Comtech Telecommunications Corp (CMTL) 2004 Q3 法說會逐字稿

Good day. Ladies and gentlemen, thank you for standing by. Welcome to Comtech's third quarter fiscal year 2004 earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session, and at that time if you have a question, you will need to press the star and 1 on your touch-tone phone, and as a reminder this conference is being recorded Tuesday, June 8th, 2004.

I would now like to turn the conference over to Ms. Stephanie Palmer of Comtech Telecommunications. Please go ahead, ma'am.

Thank you, and good morning. Welcome to the Comtech Telecommunications Corp. conference call for the third quarter of fiscal 2004. With us on the call this morning are Fred Kornberg, President and Chief Executive Officer of Comtech, and Robert Rouse, Chief Financial Officer.

A news release from the company's results was issued earlier this morning. If you have not received a copy, please call me and I will be happy to send you one.

Before we proceed, I need to remind you of the company's Safe Harbor language in the following way. 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 plans and objectives of the company's management and the company's assumptions regarding such performance 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.

With that, I'm pleased to introduce the President of Comtech, Fred Kornberg. Fred?

Thank you, Stephanie. And good morning everyone. And thank you for joining us today. This morning we will be discussing our results for the third quarter of fiscal 2004. And as you can see, we continue fiscal 2004 at a record pace in all performance areas.

Our sales increased for the quarter over the prior year period to $51.2 million. Diluted earnings per share increased to 31 cents for the third quarter of fiscal 2004 from 29 cents during the third quarter of fiscal 2003. The increase was achieved despite a 28% increase in the number of weighted average shares outstanding.

It's probably an appropriate time to mention, once again, that our quarterly sales and earnings can fluctuate significantly due to timing of large order bookings and timing of customer delivery requirements. We continue to believe that a full-year comparison of our operating results are, therefore, much more meaningful for our type of company.

With that in mind, fiscal 2004 is expected to be the strongest in the history of Comtech. Our sales, EBITDA, earnings, and EPS for the first nine months of fiscal 2004 are at record levels. More importantly, as I will discuss later in the call, we see fiscal 2005 as another year of growth in achieving record sales and earnings.

At this point, let me introduce Rob Rouse, our CFO, who will review our operating results for the third quarter of fiscal 2004 in more detail. Rob?

Thanks, Fred. And good morning to all of you. Q3 of fiscal 2004 was yet another strong showing for Comtech. Let's review some of the key income statement trends for the quarter ended April 30th, 2004.

Sales were $51.2 million, a 5% increase over the $48.8 million in the third quarter of fiscal 2003. Sales in the third quarter of fiscal 2004 were favorably impacted by adjustments to the cumulative gross margins on two large over-the-horizon microwave contracts, which I will discuss further during my comments on the gross margin for the quarter.

Third quarter sales broken out by segment are as follows: 67.8% telecommunications transmission; 22.9% mobile data communications; and 9.3% RF microwave amplifiers. Of the third quarter sales, 46.6% were to international end users, 36.5% were to the U.S. government, or primes to the U.S. government, and 16.9% were to domestic commercial customers.

Our gross profit was $20.6 million for the third quarter of fiscal '04 versus $16.5 million for the third quarter of fiscal 2003. And gross margin as a percentage of sales was 40.2% in Q3 of fiscal 2004 as compared to 33.8% in Q3 of fiscal 2003. The increase in gross profit and the gross margin percentage was primarily due to the higher proportion of sales in our telecommunication transmission segment, which typically carry higher margins than our other two segments.

The margins in the telecommunications transmission segment were also favorably impacted by adjustments to the estimated gross margins on two large over-the-horizon microwave contracts, due to the lower than expected costs on these contracts as they draw nearer to completion. These adjustments resulted in a cumulative increase to the gross margins on these contracts of approximately $1.8 million.

SG&A expenses increased from $7.3 million in the third quarter of fiscal 2003 to $8.8 million in the third quarter fiscal 2004. The increase was attributable to higher expenses related to the increase in sales and profitability during the fiscal 2004 period, as well as increased compliance costs in connection with recently issued corporate governance regulations.

R&D spending increased to $4 million during the third quarter of fiscal 2004 from $3 million during the prior-year period. In addition, customer-funded R&D was $1.4 million during the quarter. We expect the ramp-up in R&D spending to help fuel our growth in fiscal 2005 and beyond.

Operating income for the three months ended April 30th, 2004, was $7.3 million compared to $5.7 million in the prior-year period. Operating income increased in our telecommunications transmission segment from $4.3 million to $7.8 million as a result of significantly higher sales combined with the related increased operating efficiencies, as well as the increased gross margin.

Interest expense during Q3 of fiscal 2004 of approximately $700,000 was consistent with Q3 of fiscal 2003. The fiscal 2004 expense primarily relates to our recently issued 2% convertible senior notes, while the fiscal 2003 amount related to interest on previously existing long-term debt which we retired at the end fiscal 2003.

Interest income for the third quarter of fiscal 2004 increased to approximately $300,000 due to the higher level of investable cash resulting from the issuance of our convertible notes. The effective tax rate of 32% in both periods reflects the continuing benefits of research and experimentation tax credits, as well as certain tax benefits associated with our international sales. This yielded net income for the third quarter of fiscal 2004 of $4.8 million, or 31 cents per share, compared to $3.5 million, or 29 cents per share for the third quarter of fiscal 2003.

The higher diluted shares outstanding for the third quarter of fiscal '04 reflect the 2.1 million shares we issued in the July 2003 private placement, as well as the impact of our increased average stock price during the quarter on the calculation of stock option shares.

EBITDA or earnings before interest, income taxes, depreciation and amortization, was $9 million in the third quarter of fiscal 2004 versus $7.2 million in the third quarter of fiscal 2003. Our backlog as of quarter end was $90.9 million compared to $100.1 million as of July 31st, 2003, as we performed on two large over-the-horizon microwave contracts.

Our balance sheet as of April 30th, 2004, remain very strong with $152.8 million of deployable cash. In connection with the issuance of our convertible senior notes in January 2004, we were able to fix the interest rate on acquisition debt at a modest 2%, and we are already absorbing this interest cost in our operating results and guidance.

We generated cash flow from operating activities in Q3 of $6.5 million. For the nine months cash flow from operating activities was $6.3 million. Netted against our cash flow from operating activities is a $22 million increase in billed and unbilled receivables for the first nine months of fiscal 2004.

The increase in billed receivables is the result of increase in sales during fiscal '04. In addition, unbilled receivables increased in connection with work being performed on our large long-term contracts, particularly in over-the-horizon contract with a North African country.

All in all the third quarter of fiscal '04 was another solid one for Comtech. And now back to Fred.

Thanks, Rob. First I'd like to review recent developments in our three business segments, then comment on our recent stock performance, and finally provide guidance for fiscal 2004 and 2005.

Once again, our telecommunications transmission segment had another extremely strong quarter. Our established leadership positions in satellite earth station products, over-the-horizon microwave systems and forward-error correction technology fueled our growth and are leading the way to make fiscal 2004 another record year.

During our last two investor conference calls, we mentioned that our bookings can be volatile from quarter to quarter, and that we experienced a very strong bookings level in Q1 for our satellite earth station products. We also noted that we expect bookings to moderate in Q2, which they did. During the last couple of months, however, bookings have begun to strengthen again, and this trend really bodes well for us as we expect to close out fiscal 2004 on a record note and enter fiscal 2005 with positive momentum.

We have also ramped up our R&D spending in this product line and expect to introduce various new products during fiscal 2005. We're confident that our significant R&D investments will continue to pay big dividends helping to drive our growth and ensure our market share dominance. Our forward-error correction and data compression products also posted another strong quarter.

Although we entered this area primarily to support our satellite earth station product leadership position, we continue to actively seek new applications and markets with these technologies can play an important role.

In May of this year we purchased the assets of Memotec, Inc., a Canadian company specializing in technology solutions to optimize bandwidth utilization within communications networks. Memotec's technology can improve the efficiency of these networks by up to 16 times. This acquisition, although modest in size, is consistent with our emphasis on bandwidth efficiency solutions, whether they be our turbo product code enabled satellite modems, our TDMA systems, our patented tented TPC forward-error correction technology, or the newly acquired data concentrator technology from Memotec.

Turning to our over-the-horizon microwave product line, the two large international contracts that we booked in fiscal 2003 have contributed significant revenues and profits in fiscal 2004. As we discussed during our last conference call, we do expect these contracts to wind down during fiscal 2005.

However, we are optimistic that at least one large international over-the-horizon microwave contract will be booked in the next few months. This based on the fact that the prime contractor we are working with has already received its contract from the end customer. While the receipt or the timing of the receipt of the contract can never be completely assured, we believe this multi-year contract could possibly contribute in excess of $20 million to fiscal 2005 revenues.

On the U.S. government side, we continue to leverage the successful demonstration we had of our ability to significantly improve the performance of the government's over-the-horizon microwave terminals. We're actively pursuing opportunities to upgrade and potentially replace the government's current inventory of over-the-horizon microwave terminals.

In addition, an opportunity has arisen to enhance certain government nomenclatured microwave line-of-sight systems with the additional over-the-horizon microwave capability. And in March of this year we announced our first U.S. government order for this application. The $3.1 million order is but a drop in the bucket of the total opportunities if the government decides to proceed and obtains fundings for these programs.

We're also continuing to improve the performance of our products and systems through an ongoing R&D investment in our adaptive modem technology in this segment, which is already well ahead of our competition. Future improvements and data throughput rates could open up various new markets for our industry-leading technology.

Our mobile data communications segment performed in line with our expectations during the third quarter. As we discussed during the last conference call, the second quarter of fiscal 2004 was favorably impacted by stronger than anticipated orders, particularly on our Movement Tracking Systems, or MTS contract. Some of these orders received in Q2 were expected in the third and fourth quarters.

As we have noted on numerous occasions, the timing of orders from the U.S. Army and the related deliveries that the Army requires can cause our revenues to fluctuate significantly from quarter to quarter. As such, forgive me for being repetitious, but we strongly urge our investors to look at our performance on an annual basis. The fact that mobile data communication segment revenues will be lower in the second half of the year than in the first half, which we predicted in advance, should not cloud the fact that this segment will post a truly spectacular year and will beat all previous records set in fiscal 2003, which itself was a year of over 160% revenue growth over fiscal 2002.

We believe we have clearly answered the question as to whether our performance in this segment during fiscal 2003 was repeatable in fiscal 2004. More importantly, we see fiscal 2005 as another year of growth for this segment, and here's why. The MTS program continues to gain support within the government community which is resulting in increased funding and order flow.

Estimating future funding levels and the timing of orders remains difficult. However, based on the various funding buckets within defense budgets that are now contributing to the MTS program, the increased level of interest that we see within the military community and the preliminary congressional plus-ups, we believe MTS funding in fiscal 2005 is likely to be higher than fiscal 2004.

On the war fighter front, the FBCB2 or Blue Force Tracking Program continues to be a huge success. Our satellite-based technology has enhanced this communication platform to provide for satellite capability for longer haul communications when terrestrial line-of-sight microwave channels are not available. We anticipate significant continued participation in this important program.

We're also working within various areas within the U.S. military as well as with several government prime contractors in enhancing our product offerings. For example, the project to miniaturize our satellite transceiver down to the size of a cigarette pack, has been met with much interest and enthusiasm.

We're also in the process of incorporating RFID technology and enhanced GPS capability, as well as various higher level security functions into our transceiver. All of these developments are for potential new markets for our products. And with the scale and reputation that we have established within the government market, we continue to explore various strategic alternatives relating to the commercial side of this business.

Although we plan on entering the commercial market in some way during fiscal 2005, we will not sacrifice profitability in this segment by investing in a commercial business model without a clear expectation of return on investment.

In our third segment, RF microwave amplifiers, third quarter revenues were once again impacted by softness in certain commercial product lines. However, we have seen a marked increase in bidding activity and the receipt of new orders relating to our defense-related products in this segment.

These amplifiers are used in various applications from radar systems to identification of friend or foe, to most recently the jamming of electronic explosive devices. The increased bookings in this segment in recent months are setting the foundation to achieve a record level of revenues in fiscal 2005.

As you can see, we are operating in three exciting segments, all of which are expected to achieve record levels of sales and earnings in fiscal 2005. Across all of our segments, we have an extremely gifted group of employees with particular strength in our management and engineering talents. The depth of our technical resources combined with our sustained investment in R&D have enabled us to be technology leaders in the markets we serve.

We also enjoy a balanced and diversified customer base. Although we have fared well in recent years in growing the government side of our business, we are at heart a technology company. With innovative product offerings that appeal to both commercial and government sectors and customers. We believe this diversified customer base has served us well in recent years and will continue to do so in the future.

Recently, people have asked me about our stock price. Although we generally do not comment on the price of our stock, let me just say this. First, our fundamental focus is to grow our businesses, both organically and through acquisitions. Ultimately, strong operational performance is what counts.

We have been very successful over the past few years in maintaining a laser-like focus on achieving our strategic objectives, and that will remain our primary focus going forward. I believe it is simply the best way to increase shareholder value.

Secondly, as previously mentioned, and as we have suggested on numerous prior occasions, our performance should be viewed on an annual basis rather than on a quarterly basis. This in light of the lumpiness in certain of our product lines which results from the funding and timing on large contracts.

Since our quarterly revenues in the second half of fiscal 2004 are expected to be lower than those in the first half, some may perceive this as a trend that will continue into fiscal 2005. We do not see this as being the case. In fact, we predicted this trend very early on in the year and reflected it in our guidance which we have raised continuously throughout fiscal 2004.

And lastly we see fiscal 2005 as another year of sales and earnings growth. Our earnings grew 370% from 17 cents in fiscal 2002 to 80 cents in fiscal 2003. And are expected to grow by more than 60% in fiscal 2004. Well, 60 to 370% growth is obviously not sustainable over an extended period of time.

Our growth, as you can see, can spurt quite significantly in certain years because of acquisitions, significant changes in economic conditions, or the ramp-up of major program. We believe that growth should be measured over time. We believe our performance over the past five years has truly been remarkable, despite the worst downturn in the history of the telecommunications sector, we expect to post average compound annual EPS growth of nearly 38% from fiscal year 1999 to fiscal year 2004.

With all this in mind, I simply want our investors to know that this management team and all of our dedicated employees are focused on growing our businesses and further establishing Comtech as a true market leader.

Before I discuss earnings guidance, I also wanted to mention that we are continuing to actively pursue acquisitions. We believe we have been disciplined and successful in the past and hope to be in the future. Our $105 million convertible note offering in January this year provides us with ample resources to execute and integrate strategic acquisitions.

As I noted during the last conference call, we will not waiver from our disciplined approach in identifying, assessing, and integrating acquisitions. In other words, we will be patient, we will not spend money just because we have it. Having said that, we expect to put ourselves in the position to pull the trigger on at least 1 or 2 acquisitions in the next 12 months in the $15 to $50 million range.

And now on to guidance. Obviously, there continued to be many factors [inaudible] that make the projection of EPS very difficult. That being said, our diluted EPS guidance for the fourth quarter of fiscal 2004 is 26 to 28 cents. This represents a full-year guidance for fiscal 2004 of $1.28 to $1.30, or a 15% increase over the prior guidance last quarter of $1.10 to $1.15, and a 61% increase over the 80 cents in fiscal 2003. Keep in mind also that our earnings are already burdened with the interest cost of 2% associated with our recent convertible notes offering.

Fiscal 2004 revenues are expected to range between $215 and $220 million. And as we see it now, fiscal 2005 is expected to be another record year. And we expect revenue and earnings per share to grow by a minimum of 10%.

Our assumptions for fiscal 2005 include the receipt of at least one large over-the-horizon microwave contract, and our outlook assumes modest growth in our telecommunications, transmission, and mobile data communications segments. A strong sustained resurgence in telecom equipment spending or a further growth acceleration in our mobile data communications product line could fuel additional growth. This growth is also without any acquisitions, an accretive acquisition would further add to our growth.

We're obviously very pleased with our company's performance as we begin to wrap up fiscal 2004 and we enthusiastically look forward to an exciting and rewarding fiscal 2005. Thank you very much for listening and being with us today.

Also, an updated investor presentation will be posted to our website at www.comtechtel.com shortly after this call.

And now it's your turn to ask questions. Operator, we're ready for questions.

At this time if you would like to register your site for a question or a comment, you can press the star and 1 on your touch-tone phone. And it looks like our first question comes from the site of Seth Tutlis with Sidoti & Company. Go ahead, please.

Thanks. Good morning. Can you provide us with a backlog by segment, please?

Rob?

Sure. Seth, the backlog for telecommunications transmission is $40 million. The backlog for RF microwave amplifiers is $23.7 million, and the mobile datacom is $27.2 million.

Okay. Thanks. Fred, you just mentioned that you're looking at least 1 or 2 acquisitions other the next 12 months. The $15 to $50 million range, is that in expected revenue or is that in purchase price?

That's purchase price.

Okay. And when you look at Q4, in relation to the profit -- the cost adjustment that you recognized this past quarter, 1.8 million, are we looking at a potential for something in line with that, or do you expect something smaller, significantly smaller?

Seth, the $1.8 million was the impact on our gross margin. It's a $1.6 million impact on our operating margin and a $1.1 million impact on net income. So as these contracts draw nearer to completion, it's hard to really predict where they'll end up, but it is possible that we could have a significant additional adjustment depending on the way various contingencies are resolved in the contract. So it's really hard to say at this point in time a specific number. It could be anywhere from zero to a comparable number from Q3.

Okay. Looking at the operating margin in mobile datacom, looks like it's off a bit, it's off quite a bit sequentially. Is that -- I guess can you talk to that? Is that just strictly from a volume issue, or what else is at play there?

Basically if you go sequentially, which is something we kind of talked about last call, the revenues have gone from 18.4 million to 11.7 million, but given the nature of the business, our SG&A expenses are pretty flat between the periods because they're not necessarily variable costs. So with that type of decrease in revenue from quarter to quarter it will certainly have an impact on the operating margin. It's one of the reasons Fred had suggested looking at it on an annual basis where the costs kind of line up more succinctly with the revenue.

Okay. And given your revenue guidance for Q4, revenue in the mobile datacom segment, are we looking at something comparable with Q3?

Certainly trending in that direction, in that general area, yes.

Okay. And just one last one. You mentioned strong bookings in telecom transmission segment. Can you speak to any specific product line that's seeing that strength?

I think what I alluded to is specifically in the satellite communications earth station product. We see quite a bit of a resurgence in that area.

Can you speak to where that's coming from?

Primarily it's really kind of globally. Our customer base is a global customer base and it's coming from all over.

Okay. There's no particular segment or market that stands out?

No, it's obviously the market that we're in, which is the single channel per carrier market and also the internet market, but it's coming from U.S. customers, international customers, South American customers.

Okay. Great. Thank you, guys.

Thank you.

Thanks, Seth.

And our next question comes from the site of Mark Jordan with A.G. Edwards. Go ahead, please.

Good morning, gentlemen, and congratulations on a nice quarter. It's nice to see fixed-price contracts where you have upticks in margins rather than adjustments later in the period.

Thanks, Mark.

Could you talk about the outlook in the international arena? Specifically you mentioned one contract that's relatively close. You quantified the revenue impact you're assuming in fiscal '05. Is that a multi-year contract? What will be the duration of that? And can you also give us a view as to what other opportunities in the international arena are in that pipeline or sort of in the -- that are potentials in an in-and-out period?

Mark, as you know, we've always mentioned that these large contracts take a number of years to kind of finally land, and we've been talking about a big one landing for a couple of quarters now. The reason we're very confident that this one is kind of around the corner is because, as I mentioned, our customer already has the contract, and we're in the process of negotiating with our customer. In the pipeline, and, by the way, yes to answer your question, that is a multi-year contract. It's approximately a three-year contract.

Okay.

Our pipeline, again, it's full of little contracts, full of large contracts, and I think, definition-wise, it's tough to kind of define what's a large contract, but I believe last conference I kind of defined it as somewhere between 20 and 100 million, and I guess I'll stick with it.

Okay. Could you say again, in terms of the marketing opportunities you have in the international arena in the larger contract area, could you say how many opportunities are out there that could be drawn in sometime in the next 12 to 18 months?

It's really hard to quantify, and we certainly don't want to get into the predicting stage. These contracts, again, not to be repetitive, but they do take a long time, so to land the big one, if we land one big one a year, that's great. If we land two that would be even better, but our expectation at the moment is to land just one big one in the immediate term. Before 2005 is over, could we land another one? It's possible.

Okay. Your relationship on FBCB2, have you been formally integrated into that program and what's your relationship with Northrop Grumman on FBCB2, as I assume they're the prime contractor there?

Yeah, Northrop has been the prime. We have been integrated into the program as the transceiver supplier and, in fact, our sales -- our orders are actually coming from both, directly with the U.S. government, and as well as Northrop Grumman. So you kind of understand that that's the transceiver the government wants.

Right, great. A final question in the power amp arena. We've been flat for the last couple of quarters, running at about 4.7, 4.8 million per quarter, you had two larger contracts that you announced in January and March, both of which should be starting to ship here in the current quarter. Should we definitely see a million or two uptick in volume on a run rate basis out of that group moving forward for the next three to four quarters?

Yeah, I think so, Mark. I think generally, as I kind of indicated, I think you'll not only see an uptick, a little bit of an uptick let's say in the fourth quarter, but a major uptick in 2005.

Okay. And one last one. The $20 million unbilled receivable, when would you expect to see that unbilled component come down and see a positive impact on DSOs, total DSOs, and cash generation?

We expect, Mark, by the end of the fourth quarter of this year, that even though the total receivable balance you're referring to on the balance sheet may be at a similar level, you'll see a flip between unbilled and billed as we start to do our deliveries on one of those contracts that we talked about earlier.

So what I would expect to see at the end of the fourth quarter is a total receivable number in about the same range as it is now but to see a shift of between $5 to $10 million into billed receivables which ultimately will liquidate itself as we enter '05.

Thank you very much.

Thanks, Mark.

And our next question comes from the site of James McIlree with Unterberg Towbin. Go ahead, please.

Great, thank you. Rob, I thought I heard you say that the adjustment on the over-the-horizon contract had an impact on sales. Did I hear that correctly?

Yes, mechanically, Jim, the way that works is most of the adjustment is booked as an increase to sales. That's mechanically the way the percentage of completion method of accounting works. It just falls right from sales down into the gross margin.

Okay. Great. And then for the Q4 profit on that contract then, you're recognizing it at a higher level than you would have done a quarter ago.

What happens is, under that method of accounting, when there is an adjustment to the overall margin on a contract, that's booked cumulatively through the date that that's determined. So as someone alluded to earlier, we tend to try to take a hard look at the contingencies in a contract that are out there early on so that we don't have negative surprises at the end of the contract due to unforeseen costs.

So the fact that we are starting to wind down these contracts, some of those contingencies that were previously provided for in our estimates have been either resolved through the incurrence of costs or resolved through successful implementation of the program without the incurrence of the costs.

Right, but I was getting at -- I'm just going to make up numbers, if you were originally thinking it was going to be an 8% margin but then you get to the end of last quarter and you think it's 10%, when you book your Q4 revenues it will be at that 10% rather than -- ?

That's correct.

Okay. Great.

That's correct.

And can you give us some indication of the impact to revenues from the Memotec acquisition in both Q4 of this year, as well as fiscal '05?

For the fourth quarter I would believe that it's really going to be immaterial contribution. Maybe in the 1 million, 1.5 million area. For fiscal 2005, our expectations are somewhere between $5 to $8 million.

Okay. Great. The tax rate in fiscal '05, are you expecting any changes versus '04?

We're not expecting any changes at this point, Jim.

Okay. And the customer-funded R&D that you mentioned, does that show up in sales or as an offset to the IR&D that you book?

The customer funded is sitting both up in sales and cost of sales so effectively on a contract where we believe that there's customer-funded R&D we treat the related inflow of cash or revenues in the sales line and then the related cost are sitting in cost of sales, they are not sitting in the R&D line in our income statement.

Right. Okay. Great. And for the fiscal '05 guidance that you talked about, I'm assuming that that does not include any potential acquisitions that you're looking at. Is that correct?

That's correct.

Great. Thank you very much.

Thank you.

Thanks, Jim.

Once again, if you wish to register your site for a question or a comment, you can press the star and 1 on your touch-tone phone. And if for any reason your question has been answered, you can press the pound key to withdraw. And our next question comes from Selman Akyol with Stifel Nicolaus. Go ahead, please.

Thank you. Congratulations on a good quarter. Most of my questions have been answered, but one quick one. Can you give what the bookings were during the quarter, as well as a breakdown by segment?

I won't break it down by segment, Selman, but I can tell you that the bookings were 45 million for the quarter.

All right. Thank you very much.

Okay. And our next question comes from Andy Schopick with Nutmeg Securities. Go ahead, please.

Thank you and good morning. Unfortunately I was interrupted numerous times during this call, but I did want to ask you if you had any insight at all as to the pressure on the shares to what extent that might have been influenced by the issuance of the convertibles and the hedging that these convertible bond holders typically do in terms of selling short against their position. Do you have any insight into that at all?

I wish we had some insight, but we have absolutely no insight into that, Andy, at all. We, ourselves, were very, very puzzled.

I suspect that there was some element of that going on, but I really don't know to what extent it may have been a factor. With respect to U.S. government budgets, as we come into the September time frame, to what extent do you feel you will have greater clarity into the next fiscal year as you see kind of the budgetary process unfold?

Well, our two major programs are definite line items in the government budget. They both have Palms [ph]. The MTS contract we know very intimately. The Palm budget level for 2005 is approximately $22 million for the MTS contract.

We have recently learned that the authorization committees of both the Senate and the House have decided on what plus-ups should go to that program and I can mention those. Those are -- the Senate has decided that 35 additional million dollars would go to the plus-up, and the House has decided upon a number of about $19 million. This now goes from the authorization committee to the appropriations committee of each, the Senate and the House, and then both of them get together and kind of negotiate a final number.

In the past, we've seen roughly that both numbers could be added together and maybe divided by two, and that seems like a good guess. I think with the year that we've had and the success of that program, we probably tend to lean that we're probably going to get on the high side of that estimate. So we will not know that final number until obviously the appropriations committees meet and also the final negotiation between the House and the Senate occur.

And that time frame would be?

And that's probably sometime in -- it could be as early as August, it could be as late as late September.

Yep.

In the past years it's even gone past their own yearly budget. Now in the FBCB2 area, we are really a subcontractor there to the government, so we're not really in the know what a Northrop Grumman would know, but, again, I think we feel very strongly that with the success of the program and, let's say, bidding activity that we've seen to date, it bodes for another record year in that area as well.

Thank you.

And our next question comes from the site of, once again from James McIlree with Unterberg Towbin. Go ahead, please.

Thank you. Fred, I appreciate your comments on looking at the annual instead of quarterly, but I just want to make sure that I understand you correctly. When you're talking about looking annual instead of quarterly, were you referring to just fiscal '04, or were you making any sort of implied comments about fiscal '05, one half being more or less than the other half in fiscal '05 as well?

I guess what we're really trying to say is that our quarters are volatile, and at any given time we'll have a spurt, whether it's from a large contract or whether it's from the economy out there and so forth, and it's very, very difficult for us to smooth revenue when orders come in in a lumpy fashion, or, for that matter, delivery requirements by our customers specified certain dates that they must be delivered, the hardware has to be delivered.

That being said, 2005 is no different than 2004, or 2003 or 2002 before it. The quarters, if all the stars line up the right way, the quarters could go nicely sequentially. If they don't, they could be in a down trend like we had in 2004. It's very, very difficult for to us tell. I think we'll know better probably at the year-end where we can really forecast and give you guidance for Q1 and then subsequent to that.

Okay. So in terms of where we stand today, you're not suggesting anything about the linearity of fiscal '05, just putting out that warning that it could be lumpy?

Yeah, all we're really saying is based on past experience, and we we iterate again, our quarters do not really indicate our long-term growth. And what we're really saying is '05 is going to grow compared to '04. We just don't know how exactly the quarters will behalf.

Great, very good. Thank you.

Once again, if you wish to register your site for a question or a comment, please press the star and 1 on your touch-tone phone at this time. And our next question comes from -- once again from Mark Jordan with A.G. Edwards. Go ahead, please.

Thank you. Can we talk about the modem market a little bit and the competitive position that you have? You've had obviously some strengthening there. Do you have a sense of what kind of market share you have in that market? And from a technological standpoint, what's your intelligence how you're stacking up against Raydine [ph] and anyone else?

I guess we've always put a number of like 60% as our position and our market share of the satellite communications or satellite earth station modem market. We've actually spent a lot of money in the last few years and continue to do so on R&D, and I think our expectation is that we will continue to have that market share and maybe grow it in '05. We've actually taken -- we believe we've taken market share from our competitors in the past few years with the downturn in the economy, but we also feel that '05, with the introduction of a couple of new products that we have, and which we will be announcing shortly, I think we'll at least continue this market share and probably grow it.

Can you say, I guess you had a strengthening of a relationship with Intelsat or Inmarsat in terms of seeming like they're standardizing on your modems. Is that indicative of this kind of share gain you're getting, and/or are they supporting multiple vendors?

No, I think if you go to their website, I think you'll see our name as the supplier for their systems, and they've specifically chosen our modem and some other equipment of ours as the product of choice for their systems, and as you know, Intelsat is a worldwide supplier of satellite services.

Thank you.

Okay, and our next question comes from Selman Akyol with Stifel Nicolaus once again. Go ahead, please.

Thanks. Just a quick follow-up. On the mobile datacom, can you sort of give a percentage on split-out between FBCB2 and I guess the logistics command in terms of debt revenue line?

I don't think we'd like to do that, Selman.

Okay. Thank you very much.

And at this time it appears we have no further questions. So I would like to turn the program back over to our hosts for any closing comments.

Well, again, thank you very much for your interest in Comtech. We certainly enjoyed speaking with you today, and we look forward to speaking with you again very soon. Thank you very much for joining us.

Once again, this does conclude today's conference call. You may disconnect your lines at this time. We thank you for your participation and have a great day.