Comtech Telecommunications Corp (CMTL) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Comtech Telecommunications Corp's fourth-quarter fiscal 2008 earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, the conference is being recorded Thursday, September 18, 2008. I would now like to turn the conference over to Stephani LaMantia 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 of fiscal year 2008. 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; Jerome Kapelus, Senior Vice President, Strategy and Business Development; and Frank Otto, Senior Vice President of Operations.

The news release on the Company's results was issued yesterday afternoon. 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. 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 and objectives, 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.

And now I'm pleased to introduce the President and Chief Executive Officer of Comtech, Fred Kornberg. Fred?

Thank you, Stephani. Good morning, everyone, and thank you for joining us today for our fiscal 2008 fourth-quarter and fiscal year-end earnings call.

I am pleased once again to announce that our strong financial results in the fourth quarter and in the fiscal year 2008 resulted in record revenues and profitability for a sixth year in a row. Despite the unprecedented disruption in the financial markets and reported slowdowns in economic conditions, our business has continued to flourish as we benefit from the healthy markets we serve combined with our strong leadership positions in each of the segments we serve.

With the integration of Radyne well underway, we enter fiscal year 2009 positioned for solid growth. We have strengthened our positions in each of our existing core businesses, enhanced our product portfolio, and further diversified our customer base across all three of our business segments. I'm confident that we have a solid foundation upon which to grow in fiscal 2009 and beyond.

Later in this conference call, I will provide an update on each of our three business segments and also provide our initial guidance for fiscal 2009. But first, let me turn it over to Mike Porcelain, our Chief Financial Officer, who will provide an overview of our financial results, as well as provide a detailed update on our recent acquisition of Radyne Corporation. Mike?

Good morning, everyone. Let me start with some brief highlights and comments on the full fiscal year. Fiscal year 2008 was another record-breaking year. Revenue was $531.6 million, up 19.3% as compared to fiscal 2007. The increase in sales occurred across all three of our business segments. Operating income was $106.8 million, 25.8% higher than fiscal 2007. GAAP operating income as a percentage of revenue was approximately 20%.

Fiscal 2008 was a year without any large positive cumulative adjustments relating to our long-term contracts, hence, it gives a good picture of the true earnings power of Comtech. GAAP diluted EPS for fiscal 2008 was $2.76 as compared to fiscal 2007 at $2.42, which is up 14%.

Now, let me review the results for the fourth quarter of fiscal 2008. I will start with the top of the income statement and work my way down.

Fourth-quarter net sales were $126.5 million compared to $117.8 million in the fourth quarter of fiscal 2007. This represents an increase of 7.4%.

Starting with our Telecommunications Transmission segment, sales in the fourth quarter of fiscal 2008 were $61.5 million. This represents a 25.3% increase when compared to sales recognized in the fourth quarter of fiscal 2007.

Within our Telecommunications Transmission segment, sales of both our satellite earth station products and our over the horizon microwave systems were higher in the fourth quarter of fiscal 2008. Sales of our satellite earth station products continued to benefit from the ongoing strong demand for our bandwidth efficient satellite earth station modems, including modems that incorporate our doubletalk carrier and carrier technology.

Sales of our over the horizon microwave systems in Q4 of 2008 include sales for the US Army for a state-of-the-art Track 170 modem upgrade kits.

In our RF Microwave Amplifier segment, sales increased 52.6% to $14.5 million from last year's fourth-quarter sales of $9.5 million. This significant increase was due to higher sales of our amplifiers and high-power switches that are incorporated into defense-related systems.

Net sales for the fourth quarter of fiscal 2008 in our Mobile Data Communications segment, as expected, decreased by $8.7 million to $50.5 million. This represents a 14.7% decrease from the fourth quarter of fiscal 2007. The decrease was substantially due to the timing of orders delivered to the US Army.

Of our consolidated fiscal 2008 fourth-quarter sales, 29.8% were to international end-users; 63.5% were to the US government; with the remaining 6.7% to domestic commercial customers. Gross profit as a percentage of net sales was 40.5% for the fourth quarter of fiscal 2008 as compared to 44.6%. In Q4 of 2007, our gross profit was positively impacted by a favorable adjustment of $6.1 million, primarily resulting from the finalization of total contract costs relating to our original MTS contract.

Excluding the impact of this adjustment, our gross profit percentage for the fourth quarter of fiscal 2007 would have been 39.4%. The increase in the gross profit percentage from 39.4% to 45.5% in Q4 2008 was driven by increased gross profit percentages in both our Mobile Data Comm and Telecommunications Transmission segments, both of whom benefited from increased operating efficiencies.

Our gross profit also benefited from the impact of a higher percentage of sales occurring within the Telecom Transmission segment, which typically realizes a higher gross profit percentage than our other two business segments.

As anticipated, our gross profit percentage in Q4 2008 was negatively impacted by lower gross margins in our RF Microwave Amplifiers segment. As mentioned on our last conference call, our RF Microwave Amplifier margins were negatively impacted by shipments of certain complex amplifiers with very low gross profit margins as a result of technical issues and long production times. We believe we have put most of these technical issues behind us.

However, gross margins for our solid-state amplifier products for fiscal 2009 will be lower than normal as we begin to make large shipments of these low margin amplifiers. We have begun shipping some of these amplifiers to our customers and hope to substantially complete deliveries of them sometime in the second half of fiscal 2009.

On the expense side, SG&A expenses were $22.2 million in the fourth quarter of fiscal 2008. As a percentage of consolidated net sales, SG&A was 17.5% compared to 16.8% in the fourth quarter of fiscal 2007.

The increase in SG&A expenses was primarily attributable to higher payroll-related expenses, including the amortization of stock-based compensation and to a lesser extent, legal and other professional fees, including costs associated with the Brazil subpoena and export matters. SG&A expenses for the fourth quarter of fiscal 2008 includes $2.1 million of stock-based compensation expense compared to $1.7 million in the fourth quarter of fiscal 2007.

R&D expenses were $10 million in the fourth quarter of fiscal 2008, 4.2% higher than the fourth quarter of fiscal 2007. The increase in expenses primarily reflects our continued investment in R&D efforts across all three of our business segments.

Amortization of intangibles was $500,000 and $600,000 for the three months ended July 31, 2008 and 2007. Our Q4 2008 reflects one month's worth of amortization relating to the acquisition of our Verso product line. On a go-forward basis, amortization from Verso is expected to be slightly under $400,000 per year.

Operating income for the three months ended July 31, 2008 was $24.9 million or 19.7% of sales. Interest expense, which primarily represents interest associated with our 2% convertible senior notes, was consistent between the fiscal quarters at approximately $700,000.

Interest income and other decreased from $4.3 million in the fourth quarter of fiscal 2007 to $2.4 million in the fourth quarter of fiscal 2008 due to a significant decline in interest rates partially offset by an increase in investable cash since last year.

These are very turbulent times in the financial markets, and as we discussed in our previous earnings call, we believe we are taking the prudent approach to managing our cash and cash equivalents. We do not own any investments in municipal auction rate securities or MARS, and we continue to invest in a wide portfolio of money market funds, both government and commercial, and with a number of different brokers. All of these money market funds are AAA rated by Moody's.

Going forward, the blended interest rate that we expect to earn on our cash and cash equivalents will compare with market rates for these types of instruments, which are currently between 2% and 2.3%.

Our effective GAAP tax rate for the fourth quarter of fiscal 2008 was 36.3% compared to 34.5% for last year. The fourth quarter of fiscal 2007 benefited from the federal R&D credit that expired as of December 31, 2007. In addition, as disclosed in our 10-K filing yesterday, our Q4 2008 tax rate reflects the finalization of the audit by the IRS of our FY 2004 and FY 2005 federal tax returns.

Excluding stock-based compensation, EPS for Q4 of fiscal 2008 and 2007 both came in at $0.67. On a GAAP basis, EPS was $0.61 per diluted share in Q4 as compared to $0.63 per diluted share in Q4 of fiscal 2007. As a reminder, our EPS, both on a GAAP and a non-GAAP basis for fiscal 2007, significantly benefited from the MTS favorable gross profit adjustment, hence, 2008 was truly a spectacular year.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, was $30.6 million for the fourth quarter of fiscal 2008 compared to $27.2 million for the fourth quarter of fiscal 2007. Cash flow provided by operating activities for the 12 months ended July 31, 2008 was $77.8 million compared to $89.2 million in the 12 months ended July 31, 2007.

Turning to backlog, it was $201.1 million as of July 31, 2008. This compares to $129 million last year and $185.9 million back in Q3. On August 1, 2008, as a result of the Radyne acquisition, our backlog increased by approximately $51.4 million. Thus, heading into fiscal 2009 on a combined basis, our backlog is strong at approximately $252.5 million.

Before moving on to discussing the Radyne acquisition in detail, I would like to provide a brief update on the Brazil subpoena matter, as well as the status of our export compliance review, all of which is more fully described in our 10-K filing. As discussed on prior earnings calls back in October 2007, a Florida-based subsidiary, Comtech Systems, received a subpoena from the US Immigration and Custom Enforcement branch of the form of Homeland Security, known as ICE. The subpoena relates to a Comtech Systems' contract with the government of Brazil with potential revenue of approximately $2 million, none of which has been recognized to date. We engaged outside counsel to review this matter as well as to perform an assessment of our internal controls.

The area of export law is extremely complex and our ongoing investigation of the Brazil matter to date has found an other than what we believe to be inadvertent administrative errors in obtaining certain nondisclosure agreements. We believe we made a good faith effort to comply with applicable regulations.

On the Brazil issue, not much has happened since our last conference call. In August 2008, the ICE agent handling the case informed us that they wanted to interview on behalf of the State Department, one of our engineers to clarify certain technical matters. This interview occurred in September and we are awaiting additional feedback from the State Department. We continue to remain cautiously optimistic that we will be able to reship the Brazil inventory to our customers shortly.

In addition to the Brazil matter, and as previously disclosed, the enforcement division of the US Department of State informed us that it wanted to confirm our Company-wide ITAR compliance with a five-year period ending March 2008. As such, and as we previously reported in our SEC filings, we expanded the scope of our own investigation.

In June 2008, we provided detailed information and a summary of our findings to the US Department of State. In July, they requested supplemental information and we responded to their request. Our own investigation to date found that there were certain instances of exports in defense services during the five-year period for which we did not have appropriate authorization from the US Department of State. We have provided our findings to the State Department and, like the Brazil matter, we're awaiting feedback.

As a result of our own investigations in export assessment, we have already taken and continue to take numerous steps to improve our export control process. This includes the hiring of additional employees who our knowledgeable and experienced with ITAR and the engagement of an outside export consultant to conduct additional training. We are also in the process of implementing enhanced formal Company-wide ITAR control procedures including at our newly acquired Radyne subsidiaries. Because our assessments are continuing, including at our newly acquired Radyne subsidiaries, we expect to remediate, improve and enhance our internal controls relating to exports throughout fiscal 2009.

Additional details on both of these matters may be found throughout our 10-K, which was filed yesterday afternoon.

Now, let me provide a detailed update on our acquisition of Radyne. Although still in the early days, the Radyne acquisition is on track to be a resounding success. Our employees have been energized by the acquisition and we believe we are already benefiting from the strategic and tangible financial benefits of the transaction.

As a result of its acquisition by Comtech, Radyne was not required nor did they report its second-quarter of fiscal 2008 results. However, I will provide a summary of their unaudited, stand-alone results for the six months ended June 30, 2008 in order to provide a foundation for understanding their business state and what we are assuming on a go-forward basis.

As we mentioned in our May conference call, we did not believe Radyne was on track to meet their own stand-alone guidance. We were correct. However, on the positive side, they did meet our original expectations that we provided to you back in May. Radyne's consolidated revenues on a stand-alone basis for the six months ended June 30th, 2008, were $72.7 million. Operating income on a stand-alone basis for the six months ended June 30th, 2008, was $5.1 million or 7% of net sales. Net income on a stand-alone basis for the six months ended June 30th, 2008, was $3.4 million. These results generally fall within the range of the annualized estimates we provided in the May conference call.

Radyne's business performance, as we expected, continues to be impacted from the inevitable disruption that came with its sales process as well as the restructuring initiatives that we are currently undertaking.

As such, we believe that Radyne's legacy satellite and electronics business results in particular will be negatively affected in the next few quarters until the integration into Comtech is substantially complete.

Incorporating our expectations of disruptions, we believe that the total acquired Radyne business will generate revenues at an annual run rate of approximately $140 million to $145 million of revenue during our fiscal 2009. We believe that operating income associated with this revenue stream will come in at an annualized run rate between $10 million and $10.5 million or 7% of operating income. This amount excludes the impact of purchase accounting and synergies.

Given its complexities, let me get into some details on the purchase accounting for Radyne and its expected impact on our FY 2009 results. It is important to note that although these estimates are based upon capital analysis, they are still preliminary and, therefore, remain subject to change.

Based on a preliminary allocation of the purchase price of $231.7 million, we expect to record amortizable intangibles of $55.1 million as of August 1, 2008. In addition, we will record a fair value step-up of the inventory that we acquired of $1.5 million. Based on this allocation, and the assumptions for estimated useful lives, we expect annual amortization for Radyne's intangibles and the fair value adjustment to inventory to approximate, on a pretax basis, $6.6 million or $4.2 million after taxes in fiscal 2009.

In addition to the amortization of $6.6 million, we expect to record a onetime charge of $6.2 million for in-process research and development acquired. Unlike the annual amortization I just discussed and as required by GAAP, specifically EITF 96-7, no tax benefit for the $6.2 million in-process R&D charge will be recorded. Thus, the total impact of the $6.2 million in-process R&D charge will approximate $0.22 per share in fiscal 2009.

Now, let me provide an update on our restructuring and integration plans. I'm pleased to report that as we sit here today, our integration and restructuring initiatives are well underway. And to date, our execution has been nearly flawless. We are currently integrating Radyne's Phoenix, Arizona manufacturing facility into our Tempe, Arizona based high-volume technology manufacturing center. And we are also well along the path of fully integrating Radyne's corporate functions into our existing Melville corporate office. We expect to complete these integrations during the second half of fiscal 2009. When we announced the transaction, we set a goal of $3 million to $4 million of operating synergies to be realized in the first 12 months following the closing deals.

Without giving numbers, but simply stating, we are well ahead of schedule in almost every aspect of our integration plans and are exceeding all operating and numerical synergy goals that we previously announced.

We are also overachieving with respect to restructuring costs, which we initially believed would range from $7 million to $10 million. These costs were originally anticipated to result in a reduction of our EPS in fiscal 2009. To date, we have incurred only approximately $800,000 of such costs, most of which is severance-related for radon Radyne employees, many of whom were terminated immediately after closing. Our original estimate of $7 million to $10 million of restructuring included a substantial accrual for Radyne's noncancelable lease obligations for its facility. I'm pleased to report that we are currently in negotiations with a tenant who currently subleases a portion of the facility from us. This tenant has indicated that they are interested in subleasing the remaining portion of the facility from Comtech. In fact, let yesterday evening, after we filed with the SEC, we received a written term sheet from the tenant. If the final negotiations, which look like it might just be some T's and C's, are successful, our estimated cost accrual will decrease substantially. We are currently evaluating the impact of this term seat, which is for the entire building on the accounting. However, it is entirely possible that we will only ultimately incur direct restructuring costs of $800,000 for the Radyne transaction as compared to our original estimate of $7 million to $10 million.

Because of the rapid adoption and integration of our restructuring plans and the required GAAP accounting known as EITF 95-3, we anticipate that we will be able to capitalize the $800,000 of restructuring costs as part of purchase accounting. In addition, if we are ultimately not successful in subleasing the entire Radyne manufacturing facility, we also expect that we will be able to capitalize those unrecovered costs as part of purchase accounting. Thus, with the exception of the $6.2 million or $0.22 R&D charge, which we anticipate taking in Q1 of fiscal 2009, our P&L for fiscal 2009 is not anticipated to be impacted by onetime charges associated with the Radyne acquisition.

Another obvious impact of the Radyne transaction to the P&L in fiscal 2009 will be a significant reduction in reported interest income. The Radyne transaction had an aggregate purchase price of $231.7 million. We also have and will be making payments totaling approximately $4.1 million for change of control and professional service fee obligations that were triggered by the acquisition.

In addition, as I mentioned, we have and will be making payments of approximately $800,000 for severance. Cash used to make these payments would have earned interest at rates between 2% and 2.3%.

Comtech itself finished the year with over $410 million of cash. After making adjustments for expected payments that I just discussed and adding the Radyne cash that we acquired of approximately $20 million, we begin fiscal year 2009 with approximately $190 million of cash.

In summary, we remain diligently focused on maximizing value from our Radyne acquisition. In my mind, I have no doubt that the acquisition is on track to be a success and was an efficient and compelling use of our cash.

Before I turn it over to Fred, let me inform you that we have prepared investor presentation material on our website at, www.Comtechtel.com, which goes into some detail on the pro forma combined results and the purchase accounting.

Now, let me turn it back to Fred, who will share his outlook for our three business segments, as well as provide our financial guidance for fiscal 2009. Fred?

Thanks, Mike. I will begin with our Telecommunications Transmission segment. As you know, our two major product lines in this segment are the satellite earth station products and our over the horizon microwave troposcatter systems. Our satellite earth station product line is our largest product line in this segment, and which now includes Radyne's satellite earth station and video equipment product lines.

We sell our satellite earth station products to thousands of commercial customers in both domestic and international markets. We also have a strong franchise with multiple customers within the United States government.

With the full integration of Radyne's satellite earth station product lines, we will be in a position to further extend our leadership in this market by adding additional innovative products and technology, as well as adding a broad range of new customers across both the commercial and defensive satellite earth station markets.

As a result of the continuing shortage of satellite transponder space globally, the demand for our flagship modems, the industry's most efficient modems, has increased substantially, and looks to remain robust for the foreseeable future. The demand drivers causing the satellite transponder shortage include strong cellular subscriber growth, rapid transition of video to a bandwidth-heavy definition, growth in IP TV and the insatiable demand for bandwidth by the US and other militaries.

Carrier-in-Carrier, our patented key enabling bandwidth compression technology that we have discussed on prior calls, directly addresses the increasing satellite transponder demand by immediately providing our customers with a 50% increase in bandwidth efficiency. There is no other player in the market who can offer its customers, through this technology, such a profound return on investment.

Leading our growth in this product line, particularly for satellite-based cellular backhaul are our international markets, in China, in India, Indonesia, Pakistan, Africa, Latin America and so on. A recent study predicts that the number of cellular sites backhauled via satellite will increase at a 28% compounded annual growth rate through 2010.

Another study forecasts that revenues from satellite-based cellular backhaul will almost double by 2013. Underlying this strong outlook for Comtech are forecasts of greater than a 15% annual increase in wireless subscribers in emerging markets in the next four years.

We are leaders in this market and we believe that we are strongly positioned to further consolidate our robust leadership position in this cellular backhaul market. First, our recently introduced new Carrier-in-Carrier enabled modem, the modem model CDM-625, is unmatched in terms of efficiency and features.

Secondly, our large installed base of modems provides us a lucrative market in which to upsell our newer, feature-rich modems such as the CDM-625.

And thirdly, we offer our customers a bundled solution that includes our modems and our traffic aggregation and bandwidth optimization products. This type of bundling allows us to maximize the efficiency and thereby minimize the costs to our customers of operating their backhaul networks.

We also recently enhanced our cellular backhaul optimization product line through the acquisition of the Verso Backhaul product line. Along with broadening our product line, this acquisition has added a number of Tier 1 telecommunications carriers to our customer base, thereby opening up additional business opportunities for us and our other products.

Overall demand drivers for satellite transmission also include the continuing demand for video and Internet content, and the continued rollout of bandwidth intensive high-definition TV, that requires more bandwidth, and therefore increased transmission capacity.

Additionally, our recently acquired SkyWire mesh transmission network products have opened new opportunities for us in the enterprise networking market. We are in the process of integrating additional features into SkyWire and believe that these additions will make SkyWire products even more appealing.

We're also making outstanding progress in our US government business. The bandwidth crunch continues due to the intensity of global communications requirements. Here, we're also incorporating our Carrier-in-Carrier technology into our model SLM-5650A government-specified model modem, which is prequalified and is fully compatible with the FIPS 140-2 government security standard.

We're doing the same with the Radyne model, DMD 2050 and the Radyne model DMD 20 modems, and expect these initiatives to be completed during fiscal 2009.

Recent contract wins validate our investment into the government market. We recently announced a $4.5 million contract with Harris Corporation for a Phase II of the U.S. Navy's CBSP or Commercial Broadband Satellite Program. We had previously won a smaller Phase I contract.

We also won an Air Force development contract for the high data rate or HDR program, and recently performed a successful demonstration of this HDR product. The acquired Radyne modems I mentioned before are well-positioned in core government satellite programs, including JNN for the Army, GMT for the Air Force, and SWAN for the Marine. We are confident that we will be able to leverage and further expand our DoD business by introducing our Carrier-in-Carrier technology into these Radyne supplied programs.

In summary, the satellite earth station market remains strong and we offer a formidable product line that has been further strengthened and diversified with our acquisition of the Radyne products.

In our over the horizon or troposcatter product line, we provide highly secure point-to-point communications transmission by bouncing a signal off the troposphere, which is a layer of the atmosphere about seven miles above the earth. Here, we are a total system supplier. Along with the supply of terminals, we have performed network design and installation and integration functions to insure the integrity of the communications links. We remain the go-to player in this market based on over 35 years of continuing investment in new technology and increased transmission speed. As you know, we were selected as the sole provider of a high data rate digital troposcatter technology to the US government.

We're nearing the end of a two-year program where to date we have upgraded approximately 260 modems on the government's TRC Track 170 Troposcatter Terminal. This with our new 16 Mb adaptive modems. We anticipate receiving orders for an additional 25 to 35 terminals during fiscal year 2009.

Due to the tremendous shortage of satellite transponder capacity globally, the US government is actively using the Track 170 Troposcatter Terminals for short to medium-hall communications in order to free up satellite capacity. The government confidence in this technology is a function of the speed, efficiency and reliability of these modems we recently supplied.

Having exceeded our customers' expectations, we have been able to unlock multiple substantive new opportunities on which we will elaborate at a later date. I can assure you that the DoD's commitment to troposcatter technology has only strengthened and we think there is a reasonable likelihood that the government will invest in a totally new troposcatter flagship terminal in the very near future.

Internationally, we have more irons in the fire than at any prior time in our history. However, I realize that we continue to indulge your patience with the timing of program awards for some large potential opportunities in the pipeline that keep moving to the right on us.

As we have described before, we have two large opportunities with our North African customer that relate to two separate opportunities to supply equipment and services towards the next phase of a multi-phase telecommunications infrastructure buildout. We have a rich history and a strong relationship with this end customer, having worked on multiple contracts over the past six years that have generated in excess of $150 million in revenue.

Our North African end customer has selected two different system integrators for each of the two opportunities and is currently having ongoing negotiations and discussions with both of these integrators. We believe that the value of each of these opportunities for us is in the $400 million plus range. However, we continue to have a difficult time pinpointing the exact timing.

In addition to those opportunities, we continue to remain confident about another foreign government opportunity and are in discussions with a new prime contractor who is working with this foreign government. This is the first time we're dealing with this customer, and we also believe this overall opportunity could also be in excess of $40 million.

However, due to the history we've had with these delays, we have conservatively assumed minimal revenues in our fiscal 2009 forecast since we assumed that we will only receive one of these orders, and that in the middle to the latter part of the fiscal year. However, we would not be surprised if we were awarded more than one of these contracts in fiscal 2009.

In summary, in both our satellite earth station and over the horizon troposcatter microsystem product lines, we continue to be a market leader and we remain committed to investing in technologies that will continue to differentiate our telecommunications segment products in the markets we serve.

Now to our Mobile Data Communications segment. This segment includes two product lines, the Mobile Data Comm product line, by far the larger business and the recently acquired AeroAstro micro-satellite business.

As you know, Comtech Mobile Data Comm has been providing satellite-based mobile tracking communications equipment and software and network services to the US government since 1999. We currently provide equipment and services under two IDIQ contracts, the Movement Tracking System, or MTS, and the Blue Force Tracking system or BFT.

MTS is a $605 million three-year IDIQ contract that runs through July 2010. It is a satellite-based communication system providing logistics and combat support units with a secure, real-time global vehicle location and tracking capability.

MTS also provides secure two-way text messaging between stationary-based locations and mobile vehicles, enabling ground commanders to monitor and track resupply items in providing total visibility within any operational global theater.

We are the prime contractor and systems integrator on the MTS program and provide a turnkey system, including equipment, software, integration and testing, satellite air time and the management and operation of a worldwide satellite network.

The MTS program continues to have extremely strong budget support, and has proven to be a highly strategic and important program for the US Army and National Guard. Including the $53.8 million in MT orders that we have received in the period since our last earnings call, we have received orders totaling of $139.9 million against the three year, $605 million IDIQ contract.

Based on public Army budget documents, we believe that an aggregate of at least $381.8 million is in the Army's budget to fund the MTS program orders in fiscal 2009. The $381.8 million is comprised of the $240.1 million remaining from the government's already enacted fiscal 2008 base budget and war funding supplement or GWOT and the government's draft fiscal 2009 base budget of $141.7 million.

The fiscal 2009 versions of the budget, which were recently marked up by the defense appropriations subcommittee in both the House and the Senate, it is our understanding that the goal of both the House and the Senate us to pass this government fiscal 2009 budget before a new administration takes over.

I believe the budget numbers for MTS speak for themselves. We have also seen recent signs of other government interest in MTS, particularly with the US Army National Guard, which brings its own funding sources, but which acquires hardware and services under the MTS contract.

You may recall that we delivered approximately $100 million in equipment and services to the National Guard in the period of between 2006 and 2008 through the Leahy Bond Hurricane Katrina Emergency Supplemental Bill.

US Army National Guard in its first responder role remains an active additional MTS user. According to a recent National Guard Association of the US or NGAUS, according to that document, National Guard fieldings represent only 6.3 of their total acquisition objective and are significantly below the National Guard's expectations. We believe the National Guard will continue to push for funding to fully establish their fielding goals in 2009 and beyond.

A recent NGAUS resolution went beyond regular MTS fieldings and requested support for MTS portable systems, what we call our light MTS, designed for use for civil support teams and other guard affiliated first responder units.

It is clear from the resolution that there is an immediate need for mobile asset and logistic tracking equipment, targeted for homeland security, disaster relief and other state missions.

On the other front, our Blue Force Tracking, or BFT, is a $216 million five-year IDIQ contract with CECOM, the Communications Electronics Command, and it provides the satellite communications backbone for FBCB2, a battle command real-time situational awareness and control system. We provide mobile satellite transceivers, satellite bandwidth, satellite network operations and engineering services for the BFT system.

As most of you are aware, BFT is a critical element of the overall FBCB2 program and is an essential part of the DoD's communications. FBCB2 is a highly tactical battle command program that relies on both terrestrial and satellite-based communications to enhance awareness and control. This program embodies the US Army's shift towards a more mobile, more tactical military force by providing ubiquitous communications that is essential to our highly mobile army. We believe that FBCB2 and, therefore, BFT, will continue to present exciting growth opportunities for Comtech as the Army seeks to equip additional vehicles with our equipment.

We have already seen the importance of this program based on having already received orders totaling $134.7 million despite being only one year into our five-year BFT contract. Because we shared the BFT budget with other companies providing products for this program, it is difficult for us to provide specific budget and funding information. We do know that the total FBCB2 budget for fiscal 2008 and the preliminary budget for fiscal 2009 totaled $905.2 million. We understand that the entire FBCB2 program budget, of which BFT is a subset, was not cut during the recent House and Senate budget negotiations.

We are also a major contractor to Globecom Systems, where we continued to support NATO in delivering enhancements to the NATO International Force Tracking System. Our geoOps software platform provides a suite of battlefield command and control features necessary to synchronize forces from multiple countries using this network. We currently support over 800 units operating in Afghanistan and are actively seeking opportunities to expand this product line to other countries.

We believe that the large contracts and significantly available funding for both our MTS and BFT programs demonstrate their importance to the US military, and we remain committed to provide all necessary resources and technology to ensure that we continue to provide both MTS and BFT with a high-quality, reliable satellite network and products that provide maximum value and utility to US soldiers.

The second product line is within our micro-satellite product line of Comtech AeroAstro. AeroAstro designs and builds micro-satellites and components for the government market. Our primary initiative currently is related to the Space Test Program Standard Interface Vehicle or STP-SIV, an innovative micro-satellite we're building under a subcontract for Ball Aerospace and our ultimate customer, the U.S. Air Force.

The current $13.5 million funded portion, which is winding down, began in October '06 and we are scheduled to deliver in November '08. This mission will fly space technology experiments for the Department of Defense and is scheduled for launch from Kodiak Island in the fall of 2009.

The IDIQ contract, if funded, will provide up to five more of these vehicles, and we are aggressively marketing the customer to fund these opportunities. In addition, we are providing space vehicle concept development and preliminary design work for the Air Force research laboratory under a $2.2 million contract. We expect this concept development will transition to a full micro-sat [bus] build contract later this year.

We also recently won one of four awards to design the multi-mission space vehicle or MMSV for the Air Force Operationally Responsive Space Office. In this program, we are the prime contractor with the mission procurement integration responsibility for the entire space system. In MMSV, the pathfinder operations spacecraft for the ORS Office is designed to rapidly augment or replace on orbit intelligence recognizance, surveillance, ISR assets in response to war fighter needs.

The contract value for the first month of this phase beginning in October 2008 is approximately $700,000 with an option for a follow-on on a five-month Phase II for approximately $2 million.

We will be in competition with three other awardees through these initial phases of the program. These three contracts provide a strong base for our plan to expand this business, although small, with the experimental small operational space payload market.

We also in AeroAstro provide a global satellite-based tracking system and load data rate communications service known as SENS. Primarily this is provided to the commercial mobile asset logistics market, which continues to grow. The SENS system uses that Globalstar satellite system and is independent of terrestrial and satellite networks.

We provide the infrastructure segment of this service to Globalstar and are providing new products and services for the market. Our AeroAstro team has begun initial steps to collaborate with our mobile data team to share core competencies in the signal processing, transmitters and network management. Over time, we believe our existing military customers, such as MTS and BFT, could benefit from these products and services.

The last segment, the RF Microwave Amplifiers segment, has more than doubled in size through the acquisition of the Radyne Xicom business. With Xicom, we now offer a market-leading offering of traveling wave tube and klystron tube amplifiers to the defense and commercial satellites communications markets. This complements our strong existing position in the high-powered broadband solid-state amplifiers and switches for a diverse set of customers and applications in both the defense and commercial markets. As a one-stop shop for RF microwave amplifiers now addressing a wide range of frequencies up to 45 GHz, we are positioned to address the broader needs of our customers as well as benefit from the technology know-how of the broader core competence within the Company.

We're one of the few independent broadband solid-state high-powered amplifiers with a full line of solid-state high-powered amplifiers utilizing gallium nitride transistors. This technology allows Comtech to design proprietary power amplifiers, which provide distinct operating efficiencies over a wide range of applications.

Within our solid-state amplifier product line, we generated record revenues in fiscal 2008, driven by strong sales of amplifiers and solid-state switches with accrued 2.1 or Counter Radio-Controlled IED Electronic Warfare Program. We believe that we will continue to benefit from strong continuing sales related to CREW 2.1, but we are also focusing on the next generation IED jammer technology, working closely with our various partners to remain on the forefront of technology innovation in this area.

We also benefit in this area from the continuing sales from Raytheon for Integrated Radio Frequency Assemblies for Raytheon's EPLRS radio system and are working hard on Raytheon's next generation wideband radio frequency assembly. We have supported Raytheon in delivering over 20,000 EPLRS radios to the US Army, and we understand that another 8,000 radios will be needed over the next five years.

On the commercial side, we continue to seek the fruits of our R&D investments and amplifier designs for Rockwell Collins, for the Dreamliner program and with Varian for our medical oncology treatment systems.

Internationally, we have continued to expand our list of high-quality customers, including EADS, Thales and BAE Systems, who now utilize our amplifiers in a wide variety of radar, electronic warfare and jamming systems.

For the satellite communications market, our solid-state amplifiers, our traveling wave tube amplifiers and our klystron amplifiers are used by both the government and commercial customers. Specifically, we are a core and important supplier to the US government through a number of high-quality US primes, such as L-3, General Dynamics, Raytheon and Harris.

We participate on a number of important programs, including FAB-T, GMT and WGS. Because of the performance and quality of our amplifiers, we have made strong inroads on other notable programs that we look forward to announcing in the next few months.

In the commercial market, we have made exciting inroads with the major direct-to-home providers such as DirecTV and Dish, replacing expensive klystron amplifiers with more cost-effective TWT amplifiers. We believe that these relationships will yield strong opportunities in the years ahead.

On the marketing front, we believe Xicom has a strong presence in Europe, the Middle East, and Africa. And as we mentioned on previous calls, we believe there is a clear opportunity to sell our Xicom products in other amplifiers into our broad Comtech satellite earth station customer base, specifically in currently underserved markets, such as in Asia and Latin America. This process has already begun.

Finally, we are confident that over time, our amplifier product lines will generate value by sharing new technology developments such as gallium nitride, as well as other core power amplifier building blocks and our formidable size and scale in this segment is definitely an advantage we do not intend to squander.

In summary, Comtech enters fiscal 2009 as a formidable market player in all the segments we operate in, with greater resources and capabilities and with more innovative products to address our customer needs. We expect to benefit from the efficiencies that come with increased size and believe that our end markets remain vibrant and strong.

With that, let me turn to guidance for fiscal 2009 and provide some closing remarks. As I have stated many times in the past, our ability to provide revenue and EPS guidance is dependent upon a number of factors, many of which are beyond our control. These factors include, but are not limited to -- one, timing of bookings and related revenues on large contracts such as MTS, BFT, CREW 2.1, as well as with our opportunities in our large over the horizon microwave commercial and government markets.

Two, the uncertainty, particularly in today's environment, regarding the US government funding priorities and budget constraints.

And three, economic conditions, particularly in the current uncertain economic environment that we're operating in.

That said, I will provide updated guidance. Given our expectations of ongoing strong demand for our products in all three of our business segments, we expect fiscal 2009 revenues to be in the range of $740 million to $755 million.

For fiscal 2009, excluding the impact of the onetime charge that Mike mentioned of $6.2 million or $0.22 of EPS impact for the in-process R&D, we are providing initial diluted GAAP EPS guidance in the range of $3.04 to $3.08. Our non-GAAP EPS guidance is in the range of $3.26 to $3.30. Our non-GAAP excludes the $0.22 of EPS impact for the in-process R&D and stock-based compensation.

In addition, given the complexities of purchase accounting, we want to provide some guidance on EBITDA because we believe it gives a better measurement of how our fiscal 2009 operating performance will increase as compared to fiscal 2008.

We expect fiscal 2009 EBITDA to be in the range of $164 million to $166 million. Using the lower end of the range, this reflects a growth rate of 27.8% versus our EBITDA of $128.3 million for fiscal 2008.

In summary, although things can always change, from where I said, I'm looking forward to another record year in fiscal 2009, our seventh year in a row. And now, we will be happy to answer your questions. Operator?

(Operator Instructions). Tim Quillin, Stephens, Inc.

Good morning. Great quarter and outlook. Mike, could you go through the backlog by segment, please?

Sure. Let me give you our segment that we finished -- our backlog by segment for Comtech to get you to the $201 million number.

We did $54 million in the telecom segment; $105 million in our Mobile Data Comm; and our RF Microwave Amplifiers segment had a backlog of about $41 million. As part of the purchase from Radyne, we picked up $15 million of backlog in our Telecom segment, a little under $6 million, say closer to $5.5 million of Mobile Data and $30.6 million in the Amplifiers segment.

Okay, great; that's helpful. And then, in terms of the Telecom Transmission segment, you mentioned that over the horizon was up year-over-year. But I'm just looking at the sequential growth in the segment, was about 27%. Was that -- how much of that was driven by over the horizon and how much is strength in the satellite earth station business?

Yes, I think just to make clear, our telecom segment for year-over-year was down versus FY '07 versus FY '08. We were talking about the quarter, so telecom for the quarter for Q4 was up. And we did have growth in satellite and over the horizon in that area. Over the horizon was some of the Track 170.

I'm just trying to get a sense, was there a big kind of spike-up in order to quarter 4Q versus 3Q, big spike-up in Track 170 related shipments? Or what drive the quarter-to-quarter increase in that segment?

In Q4 from Q3, was Track 170.

Okay, okay. And then, in terms of the Mobile Data segment, how -- I know this is always a difficult question -- but how should we think about order flow and how the quarters might shake out in terms of revenue over the course of the year?

It's going to be, I would say relatively balanced between Q1 and Q2, but we do expect it to be back-end loaded in Q3, Q4.

Okay. And on Radyne's gross margin, you had a pretty good discussion in the 10-K about where you thought operating expenses would come in. You said gross margins would be a little bit lower because of Radyne, but should we expect around 40% or a little bit lower or where they were in calendar '07? Or do you expect Radyne's gross margins to come in a little bit more from that level?

Looking at it as a stand-alone product line, if you look at the reported results from Radyne which they reported in their last I guess Q3, they were actually slightly lower in Q2. So for the margins that we're getting from the Radyne products at this point, there's some pricing out there in the marketplace, obviously, and we're not going to be raising our prices to customers. So the margins that we're going to get from the Radyne products will be significantly lower than the margin that we usually get from our products.

Okay. And then just a couple of cash flow questions. What are your expectations for D&A for fiscal '09 and what are your expectations for CapEx for fiscal '09?

CapEx, I think we have in the K about $20 million to $22 million for the year. And then I think on the D&A side, without getting into details, I think I would point you to Fred's comment about EBITDA, which is, you know, we think we're going to be between $164 million and $166 million.

Thank you.

Mark Jordan, Noble Financial.

Good morning, gentlemen. First, go back -- let's talk a little bit about the tropo. I think in last quarter, you talked about an opportunity with the -- potential opportunity to upgrade the non-modem segment of some of the Track 170s. Is that still out there as a potential?

And you also -- could you give a little more color as to what you think the military might be doing with what you alluded to as a new flagship system?

Good morning, Mark. I guess -- let me answer it this way for you. Yes, we are talking to the Army and the Marines in terms of upgrading other components of the Track 170, which I would rather not say which components those are, obviously. And on the other front, I think there is really a preliminary discussion that we understand has already occurred and is occurring in terms of the Army's, I guess need as the Track 170's will get old, to have a brand-new system which will probably be more of a transit case and very highly mobile system. But timing of that is really up in the air.

Okay. Could you give us just some sense of in your planning or incorporated into your guidance, what you -- what will be '09's tropo revenue in general terms versus what you had in '08?

I think, as I mentioned in my part of the presentation, I thought I made it clear, if I didn't, I think we have really put minimal effect of the so-called three large opportunities. So I think it will be more reflective of a similar year that we have had today -- in '08, rather than counting on any of the opportunities to come in, in '09. Frankly, we feel that they will come in, but I think conservatively, we have made no use of that in our forecast.

And then, is it fair to say also then relative to the US government in tropo, you are assuming just a continuation of small numbers of upgrades and small activities, but none of the major programs kicking off this year either?

That's correct. As I mentioned, we do expect 25 to 35 more Track 170 orders and other small orders from the Army.

Now, I will say that there are always the possibilities that some of the newer changes to the Track 170 or more modifications will be funded in '09. We just can't rely on that.

Yes, so that opportunity is not built into your expectations?

That's correct.

Looking at DSOs, very strong performance this quarter. Do you think you can maintain that, I think it's roughly 50-day level?

You're talking about A/R DSO?

Yes.

Mark, we had a great quarter of collections in accounts receivable. Really since the Radyne businesses are relatively new to us and we are starting to learn how they all work and can join up together, I would expect some growth in that number as the year goes on, and we will have a better sense. But I would definitely build in growth into the model and we will see how things progress throughout the year.

Yes. Is there just -- I'm sorry, I can't remember. Is there an opportunity for you over the nearer term to potentially call the converts and take those off the books?

Yes, I think the converts -- we have the ability to call in the converts on February 1.

Would it be unreasonable to assume you'll do that since you are already bearing the dilution and eliminate the interest charge?

The only thing I could say, Mark, is that the Board has been in discussion in that and we haven't decided as of this point.

Okay. Thanks a lot.

(Operator Instructions) Ryan [Ragley], Raymond James.

Thank you. Good morning, guys. Could you give us any color on what you see or what kind of transition you see as far as mix within mobile data segment between Blue Force Tracking and MTS going into next year?

Yes, we're certainly planning on the MTS side to increase in FY '09 versus FY '08 and Blue Force Tracking to go down from the FY '08 levels. Some of that also impacts our gross margin. Basically we have some higher margin on the Blue Force Tracking product line. So you will actually -- that will kind of result in some lower gross margins than we normally -- than we got let's say in FY '08 strictly from the revenue exchange.

And would the main driver be the National Guard going into fiscal year '09?

No, actually, at this point we are planning on very little if any National Guard revenue in our MTS forecast.

Great. Also, and not to harp on the tropo deal, but are the 25 to 35 terminals that you expect this next year, is that going to finish off the Air Force terminals?

It's hard to determine. I think on our last call, we said that they -- and prior calls, we said that there are roughly 600 terminals that were built but maybe 450 that were in real operational shape. To date, we have done about 250 or 260 terminals that we modified. And we expect another 25 to 35, so that will take it up to about 300.

We know that there is another 100 that the Air Force has, but they are making a decision whether they want to go to a new terminal or to modify the terminal, so that kind of puts 100 terminals up in the air, but one could think that there probably is another 50 that could be modified maybe in even in late '09 or '10.

Okay. And this next -- this newer terminal that you mentioned today -- that's not Track 175, is it?

No, no. We have our equipment on Track 175, but that's kind of been pushed aside, because that's a dual terminal for terrestrial and satellite. And I think the Army is focusing on -- I'm sorry, not satellite, troposcatter and terrestrial. But the Army is focusing on only the troposcatter.

Great. Thank you, guys.

Michael Ciarmoli, Boenning & Scattergood.

Thanks for taking the call. Great quarter. Good outlook. Just to follow up on the last caller's line of questioning on the MTS and what is driving that, is it being driven more by kind of I guess I will use the phrase retrofit. Are you retrofitting vehicles in the field? Or is it more the products being installed with kind of factory standard or options on new production vehicles? And what sort of -- I guess what can we look for in terms of programs or any indicator as to how that program is progressing in terms of I guess new vehicle orders? I also look towards -- there's a lot of talk now of a troop surge in Afghanistan -- how that might even impact MTS and, correspondingly, Blue Force Tracking. Can you give us any color there?

We think the best way and really the only way for us to tell you to look at it is to just take a look at the lines in the budget that are out there. On our presentation that's available on the Web site, we do put the government budget lines that are out there and that's, to us, the best indicator of demand that the government has for these things in the MTS program.

Okay. And even on the Blue Force Tracking, I know you guys don't have a lot of color. But it looks like I guess Northrop Grumman, who is the prime on the FBCB2, it looks like they're talking about -- the Pentagon has some major initiatives to leverage that program across a number and ground and air platforms. Is it safe to say that your products would feed into their Northrop Grumman's plans?

Yes, obviously if the program remains as it is today across these other platforms, yes, our products will be part of that. But the funding is really going to be the key in telling us which way to go.

As you know, we have had our own R&D development of what we think is the need for the future for BFT, but we really can't tell you whether that will be on other platforms or not.

Okay. And Fred, since you brought that up, the R&D development -- can you give us an update as to where that stands? I know ViaSat has made some noise. Didn't really sound like they said much on their last conference call. Do you have any idea when you will get some clarity into terms of I guess where that Next Generation terminal stands and if there will be an opportunity for you guys?

I think the only thing we can say is that we have a five-year program right now, which is an IDIQ program, which, as I mentioned, ends in 2013. I suspect that there will be a so-called recompete prior to that and maybe that will occur in '11 or '12. We certainly have been moving forward on what we think is the requirement on the new wave form and a new transceiver. And I think we are pretty confident that by the end of this calendar year, we will be able to demonstrate our wave form, our new transceiver and our network. And I mention all three to the end customer, which will essentially meet their requirements as we know them today and also meet the requirements of jitters.

So I think we are in a good position. I can't squeak for ViaSat. They did get the development program for the transceivers as we know it. But I think we have the solution not only for the transceivers, but the wave form, the network management and obviously a large advantage in backward compatibility.

Sure.

Mike, the only thing I would tell you to think about was the contract advice I'd even got was roughly $9 million or so. Just in the last two years, we have spent over $18 million of R&D in our Mobile Data Comm segment. Obviously not all of it is just going for that solution. But everything is cross compatible. And the backward compatibility that Fred mentioned is just something that we feel pretty good about.

Sure, sure. I would definitely agree with that. And then, just switching gears back to the RF segment, can you guys disclose how much of your revenues for the year were related to the 2.1 program?

The way I would tell you to think about it is a significant portion of the year-over-year growth was coming from that program.

Okay. And the K actually said you expect a slowdown in that program. And I guess I'm just looking to the recent order that ITT got. I guess they got $1 billion IDIQ in the first tranche, about $180 million and change for the CREW 2.1 jammers. Is that your realistic expectations, that you see a slowdown or the program revenue is going to be kind of flat?

To us, it's a question of visibility. There are other suppliers to the program. So when we get the orders from [IT&T], if we get a large order, that could be a bump-up to our numbers. But right now, we know what we know and right now what we know is it's a relatively flat year.

Okay, and that's just based on your visibility because you are not seeing anything else right now? Okay.

That's right.

All right. Great. Thanks, guys.

Marc Balcer, Bluefin Investment Management.

Good morning. Thank you. I guess most of my questions have been answered. Can you just clarify the pro forma EPS that you described, the $3.26 to $3.30. You are not excluding the $6 million plus amortization from the deal from that; is that right?

The way our non-GAAP EPS definition works, Mark, is we only exclude stock-based compensation. And in particular since we're taking the $6.2 million or $0.22 charge for in-process R&D, we are excluding that.

Our non-GAAP EPS, we leave the amortization in there, so when you are looking at the $3.26 to $3.30 guidance that Fred gave, that includes the amortization from the Radyne acquisition. And again, that's why we gave out the EBITDA numbers, because the EBITDA is sort of purely a look at the cash-generating possibilities of the Company, which is about $164 million to $166 million for the year.

Great, thank you.

And then my only other question is regarding Radyne legacy products. You didn't talk a whole lot about broadcast. And I was just curious in terms of SkyWire, mini-sat and the traditional Radyne modems, to what extent are those products all still available? Or do you pull them out and retool them, just kind of thinking about the support for existing Radyne customers.

I guess all of the above. We are obviously supporting the product line to the Radyne customers. We are retooling a lot of the product lines, as I mentioned, by incorporating our Carrier-in-Carrier technology into not only the commercial, but definitely the military modems that are in some of the large programs for the military.

As far as SkyWire, I think I mentioned also that we are adding features that we believe will expand its usage in the field from kind of a small market segment or what we hope is a larger segment. So I guess the answer is we're doing all of it.

Great. So in terms of thinking about if there is any kind of lost revenue from just things you discontinued relative to Radyne in the last six months or the last 12 months, are there any meaningful pieces that you just don't expect to be in those businesses anymore?

I don't want to quantify it, but obviously there are products that we are discontinuing as well.

Great. My last question is -- sorry, go ahead.

And just to mention that we obviously have a long history with Radyne and competition and we have many products that we have on our side that we feel are the better products. And we are going to the customers and actually discontinuing the Radyne product and offering ours.

Great. And one last question for Mike. Just the EBITDA guidance you provide -- does that -- how do you treat the stock comps in that? Is that added back?

If you go right on the presentation, we will -- we give our definition, which we add back the 123R stock-based expense in our EBITDA.

Great. Thanks for your help.

Tyler Hojo, Sidoti & Co.

Good morning. Just a quick question on the opportunities you guys have mentioned in the past. I think there's three of them on the over the horizon side. Was that what you guys were referring to as including a minimal portion in the guidance? Or was that the government Track 170s? I'm just a little confused there.

The minimal effect on our revenue for our '09 guidance was from those large opportunities. We expect those opportunities to come in, certainly, one or maybe even more, but later in the year.

Okay, and that kind of leads to something else here. When -- historically I guess when you have dealt with your North African customer and I guess it would be similar for some of the other ones, what would you actually -- what is the time differential between when you actually receive a contract and when you start actually booking revenues from it?

These are large contracts and they span over a couple of years, so there's a very minimal revenue in the first few months.

So what we're telling you guys is the way we're thinking about it is we hope to get the contract in -- one or more contracts in fiscal 2009 from a bookings perspective. We are obviously going to be conservative since we just don't have very good visibility, whether it comes in the middle part of fiscal year 2009 or even the second half of fiscal 2009 is sort of the way we're looking at it.

And even then, there is a time period between when you get the order and when you actually start generating revenue, so it would be sort of a Q4 bump of revenue, if you well, and we would say it would be minimal revenue that we have on our plan. But it would be a Q4 type of a revenue bump. So really most of the revenue if not all of the revenue that we will get from these contracts, we expect to really be in FY '10.

I see. Okay. And I guess one more follow-up to that. I know on past conference calls, earlier in fiscal '08, there was a pretty good confidence that some of these -- or at least the North Africa follow-on would hit in fiscal '08. Is it safe to say your confidence level is a bit higher now that something will hit in fiscal '09 or would you say it's about the same?

We've obviously -- as I mentioned, we've obviously been disappointed on the movement to the right that has happened. We've been expecting some of these for a number of years now.

What we can say is right now we definitely see both of our prime contractors on both of those opportunities are in negotiation with the end customer. Now, those -- at least those have started. They will finish definitely in '09 and we will then be in a position to get our subcontract.

I see. Okay. Thanks for that. And then just one quick follow-up here. Just -- if we were to look at Comtech ex Radyne, so just on an organic basis, it looks like your guidance implies something like 12%, 13% organic growth. But I guess my question is, are you anticipating any of your business segments -- and I'm more targeting the question towards RF -- to be either flat or down in fiscal '09?

Yes, I think you have it right. We actually say that in our 10-K. But we do expect our amplifier segment to be relatively flat versus FY '08. As we mentioned earlier, if we get a very, very large unanticipated order from let's say the CREW program, that could be a pop to our amplifier segment, sort of our core business. But right now without the visibility to those orders, we're kind of suggesting it's going to be a flat year for our core Comtech products in that group.

All right. Thanks for that.

Rich Valera, Needham & Company.

Thank you. First just a clarification that your GAAP guidance does, in fact, assume you will reach that favorable settlement with your -- the lessee of your building. Is that correct?

Yes, yes. Whether or not we do or not, we feel pretty comfortable that we're going to be able to capitalize all of the restructuring costs. So the $800,000 of severance that we have actually incurred to date, that will be part of the opening balance sheet adjustment. So effectively it will result in an increase to goodwill.

Given the fact that after we filed with the Securities and Exchange Commission last night, we did receive a written term sheet from the sub-lessor. We feel highly confident at this point, certainly this morning, that we're going to sublease the entire building.

The question is exactly when will we get out, when will we get in. Is it for the entire period or not? But let's just say that there are some excess costs that is left over that we will have to incur. That amount also will be capitalized on the balance sheet. So at the end of the day, the $3.04 to $3.08 will include no restructuring, and it also does not include the $0.22 per share IP R&D charge that we'll take in Q1 of FY '09.

Great. And then with respect to the RF amplifier margins, you mentioned in your comments that you expected -- I think it was lower than typical margins there because of these low margin -- this one particular low margin program that will ship throughout fiscal '09. Can you give us a sense of what you would consider typical? I think you did about 10% op margins in that segment in fiscal '07. I know '08 was sort of a down year because of these issues. So how should we think of one, maybe how -- where the margins should be in '09 and then, where they should be longer-term in that RF amplifier business.

For our core products, the Comtech products, I would tell you to look at the segment note for the 10-K and you'll find that we had barely negligible operating profit in the segment for Q4 on an operating basis. So you will actually see the impact of very low gross margins coming out in Q4.

We expect that the level of that impact not to be as bad, but it will certainly continue in Q1, Q2, and Q3 of fiscal year 2009. So we're not going to be at the 10% number that we were in on an operating basis back in 2007.

I think it's fair to say once those contracts go out the door, and things are fully back to normal, we would expect to kind of get back to the 10% to 12% operating range for our products that we have with a long-term goal of trying to exceed that 12%. But post those contracts, I would say it's safe to assume 10% to 12%.

Great. And can you just give us a sense of what happened on this program? Is this a program where you bid too aggressively and realized you couldn't produce it cheap enough? Or it was just something where you felt like you really wanted to win the business for some strategic reason? Because it clearly seems to be dramatically below your historical profitability levels.

Like I answered the other questions, I guess all of the above. We felt that we needed to win this program. We were very aggressive on it and so our margins bidding the program were lower to start with because it is a product line that we want for the future. So essentially, we almost treated it as partly our own R&D program if you can think of it that way.

And two, there were some unanticipated technical problems as well. So we kind of got hit on both directions.

Great. Thanks for that. And the final one for me, Mike, I'm not sure how much granularity you're willing to give on this, but I know you've said gross margins will be down overall year-over-year in F '09. Can you give us a sense of how much down you expect them to be in percentage terms or basis points?

I prefer not to. I will tell you if you kind of take our guidance, if you look at our 10-K, we kind of walk through the P&L line items. And I think you will kind of back into a number and you will come kind of close to what we're thinking.

Fair enough. Okay, thanks, guys.

Michael Ciarmoli, Boenning & Scattergood.

My question was already answered, guys. Thanks.

Thank you. And we have no further questions in the queue at this time.

Okay. Well, thank you very much for joining us today and we hope to speak to you in I guess a couple of months in December for our first-quarter telecom conference. And with that, good bye.

This does conclude today's teleconference. Thank you for your participation. You may disconnect at anytime and have a wonderful day.