Ladies and gentlemen, thank you for standing by. Welcome to the Comtech Telecommunications Corp. First Quarter Fiscal 2020 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, Wednesday, December 04th, 2019.I would now like to turn the conference over to Mr. Jason DiLorenzo of Comtech Telecommunications. Please go ahead, sir.

Thank you. Welcome to the Comtech Telecommunications Corp. conference call for the first quarter of fiscal year 2020. With us on the call this afternoon are Fred Kornberg, Chief Executive Officer and President of Comtech; Michael D. Porcelain, Senior Vice President and Chief Operating Officer; and Michael Bondi, Chief Financial Officer.Before we proceed, I need to remind you of the Company's safe harbor language. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the Company, 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 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, Jason and good afternoon everyone and thank you for joining us in this call. Today, we will be in the results for our first quarter of fiscal 2020. As you can see from our earnings announcement, we're off to a great start, and we believe our performance to-date provides a solid foundation for what we anticipate will be a year of both revenue and adjusted EBITDA growth.In fact, we're increasing our targeted fiscal 2020 net sales to be in the range of approximately $712 million to $732 million. We're also increasing our targeted adjusted EBITDA to be in the range of $99 million to $103 million. Also targeted is the GAAP diluted EPS range of approximately $1.28 to $1.42. As you can see, our strategic initiatives are paying off and fiscal 2020 is looking very, very strong.Now let me turn the call over to Mike Bondi, our CFO, who will provide a discussion of our first quarter financial results. After that, Mike Porcelain, our COO, will provide a discussion of our business segments and an overview of recently announced planned acquisition of UHP Networks Inc. And then I'll come back before opening it up to questions and answers.And now, let me hand over the Mike Bondi. Mike?

Thank you, Fred and good afternoon everybody. Our net sales for the first quarter of fiscal 2020 were $170.3 million. This is an increase from the $160.8 million of net sales reported in Q1 of fiscal 2019. From a geographic perspective, net sales in the first quarter of fiscal 2022 to U.S. based customers were 76.9% of total net sales with 23.1% to international customers.Bookings for the first quarter were solid at $135.6 million and our consolidated book to bill ratio was 0.8. As Mike Porcelain will discuss, this does not include the full amount of certain contracts either one or that we have been informed we will receive shortly. We finished the quarter with strong backlog of $648.3 million. And when you factor in the total unfunded value of certain multiyear contracts that have been awarded to us, but which are not yet in our backlog, we have visibility into approximately $1 billion of total potential future revenue.Our gross profit percentage in Q1 of fiscal 2020 was 37.3%, which reflects an increase from the 35.9% achieved in the first quarter of fiscal 2019. The increase in gross margin percentage was almost entirely driven by product mix changes as a result of the significant period-over-period increase in net sales in our Commercial Solutions segment, which historically achieved higher gross margin percentages than our Government Solutions segment.Looking forward and no different than what we said during our year-end conference call, we expect our gross profit percentage in fiscal 2020 to be about the same or perhaps slightly lower than fiscal 2019. The ultimate percentage will be driven by final fiscal 2020 product mix.GAAP SG&A expenses in Q1 of fiscal 2020 were $31.9 million or 18.7% of consolidated net sales as compared to $31.8 million or 19.8% in Q1 of fiscal 2019.…

Thank you. Given the various global news headlines relating to political volatility and trade wars, I'm quite proud of our Q1 performance. I believe our performance is evidence of the market leadership that our products have and substantiates my belief that customers will increasingly turn to us to fulfill their needs for secure wireless communication.Let me give you some color by segment of our Q1 performance. In our Commercial Solutions segment, it was a great quarter. Net sales were $94.3 million compared to $78 million last year, a significant increase in 20.9%. Bookings in this segment were $75 million for the quarter, resulting in a book to the ratio of 0.8. Our Satellite Ground Station Technology Solutions, which consists primarily of our modems and amplifiers, both solid state and TWTA that are used in satellite communication had higher net sales this quarter as compared to last year. It was a good quarter for sales to both U.S. Government and international customers, and our Heights products continue to gain traction.During the quarter, we announced that our Heights networking platform was selected by Telefonica, one of the largest telecommunication companies in the world, for a number of their customers for a multiyear program to upgrade Vivo, Brazil and the Telefonica Argentina mobile networks in support of their 2G, 3G, and LTE cellular backhaul. We believe this contract bodes well in the Latin America market, and we hope to replicate this contract elsewhere around the world as mobile operators increasingly need systems that can handle more capacity.As we have said before, based on the anticipated increase in the number of satellites, both high throughput or HTS and LEO satellites expected to be launched, we believe that we are in the early stages of a multiyear period of growing demand. In fact, during fiscal…

Thank you, Mike. And as you heard, those truly was some positive developments that Mike mentioned that bode well for our future, and illustrate the earnings power of our business and our product leadership positions. As I mentioned previously, I am very pleased with our -- how our business is performing and fiscal 2020 is expected to be another terrific year for Comtech. I'm confident that we're looking at sustained growth for years to come.With one quarter of fiscal 2020 now under our belt, we continue to have clear visibility, lots of optimism and strong business momentum. We believe that in an environment of increasing market demand for global voice, video and data usage, customers will increasingly turn to Comtech fulfill their needs for secure wireless communications.Given our strong business outlook, our board of directors declared the dividend for the first quarter of fiscal 2020 of $0.10 per share payable on February 14, 2020 to shareholders of record at the close of business on January 15, 2020. We continue to believe our dividend program is a great way to return capital to our shareholders as we grow our business.Now I'd like to proceed to the question and answer period of our conference call. Operator?

[Operator Instructions] We'll take our first question from Asiya Merchant from Citi. Please go ahead.

Hi, good evening, everyone and strong results, so congratulations on that. I was wondering if you could just help us understand what the impact of -- to what was organic growth in year-on-year that you guys delivered for the current quarter? And how we should think about the impact of acquisitions? I know some of them are still to be closed, UHP, et cetera. But how should we think about how acquisitions are impacting your guidance for the year -- the prior…

Well, certainly for the quarter and year-over-year, I mean, Solacom is a very small acquisition. So you know you could think about it being a few million dollars of revenue in the quarter, with the rest being entirely organic. I think that that trend will continue throughout the year. Our guidance does include the UHP acquisition. It's not expected to close until late Q4-ish. And when we know better on the timing, we'll let you know about the impact.

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

Congratulations on the great quarter. In terms of the deal with the Marines. How should we think about that? Will you kind of get the deal signed this quarter and then it shows up in booking this quarter? How should we think about bookings growing for that potential that would be helpful?

I think we expect to sign the contract with our partner of this quarter.

And any kind of way to frame the opportunity for you within the broader contract…

Yes, I think as everyone knows, the contract for both our partner and ourselves is $325 million over 10 years, and we believe that's just the start for 172 terminals. I think if I were to give approximately the amount that the partner will have and we will have, I think it's somewhere probably -- it will turn out to be somewhere about half-and-half. So I think our expectations would be to eventually get into about half the contract.Now having said that, the first portion of the funding that's available to us right now is slightly different, we are the sole hardware supplier for this program other than the antenna. That means we supply everything else in terms of product base whereas our partner provides the miscellaneous stuff, like training, any of the IP designs and so forth and so on and also provides the antenna as well. So having the first $30 million of funding, the government has decided to kind of buy, I believe its 30 terminals. So we will have at least a portion of 30 terminals to supply, and there will be a lot of the training and portions of the contract upfront, which probably will result in our getting maybe $12 million to $14 million of the $30 million.

And then in terms of the -- just kind of the mix commercial versus the government this year or maybe there's longer-term view. You know, what -- how should we think about kind of that mix overtime?

Right now, you know if you go back to last year where we did about 53% on the commercial side, just with pure expectations of growth, we think that that will start to neck up from 53% maybe I guess to 55% or so for the year. And that is again without the impact of the UHP acquisition, maybe 55%, 56%. But I think on a trajectory path, we're seeing tremendous growth, underlying demand I guess is the better word, in terms of our commercial product. So at some point, yes, depending on the timing of large U.S. government contracts that could always change the percentage. But right now, we think the commercial business, which is -- has a higher percentage of profitability, is sort of increasing, I guess, at a slightly faster rate than the government business.

Our next question is from George Notter with Jefferies. Please go ahead.

This is Kyle on for George. Thanks a lot for the question. I guess I want to circle back to the comments you made about organic growth ex-acquisitions. Is there -- so the GDIT acquisition, is there revenue from that in this quarter and if so? How much would that be and should we be thinking about that in the overall math exercise around organic growth?

I mean, that's just organic growth. I mean, you're right. Remember Comtech announced that it we won $100 million contract from the Commonwealth of Massachusetts for five years. And in connection with that win, we bought the employee base of General Dynamics. I mean so -- we won that contract. So again I think from that perspective just on acquisition related, so the only true impact to our results this year from our perspective is the impact of the Solacom acquisition, which I could say is a couple of million dollars of revenue this quarter, but it's certainly growing at a rapid rate.

So there was GDIT revenue in the year ago October quarter, if we look at the top-line results?

Yes, it was revenue in this quarter. Yes, absolutely.

In the year ago October quarter?

No, we didn't win the contract until Q3, [Mike]. So we won it in April. So Q4 had revenue associated with that contract. But if you might remember, the $100 million contract that we announced actually started August 1, 2019. So the revenue from that $100 million contract didn't start until this quarter.

So sequential growth, it should be well in the numbers year-over-year we may need to do a little math on that. Okay, fair enough. So commercial was a lot stronger this quarter than you'd expected. Do you expect the next to flip back the other direction, considering there wasn't a big change in the total top line guidance for 2020?

No, I think our Q2 and Mike gave out the numbers. I think our Q2 for the moment is going to be almost exactly what we did our Q1 at the numbers that he gave us.

So should we expect the Government Solutions mix to remain a bit lower than I guess we had been expecting kind of around the level of it's been in Q1 and into Q2?

Yes, I mean, again, I would say look at it from a year perspective. I mean, our business still changes quarter-to-quarter. We can have changes just between quarter based on fielding schedules and deliveries. But I think for the year, we're expecting the government business to be somewhere around 44%, 45% or so of revenue for the year. And yes, I mean Q2, in aggregate, is going to look a lot like Q1 did.

And then thinking about gross margin. Can you give us a sense for the rest of 2020 on a segment level and whether there's any change there? I know you had been talking about flat to slightly down, mostly in the commercial segment due to kind of the Heights' ramp and some of the AT&T revenue coming out, and then I guess government being stable to the balance of the year. Is generally consistent with the way you think about it now, or is there anything here to call out there?

It's fairly consistent with how we were thinking about it last quarter as well.

And then one last one, book to build trends, seem like they're -- I mean you made the comment about lumpiness. But it seems like they're a bit slower year-over-year. Have you seen them pick back up since the close this past quarter? What's driving the bit of the slowness? Do we need to kind of see some of these big backlog items enter the order flow before we see that pick back up?

No, I wouldn't describe our bookings as slow at all. In fact like I said, our bookings this quarter have two large contracts that we're aware of that just from a timing perspective, aren't in the quarter. So there are a number of large opportunities that are out there. Two of them we've actually announced since then. So I will not get caught up on any particular quarter number. But we definitely feel we're on track for in excess of [10] for the year.

One last thing, the troposcatter program, being a 10 year program. Do you have any expectation for whether that’s front end loaded or flat throughout the 10 year program period? Anything you can give us about when it starts or what the trajectory might be? I would expect that it could have the chance to be front end loaded.

Well, we think from the initial hardware that Fred was talking about, we're expecting some of that to kind of be in our Q4 of this year from a timing perspective. And then yes, it's just something that we have to work through with our partner and the government on the rest of the deliveries. But it would be too pretty premature to talk about how that's going to work at.

[Operator Instructions] It appears there are no further questions at this time.

Okay. At this point, I want to wish a happy holiday and a happy New Year to our loyal customers and business partners, our dedicated employees and business unit leadership teams, our Board of Directors and our shareholders. And thank you again for joining us today. We look forward to speaking with you again in March. Thank you very much.

That conclude today's program. Thank you for your participation. You may disconnect at this time.