’s plans, objectives, and business outlook; and the plans, objectives, and business outlook of the company’s management. The company’s 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 Chief Executive Officer and President of Comtech, Fred Kornberg. Fred?

Thank you, Maria and good morning, everyone, and thank you for joining us on this call. As announced yesterday afternoon, we reported our first quarter results of $121.6 million in revenues and operating profit of $0.2 million and an adjusted EBITDA of $9.6 million. Additionally, we reconfirmed our fiscal 2018 revenue target range of $550 million to $575 million and increased our adjusted EBITDA guidance to a range of $69 million to $73 million. During the first quarter, we received a number of large strategic contract awards and achieved bookings of $165.7 million. Order flow for many of our products was very strong and we finished the quarter with a consolidated backlog of $490.4 million. Our first quarter results exceeded our expectations and I am pleased with our current business momentum and it looks like fiscal 2018 is really beginning to look like a very strong year. I will tell you why I’m so optimistic about our future in a bit, but first let me turn it over to Mike Porcelain, our CFO, who will provide a discussion of our first quarter financial results and our updated fiscal 2018 guidance in more detail. Then, I’ll come back before opening it up to questions and answers. Mike?

Thanks, Fred and good morning, everyone. Consolidated net sales for Q1 were $121.6 million of which approximately 32.4% were generated from U.S. government end customers, 23.3% from international end customers and 44.3% from domestic commercial end customers. During Q1, we achieved bookings of approximately $165.7 million with strong order flow across many of our product lines. We achieved a consolidated book-to-bill ratio of 1.36 and both segments achieved a book-to-bill ratio in excess of one-time sells. Net sales in our Commercial Solutions segment were $76.1 million as compared to Q1 of last year, which were $76.2 million. Sales in the segment represented approximately 62.6% of total net sales. The slight decline in sales in this segment is primarily due to timing. This quarter was a terrific quarter for bookings, our Commercial Solutions segment achieved a book-to-bill ratio of 1.48. On a product line basis in our Commercial Solutions segment, overall market conditions for a satellite earth station solutions continue to be good, and it was a great quarter of bookings. Bookings for these products were not only significantly higher than Q1 of fiscal 2017, but they were also sequentially higher than our normally strong Q4. We believe that we are seeing increased interest from customers across our entire customer base. Most notably from our U.S. Government customers, as well as strengthening end market validation of our new commercial HEIGHTS products. Turning to our enterprise technology solutions and safety and security technology solutions, our sales were down slightly this quarter mostly the result of timing. As Fred will discuss in more detail, we were awarded almost $100 million of strategic contracts for these products this quarter. Now let me talk about our Government Solutions segment, where net sales were $45.5 million, as compared to $59.6 million in Q1 of fiscal 2017.…

Thanks Mike. Let me give you some color on what is happening in each of our Comtech segments. First, let me discuss our Commercial Solutions segment, which is focused on several large growing markets. Here we are a leading provider of satellite communications networks and products such as satellite modems, up-and-down frequency converters and solid-state -- excuse me and traveling wave tube amplifiers. We’re also a leading provider of public safety systems such as Next Generation 9-1-1 networks; enterprise applications such as messaging and trusted location-based technologies. Our satellite-based communication products participate in the satellite back haul and network services market. In the satellite and modem area, we continue to be the undisputed leader in single channel per carrier or SCPC, driven primarily by our proven ability to deliver the most bandwidth-efficient modems. Our strategy in the past few years has been focused on developing and marketing our new what we call Heights network solution for use with the new high throughput satellites. The Height solution is intended not only to meet the demands of traditional fixed geo-satellite systems, but also provide distinct advantages for those system uses considering migrating to high throughput satellite systems and MEO and LEO forbidding satellite systems. This is an entirely new market for us, but one which is much larger than our traditional SCPC market. To date, customer reaction has been and continues to be positive. In the past two quarters, we have announced several important customer wins for this product line and we have a growing sales pipeline of HEIGHTS opportunities. We also believe that fiscal 2018 will be a breakout year for HEIGHTS orders. Another area we continue to be excited about is the IFEC market or the In-Flight excuse me, satellite based connectivity market. Our solid-state power amplifiers help enable commercial…

[Operator Instructions] And we’ll take our first question from Mark Jordan with Noble Capital Market. Please go ahead.

Good morning, gentlemen. First, a question on the NextGen 9-1-1. Obviously, the AT&T contracts which you received is a significant block of business. I’d like to step out and just look at that specific line of business from say by the 2019 or 2020 timeframe what kind – what size of business could that be on an annual basis? Are you looking at something that could be $50 million to $75 million worth of annualized revenues on an ongoing basis a couple of years out?

Mark, I think the best way for us to respond to your question is to say, we expect it to be higher than what it is today. It's real difficult for us to predict the timing of some of these state awards and local agency awards and a lot of these new contracts will be hosted type systems that the revenue will be recognized over a straight line. So, until the awards are announced and we win them, it's just tough to put a number on a specific year, but in summary, we hope it to be higher than where we are today.

Okay. The tropo contract you got, $7.5 million in October for deployment into Korea, was there any effective competition for that? And do you think that sort of signals which you are kind of dominant position in that marketplace going into the large competition this year?

The first part of the question, Mark is, it was a sole source contract. Second part is, obviously, it puts us in a better position, but we do expect that there will be competition for the large program as it is, whether the other competition have or have not any products in the tropo area, doesn’t seem to matter. Anybody really can bid on a major U.S. program and you certainly can't say that's some of the large – let's say government contract that nobody can really see that they can’t replicate what we have done. But I think our position and then our – and our you know working with the government for many, many years now, I think puts us in a very, very good position.

Okay. A final question for me. Revenues in the first fiscal quarter came in about [$50][ph] million above Street consensus and as you said above your expectations. What percent of that upside was incremental business that you know was not in your business plan and what percent of that [$50] [ph] million upside was actually pulled in from the second quarter or third quarter?

That’s a good question, Mark. It’s a little bit of both. You know we definitely saw better demand than what our original business plan, you know was expecting this quarter. So, you know there is definitely some new incremental demand. We did see some pull-ins from Q2 and Q3 into our Q1, I mean, not to put a specific dollar on it, but there were some pull-ins. At this point, we’ve kind of taken a – I’ll call it a prudent approach, we’re not increasing our guidance, our revenue cycle reflect the incremental demand that we’re seeing and that’s just because of the difficulty of predicting some of the contracts that we’re still expecting in Q3, Q4 and things could always slip into next year. So, at the moment, you know we are seeing an increased demand, some of these were pull-ins, but you know, we feel right now that you know this is where we are and we feel pretty good about it.

Okay. Thank you very much.

And we’ll take our next question from Stanley Kovler with Citi. Please go ahead.

Hi. This is actually Josh Kehoe on for Stan Kovler. My question is on government spending. When you’re expecting a pick-up in spending on new projects once the budget gets passed? And can you help remind us as how you’re exposed to the growing areas of government, defense and surveillance programs?

I think as far as the government budget is concerned I think we all know that the position that the two parties are at and what will happen and when is really hard to predict. As far as the programs that that I've enumerated I think and just talking about the large tropo one for instance that is a program of record and that has the funding already. Even the BFT programs that we've been talking about, those have the funding already. So, a large number of our programs that we – that we follow and we compete in are probably today already funded.

Okay. Thanks. And another follow up on in terms of tax reform implications. And I know you said your guidance doesn’t reflect any impact from the proposed reform. But what effect are you anticipating on your business and have we taken any maybe initial steps to try and quantify the potential impact?

We've certainly looked at their proposals. But they change every day. So, we'd be creating Excel spreadsheets every day based on what's been reported. But certainly, if the tax rate for U.S. corporations goes down that will be a positive impact to us. And it would be a meaningful impact. There are some things that go away, like the domestic production tax credit and so forth, and that goes away and since we do produce in the U.S. we’d kind of lose that piece. So, until they put specifics on what they're going to pass and they ultimately pass it, it's tough to put a real number out there, but I would say that overall based on what we're seeing in the two dress that are out there it looks like it will be positive to us to us you know in the year that it’s adopted.

All right. That it’s for me. Thanks.

And we’ll take our next question from Mike Latimore with Northland Capital. Please go ahead.

Yeah. Great. Thanks a lot. On the SNAP opportunities, what is the sort of potential revenue opportunity, booking opportunity you see in the SNAP area?

The SNAP program, as you know, we are the incumbent on that program. We have bid the program, I would rather not you know specify a number today because the program is in evaluation, but it is in excess of $100 million.

Okay. Great. And then on your large 9-1-1 renewal in the quarter, I believe there's also some up-sell there, what kind of incremental business did you get with that, you know in conjunction with that renewal?

I'm sorry. Can you repeat that?

Yeah. I believe you had a big you know renewal with a Tier 1 carrier in the quarter and then you also have some up-sell, I was just kind of curious what additional services you're providing?

For the AT&T programs…

Yeah.

That we do. We're providing the -- basically, the wireless and ESI net services. There is a small amount of the location business as well, so it's kind of spread over a number of programs, they’re multi-year programs and they vary from a different contract to different contract whether it's two-year or multi-year or a five-year multi-year. So, it's kind of spread around.

Got it. And then just last on the BFT-3 opportunity, any initial sense of when there might be an RFP around that?

No. I think it will be – it will be quite some time, I really don’t even expect anything in terms of BFt-3 to happen till let's say our fiscal 2019. However, there is an opportunity that there are more requirements for BFT-2, which are not being fulfilled. And our porting of our waveform, which we have demonstrated fully works for BFT-2 program. We're doing that, we have that contract. And in fact, we also got a small contract for 100 transceivers. So that the government can actually put some out in the field or in the laboratories and do some further testing on it before they actually decide to buy more transceivers.

Okay. Thank you.

And we’ll take our next question from Glenn Mattson with Ladenburg. Please go ahead.

Hi, good morning. On the – congrats on the tropo order in Korea. It's interesting that the theater that the government rushed – it seems they rushed through in order for the product in a theory that potentially could become an active theater, maybe does that speak to the conference that they have in the product and perhaps maybe give you a leg up in winning some of the next phase of orders that come through?

Well, we certainly think so.

All right. And what about the other foreign government opportunities in tropo, if those moved along at all or what's the status on those?

Yeah. As you know, we've been operating in the international market for quite some time with some very large customers throughout the years and the some very small customers, but I think – I think we can state that we have more pipeline opportunities right now with more countries than we've ever had before.

Okay. Thanks. And then a last question for me on the, on the – in-flight connectivity, also nice to see a follow-on order there. It was a big space for you last year as I think go, go I think was ramping up you know in a major way. I guess they had built maybe some inventory they had to get deployed to the – to the aircraft. I guess that's, that's all happened now and they're reordering. Do you expect fiscal 2018 to be up year-over-year versus 2017 in that category?

No, I think we continue to see the orders really from this point on through 2018 and 2019 to be more of a flat nature.

Okay. Great. That's it for me. Thanks.

And we'll take our next question from George Notter with Jefferies. Please go ahead.

Hi, guys. Thanks a lot. This is Kyle on for George. I wanted to talk a little bit about the EBITDA margins in Government Solutions business. I guess -- I guess the rare question is, is are we at the bottom as you transition through your movement away from low margin government business and contracts like that. And you know we have the BFT license revenue coming out, you know where's the bottom and how do they recover. I know you mentioned a bit about your expectations for Q2, but you also put in the 10-Q when you talked to it on the call that the backlog for Government Solutions is highest since the TCS acquisition. So, just wondering how to reconcile, where that bottom is and what the trajectory is of – of the margins in the Government Solution business going forward if you could talk to that please?

Sure Kyle. So, I would say that Q2 is likely going to be our bottom in terms of the quarter. It's tough to say whether the Q1 was but you know we have the sort of the similar revenue profile in Q2 and maybe even slightly worse in terms of what’s going to ship. So, our adjusted EBITDA margin for the segment will be the same or slightly lower than what we did in Q1. But to the point that’s in the 10-Q when you just said, we got some good backlog. And that backlog is expected to start shipping in Q3 with heavy in Q4. And you know we – that’s kind of where we hope to live. We did about 8% adjusted EBITDA margins in the segment last year, but that 8% included the BFT-1 intellectual property fee. So, if you just take a very broad step back and you look at the segment, last year we would have done 5.1% adjusted EBITDA margins in this segment excluding the BFT-1 fee. And we’re expecting to beat that number by a couple of points this year when all said and done. So, you know maybe we get to the 7% type number, but in order to do that you know our Q3, Q4 will have to be pretty high. But if you look at where Q3 and Q4 is, you’re going to see a big uplift in our margins. And then looking forward to 2019 and beyond, you know if we get these over-the-horizon opportunities, that stuff drops to the bottom line pretty good and right now, our adjusted EBITDA margins in the segment are being suppressed by the fact that we’re not shipping a lot of over-the-horizon stuff, but once that comes in, the margins will increase. So, short answer is, I think Q2 is our bottom with significant expansion from that level.

Got it. And is it appropriate to assume that the level of backlog currently being greater than it’s been since the TCS acquisition? Is it appropriate to assume that means we’re either at or largely past the transition away from the low-margin government business?

Yeah.

Okay. Okay, great. And then, another question on the BFT-2 Program and porting your waveforms over to that program. I guess, the real question is around the shape of that revenue. You mentioned $6 million, $6.5 million that you noted in 2018. Does that ramp from there? I know you mentioned the potential to sell transceivers. How should we think about what that opportunity looks like for you, specifically with BFT-2?

I think for FY 2018, we certainly don't have any of any, any upside in our plan at the moment. However, having said that, I think there is an upside that we, that we’re talking about with the government. But again, I want to stress that, although the government has lots of funded programs for us and so forth, as I mentioned, it's not – it's not if, it's always when you finally receive that contract. Anyway, as far as BFT-2 is concerned, I think I kind of mentioned before that we actually did get a small little order for a hundred dental pieces of our version of the BFT-2 transceiver which has the successful waveform that we've demonstrated to the government in the past and very recently. The government has a need for a substantial amount of transceivers in the -- from what they tell us, in the April-May timeframe, substantially, being in the thousands of transceivers. So, that is an opportunity that could -- could actually fall into our lap, but we’re, we’re certainly not counting on it for FY-2018.

Okay. Great. So, the real difference is with the BFT-2 program any future contracts for BFT-2 transceivers you have the opportunity to participate in now.

Absolutely.

Okay. Great. And then on Heights revenue, did you see any Heights’ revenue in the quarter or is there anything you can give to us on – color on Heights revenue and maybe what you’re currently thinking about the future ramp for the Heights platform?

Yeah, it's going really well. We said before that we think that we can get into the double-digit millions in terms of Heights this year. And I would say the opportunity pipeline is probably higher than that, but we want to book them, and we want to bring them in-house first. But yes, we did have revenue in Q1, we did have orders in Q1. And as the year progresses, we hope to announce some additional opportunities that we can. As we said before, it's a longer sales cycle that our products and some of our customers are replacing competitor products. And so, they’re asking us not to announce certain things because they don't want to let the current supplier know of the information. So, we're working pretty hard at the product line, it's getting great reception, and that ramp should hopefully continue not only in 2018, but 2019 and beyond.

Just to add to that, you know as I mentioned, the traction I believe is there. I think we're getting a lot of opportunity, let's say discussions right now around it, and some programs and contracts. One that I probably could mention since it has really come out for bid, and we are actually written into the statement of work for the Carnival Cruise Lines that our HEIGHTS platform is going to be the platform that will be used by whoever is the integrator that integrates that particular program for the Carnival Cruise Lines. That I think is a validation of our network and of the performance of our network. So, we’re very happy with that.

Okay. Great. Thanks. And last one for me, I know you mentioned that there is a bit of a pull on into Q2, you gave guidance on Q2. I guess how does the -- given the strong first quarter, how does this affect the shape of your revenue for 2018 you know versus your original expectation of you know the lowest is Q1 and it ramps sequentially into the end of the year. Are we looking at you know flat into Q2 and then Q3 and Q4 larger? How should we think about that?

Yeah. We do think Q3 will be higher than what we will do in Q2, but I think Q4 performance is going to be the highest revenue that we expect this year. You know when I use the phrase by far to give some revenue guesstimates, we’d like to -- we don’t look at -- on the Street likes to look at it and everyone pays attention to quarter-to-quarter performance, we don’t -- we obviously look at on a sort of a trailing 12 months basis if you will, because of the timing that occurs from quarter-to-quarter. But taking a step back, you know we did a $147.8 million of revenue in Q4 last year, we would like to be higher than that you know in Q4 of 2018 and that would be a directional way that I would tell you to think about where the year is going to be. It will be higher in Q4 than Q3, but by good amount.

Okay. Great. Thanks a lot. That’s it for me. Congrats on the quarter.

Thanks.

And we have no further questions at this time, I’d like to turn the conference back over to the Comtech speakers for any additional or closing remarks.

Okay. Thanks again for joining us today. I want to wish everyone -- excuse me, a happy holiday season and an upcoming New Year and we look forward to speaking with you again in March. Thank you very much.

This does conclude today’s call. You may disconnect at any time and have a wonderful day.