Comtech Telecommunications Corp (CMTL) 2011 Q4 法說會逐字稿

Ladies and Gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corporation's Fourth Quarter Fiscal 2011 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder this conference is being recorded Wednesday, September 28, 2011. I would now like to turn the conference over to Ms. Maria Salerno of Comtech Telecommunications. Please go ahead, ma'am.

Thank you and good morning. Welcome to the Comtech Telecommunications Corp. Conference Call for the fourth quarter and fiscal year ended July 31, 2011. With us on the call this morning are Fred Kornberg, President and Chief Executive Officer of Comtech; and Michael Porcelain, Senior Vice President and Chief Financial Officer.

Before we proceed, I need to remind you of the Company's Safe Harbor language. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the Company. The Company's plans, objectives and business outlook; the plans, objectives and business outlook of the Company's Management; and the Company's assumptions regarding such performance, business outlook and plans, are forward-looking in nature and involve certain significant risks and uncertainties.

Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the Company's Securities and Exchange Commission filings.

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

Thanks, Maria. Good morning, everyone, and thank you for joining us on this call. Despite operating our business under extremely challenging economic conditions, yesterday afternoon we reported solid fourth-quarter results of $140.3 million in revenues and a GAAP diluted EPS of $0.42. For the year, our revenues totaled $612.4 million and our GAAP diluted EPS was $2.22. Based on our backlog and additional expected bookings, we believe we can achieve revenues in the range of $400 million to $430 million, and a diluted EPS in the range of $1.20 to $1.32 in fiscal 2012. These amounts translate into an adjusted EBITDA ranging from $70 million to $75 million.

Before I turn it over to Mike, I just wanted to provide some comments on our capital structure that we announced yesterday. As we reported earlier, back in September 2010, our Board initiated a $100 million stock re-purchase program and established a dollar per share annual dividend. The buy-back and dividend programs were based on a comprehensive review of our balance sheet and an assessment of our acquisition strategy.

Only 10 months later, in July 2011, we announced that we had completed our initial $100 million re-purchase program and that our Board authorized a new $150 million re-purchase program going forward. Although only a few months have gone by since then, we have already re-purchased approximately $42 million of our common stock. Since the establishment of our buy-back program and through September 23, we have re-purchased approximately 5.1 million shares for approximately $142.1 million, which represents a significant return of capital to our shareholders.

Because we continue to view that our stock remains a compelling value, our Board this month authorized a further increase in our current stock re-purchase program from $150 million to $250 million. And in light of current and anticipated market conditions, our Board will also continue to assess and review the possibility of future increases.

At the same time, given our business outlook, and our expectations of generating solid operating cash flows in Fiscal 2012 and beyond, our Board increased our annual dividend from $1 to $1.10 per share. This 10% increase, I believe, is a testament to our Board's belief that we will continue to generate relatively strong future earnings. To date, we have paid $26.2 million of dividends to our shareholders, and believe our dividend program is also an excellent way to return capital to our shareholders.

Now, let me turn it over to Mike to provide a brief overview of our fourth quarter and year-end financial results, after which I will share an overview of our business outlook and further color on our fiscal 2012 guidance. Mike?

Thanks, Fred, and good morning, everyone. Before I begin, let me point out that in the 10-K that we filed yesterday afternoon, as well as our investor presentation that is available on our website, we have provided historical information related to annual MTS and BFT sales. As most everyone knows, a large portion of our historical consolidated net sales have been derived from the MTS and BFT contracts. Although we expected future MTS and BFT sales will be materially lower, the rest of our businesses are expected to continue to grow as economic conditions improve. As such, I hope this additional information will be useful and will help provide additional context to understanding our historical operating results in future business outlook.

Now let me briefly walk you through our Q4 results. Q4 revenues were $140.3 million, which was generally in line with our expectations. Of the $140.3 million of net sales in Q4, 57.6% were to the US government, including prime contractors to the US government, 34.1% were to international end-users, and the remaining 8.3% were to domestic commercial customers. Given the wind-down of the MTS and BFT-1 business activities, we do expect our commercial and international sales to increase as a percentage of total sales going forward.

Net sales in our Telecom transmission segment were $58.1 million in Q4 of fiscal 2011 and were relatively flat as compared to the $58 million we achieved in Q4 of last year. Net sales in this segment reflect higher sales of our over-the-horizon microwave systems for work related to large contracts, offset in part by slightly lower sales of our satellite earth station products.

Net sales in our RF microwave amplifier segment were $22.2 million, a 10.2% decrease from Q4 of fiscal 2010. This decline is attributable to a lower level of both US and international government sales, due in part to the low level of bookings that we experienced earlier in the year.

Turning to our mobile data communications segment, Q4 sales were $60 million, a decrease of 65.6% from Q4 of fiscal 2010. As expected, our MTS and BFT-1 sales for the fourth quarter of fiscal 2011 reflects sales of satellite transponder capacity and related network and engineering services, as well as some shipments of new hardware to the US Army for both the MTS and BFT-1 programs. Partially offsetting this significant decline in MTS and BFT-1 related sales were increased sales related to the design and manufacture of micro satellites.

Our gross profit in Q4 of fiscal 2011 as a percentage of consolidated net sales was 42%, which was lower than the 43.5% that we reported in Q3 of fiscal 2011. This decline was largely attributable to an overall change in product mix, including our performance on over-the-horizon microwave contracts. During Q4, we did close out our over-the-horizon TFLA US Army contract. This contract, although only approximating $2 million was a developmental contract, and we did take a loss on it in Q4.

On the expense side, SG&A expenses as a percentage of consolidated sales were 17.4% in Q4 of fiscal 2011, as compared to 11.5% in Q4 of fiscal 2010. For the year, SG&A expenses were 15.4% of consolidated net sales. R&D as a percentage of consolidated net sales was 8.5% in Q4 of fiscal 2011, versus 4.7% in Q4 of fiscal 2010. For the year, R&D expenses were 7.1% of consolidated net sales. Both our SG&A and R&D as a percentage of sales are going to increase in fiscal 2012 as compared to their respective Q4 percentage, given the expected decline in consolidated net sales.

Amortization of intangibles with finite lives in the fourth quarter of fiscal 2011 was $2 million. This was flat when compared to the same period last year. As a percentage of consolidated net sales, operating income was 14.6% in the fourth quarter of fiscal 2011, as compared to 16.7% in the third quarter of fiscal 2011. This anticipated decrease reflects changes in products mix, as well as a Q4 operating loss in our RF microwave amplifier segment, which is attributable to certain inventory write-downs that we took, deliveries of certain developmental amplifiers for large programs that we expect to eventually ship in fiscal 2012, and the close-out of our TFLA US Army contract that I mentioned earlier.

Total stock-based compensation in the fourth quarter of fiscal 2011, which is recorded in our un-allocated segment, was $1.4 million, compared to $3 million in the fourth quarter of fiscal 2010. Interest expense in the fourth quarter of fiscal 2011 was $2.1 million. Interest expense primarily reflects interest related to our 3% convertible senior notes and our $150 million credit line, as well as accretion of interest for contingent earn-out payments related to our Stampede acquisition.

Interest income and other was $544,000 in the fourth quarter of fiscal 2011. The interest rate we earned in Q4 on our cash and cash equivalents was comparable to the rates we earned in the first 3 quarters of the year.

Turning to income taxes, our GAAP effective tax rate for the fourth quarter of fiscal 2011 was 37.3%.

Finally in Q4, we delivered diluted EPS of $0.42, as compared to $0.43 for the fourth quarter of fiscal 2010. For the year we delivered GAAP diluted EPS of $2.22, as compared to $1.91 for fiscal 2010.

Now, let me provide some financial metrics to help provide additional color on our results. Adjusted EBITDA in Q4 of fiscal 2011 was $27.8 million, and for the year was $135.5 million. Cash provided by operating activities for fiscal 2011 was $97.4 million.

Our balance sheet remains strong. As of July 31, 2011, we had $558 million of cash and cash equivalents. This cash balance does not reflect the significant amount of stock that we re-purchased so far in Q1, subsequent to the July 2011 authorization, or the $6.1 million cash dividend payment that we made in August. In light of our announcements related to our buy-back and dividend, we do expect our cash balance to continue to decline during fiscal 2012, as we continue to return significant amounts of capital to our shareholders.

As of July 31, 2011, our backlog was $145 million, compared to $338.1 million as of July 31, 2010. Our backlog at July 31, 2011 includes $38.9 million of firm orders related to MTS and BFT-1, as compared to $181.7 million at July 31, 2010.

Before I turn it back to Fred, I would like to briefly provide some additional commentary for our fiscal 2011 and our fiscal 2012 guidance. After considering the material decline in MTS and BFT-1 sales that we would expect to occur in fiscal 2012, I will provide our going-forward view of certain income statement line item and trends.

As Fred mentioned, our revenues in fiscal 2011 were $612.4 million. Excluding the impact of MTS and BFT-1, our core revenues in fiscal 2011 would have been $363.8 million. Similarly, in fiscal 2010, our other businesses, excluding MTS and BFT, generated $355 million of core revenues, which represented an increase of approximately 2.5% in fiscal 2011. In light of the overall adverse business conditions, we believe that revenue growth in fiscal 2011 represents a significant achievement.

As we look to the continuing challenges in the economic environment we will face during fiscal 2012, revenue growth from our core businesses, which we are defining as excluding the MTS and BFT-1 contracts, will not be easy; however, based on our current backlog and the orders that we see in the pipeline, we believe that we can achieve a similar or greater growth percentage in fiscal 2012.

Entering fiscal 2012, we also have approximately $38.9 million of MTS and BFT-1 backlog. Accordingly, when you add this backlog to the revenues expected in our core businesses, we are targeting our consolidated revenues in fiscal 2012 to range from $400 million to $430 million. Although it is virtually impossible to predict what revenues, if any, we will achieve from MTS and BFT beyond March 31, 2012, we are assuming that we will obtain additional MTS and BFT orders for the remaining periods in fiscal 2012.

Now let me provide some perspective on our operating margin and where we see it going. Excluding the net merger termination fee of $12.5 million that was recorded in fiscal 2011 and the goodwill impairment charge of $13.2 million that was recorded in fiscal 2010, our operating margins would have approximated 15.6% of net sales in fiscal 2011. Given the material decline in MTS and BFT-1 program sales expected to occur in fiscal 2012, we will continue to realign our cost structure accordingly. At the same time, we are expecting to continue to invest significant amounts in research and development as we look to fuel future growth.

Taking all of these items into account, we do expect our operating income, both in dollars and as a percentage of net sales in fiscal 2012, to decline from the levels we achieved in fiscal 2011. It's fair to assume that operating margins in fiscal 2012 to be a little bit north of 12%.

Our GAAP effective tax rate for fiscal 2012, excluding all discrete items, is expected to approximate 35%. As disclosed in our 10-K filed yesterday afternoon, in the first quarter of fiscal 2012 we expect to record net discrete tax benefits of approximately $3.3 million, or $0.11 per diluted share, principally related to the settlement of certain IRS and state audits.

Finally, although we have not provided quarterly guidance for some time, given the large decline in MTS and BFT-1 sales expected to occur in 2012, as well as the $0.11 per share tax benefit that we will record in Q1, we thought we would make an exception here, and provide some quarterly perspective on how we see the year playing out.

Based on the current product mix that is in our backlog and the timing of anticipated shipments, we do believe that Q1 of fiscal 2012 will be our softest quarter. It is likely that revenue will range from $90 million to $95 million and that EPS, including the $0.11 EPS tax benefit, will range from $0.27 to $0.30 EPS.

Looking beyond Q1, quarterly estimates are difficult to predict until the MTS and BFT-1 contract situations get squared out; however, we are assuming some level of MTS and BFT-1 revenue throughout fiscal 2012. Hence, it is fair to assume, until we learn more, that both revenue and EPS for the remaining quarters will be spread out somewhat equally. In addition, it is important to note that our EPS guidance does not reflect the impact of the stock buy-back program or any potential acquisitions we make, or any one-time restructuring items or any other unusual cost item. As we did in fiscal 2011, we will report these items to you on a quarterly basis.

Now, let me turn it back to Fred who will discuss our business strategies and outlook in further detail. Fred?

Thanks, Mike. Before I discuss the long-term growth opportunities that we see in our core product lines and businesses, let me provide an update on where things are on the MTS and BFT programs. Our BFT contract, which now includes the procurement of MTS-related services, is set to expire on December 31, 2011, with performance for some satellite and network support delivery orders extending our performance through March 31, 2012. The US Army has informed us that it may place a sustainment contract with us for certain BFT-1 services after the expiration of the present contract. We have informed the US Army that we will not accept the new follow-on contract unless we receive a licensing fee for the future use of our intellectual property.

As you can see, it is really impossible at this time to predict the future MTS and BFT level of revenues beyond March 31, 2012, and although we have provided a price quote to the US Army for our IP, there can be no assurance that we will be successful in negotiating a mutually agreeable fee.

With that, I'd like to discuss what has traditionally been our core product lines and businesses, which have held their own in what is an extremely challenging economic environment in both our commercial and defense markets.

Starting with our telecommunications transmission segment, which is the backbone of our current business, and includes our satellite earth station and our over-the-horizon microwave product lines. Despite adverse global economic conditions, as well as continued political unrest in certain of our end markets, our satellite earth station bookings were stronger during the fourth quarter of fiscal 2011 than the second and third quarters.

We believe our performance during these very difficult times bodes well for the future when economic and political environments improve. Although it's difficult to predict when things will improve, we continue to believe that the growing need for cellular back haul and the continued demand by the US government for satellite capacity will continue to provide an important growth opportunity in the years to come.

We have historically focused our product offerings on discrete hardware components, and in so doing have clearly established Comtech as the world leader in the satellite ground station products market, and specifically in the modem market. We intend to continue to innovate and invest in order to maintain our well-established track record of providing the most advanced satellite ground station equipment.

In recent years, we have also developed integrated network solutions to more fully meet our customers operational needs, such as our Vipersat- and SkyWire-managed bandwidth products which allow our customers to maximize the utilization of leased bandwidth capacity. In fiscal 2011, we also introduced a pre-integrated network management system, which allows our customers to remotely manage their advanced V-sat series of network products using a single graphical user interface.

Turning to the other component of our telecommunications transmission segment, we remain bullish in the long term about our over-the-horizon microwave product line.

On the international front, we are eagerly awaiting the next contract award from our north African end customer that we have supplied for a number of years. Although we are disappointed that the award has taken much longer than anticipated, we remain confident that this $50 million plus contract will be awarded in fiscal 2012.

We're also focused on marketing our products to other foreign countries which have similar communications needs over their difficult geographic terrains; however, these types of programs generally have long learning curves and have lengthy procurement cycles. And understandably, political unrest during the past few quarters in the Middle East and Africa has also diverted the attention of certain of our potential customers in that part of the world.

On the US government front, we believe we are well-positioned to participate in the variety of different programs that have a need for our transit case and trailer-mounted Tropo platforms. And in fiscal 2011, we entered into a teaming agreement with Telecommunications Systems Inc, using the TCS antennas and Comtech radios to offer the US military a troposcatter system in a transportable fly-away configuration, which is also capable of providing seamless computability with the legacy fielded over-the-horizon microwave systems previously supplied.

Over the past 5 years, our over-the-horizon microwave systems have been fielded by the US military in Iraq, Afghanistan, and other parts of the world, and have proven to be an important link in critical communications channels.

Overall, we believe that our product lines in our telecommunications transmission segment are weathering the current adverse economic and political environment, and are poised for growth as conditions improve.

Moving on to our RF microwave amplifier segment, where in spite of a challenging market conditions, we manage to have our strongest quarterly bookings of fiscal 2011 by far. In this segment we offer both tube amplifiers and solid state amplifiers to both commercial and defense customers.

On the commercial side, our amplifiers are used in communications, aviation, medical, and instrumentation applications. Our traveling wave tube amplifier products are used extensively in the satellite communication applications such as traditional broadcast, direct-to-home broadcast, satellite news gathering, and the emerging broadband communications. Our solid state power amplifiers are used in medical oncology testing and by avionics system customers to enable communications between the aircraft and ground control when flying over bodies of water or where terrestrial infrastructure does not exist.

On the defense side, our traveling wave tube amplifier products are used to support high-capacity US military satellite communications systems, among others such as the wide band global satellite Constellation, and the Milstar system. Our solid state power amplifiers are also used in a number of electronic warfare jamming applications, including counter-IED systems. In fact, during the past few years, a significant portion of our solid state power amplifier product sales have come from our participation in the Crew 2.1 program. The Crew 2.1 program uses our amplifiers to help protect US troops from the ever-evolving threat of radio controlled roadside bombs.

Looking forward, we are currently on various development contracts in support of the DoD's next-generation Crew programs, most notably the Crew 3.2 and 3.3, and we anticipate that we will receive the lion's share of such work once the development is over and the funding is in place.

Overall, in the RF microwave amplifier segment, we believe that our amplifiers, solid state and tube, serve critical needs in both commercial and defense markets.

In the mobile data communications segment, I will not spend any additional time on the MTS and BFT contracts since I addressed them in my earlier comments; however, in terms of our traditional mobile data transceiver products and related service, we will continue to market our offerings to other military commands and government agencies, both in the US and internationally, such as our software platform which has been Incorporated into NATO's satellite-based friendly force tracking system. We've also been developing a satellite maritime product to provide high-quality voice and broadband services to commercial maritime vessels. We anticipate finalizing our plans for this product line in fiscal 2012.

Also included in the mobile data communications segment is our micro satellites product line. In recent years the market for faster, smaller, and less expensive micro satellites has been emerging as end-users seek to launch mission specific low-cost platforms for imaging, communications and the enhancement of existing space assets. Our microsatellites and related components are used on space missions primarily sponsored by the DoD and NASA.

We are currently building a spacecraft pursuant to a contract of approximately $38 million from the United States Navy Naval Research Center for the Joint Milli-Arcsecond Pathfinder Survey, or JMAPS. The JMAPS mission is intended to update the star position catalog for our critical national security and civil applications.

We're pursuing additional government contracts for our microsatellite technology and are also assessing potential new applications for the commercial possibility and commercial customers in this business.

Finally, since I provided you with our 2012 initial guidance, I just want to make a few remarks on our acquisition strategy and some closing remarks on fiscal 2011. We continue to believe that strategic acquisitions make sense for Comtech. Comtech has a long history of being both disciplined and diligent in pursuing its acquisition strategy. Our focus has always been and will continue to be doing the right deal and not necessarily the one that is available at the moment.

In addition, in being good stewards of our shareholders' capital, during the past year we have evaluated several acquisitions where we walked away, because the valuations were excessive and not supportable. We continue to refuse to over-pay. We have sought, through our stock re-purchase and dividend program, to strike a prudent balance here between returning cash to our shareholders and retaining some cash on hand to be opportunistic of attractive M&A candidates that may surface.

Finally, despite the economic and US defense budget pressures, I truly believe that Comtech is back on track and on the path to achieving future revenue and operating income growth, as obviously economic conditions improve.

At this point I must thank the Senior Management team and all of our employees for keeping their focus and for their hard work.

With that, I'd like to now proceed to the question-and-answer part of our conference call. Operator?

Thank you.

(Operator Instructions)

Our first question comes from Tyler Hojo with Sidoti.

Good morning. I was hoping that maybe we could just start with providing the backlog by segment.

Sure, Tyler. Our telecom segment as of the end of the year had a $45.2 million backlog. Our mobile data com, including our microsatellite group, had $50.1 million in backlog, and our RF amplifier segment had $49.7 million in backlog, for a total of $145 million.

Okay, great. I was also hoping that maybe you could just clarify some of your comments. I guess you said in the prepared remarks that cash would be down this year as you had the dividend increase and the continuation of the buy-back, but I was hoping that you could maybe talk a little bit about your expectations for free cash flow generation this year, coming off of a obviously strong year in fiscal 2011.

Sure. If you look at our 10-K, we did put our CapEx number there, and depending on how things go, it's probably likely we'll be on the low side of that number. The way to look at CapEx-- our cash flow right now is I would tell you just look at the EBITDA guidance that we have provided, and basically take a tax rate off of that of 35%. And that is probably the free cash level when you look at all the ins and outs that will come. Right now it is the best way for us to look at it. There's always timing with our large over-the-horizon microwave contracts, which are expected to occur in the second half of fiscal 2012, but I think that's the best way to look at it. The Company's dividend program of $1.10 that we expect to pay for fiscal 2012 will effectively consume 100% of our operating cash flow that we expect to generate.

Okay, that's helpful. You just mentioned the over-the-horizon contract which was discussed in the K as well, but I guess, how should we think about that? It sounds like a decent amount of shipments are anticipated in your guidance, and those of us that have followed this story a long time, we've seen how these contracts with north Africa can slip. Could you maybe talk a little bit about that?

In terms of the revenue and profit assumption, I would say don't think about it being that big. It is going to come into the second half, but at the revenue numbers we're talking about, we're looking if you use the low point of guidance just for a second of $400 million of revenue, we gave you the revenue number for Q1, so when you kind of do the math out there, there's not a lot of revenue that would be in there in the $400 million number but as it comes in and as the number comes up, we'll get to the higher side of our revenue guidance.

We're kind of in a period where there's lots of things that could happen plus or minus, it's so early in the fiscal year. But at some point we do expect to get the order, and we can give you more color on where we are with that specific customer, but we do feel very confident that we're getting that order, and we do expect to actually begin revenue generation this year in that contract.

Fantastic. I'll hop back in the queue. Thanks a lot.

Thank you. Our next question comes from Mark Jordan with Noble Financial. Go ahead, please.

Good morning. A question just on the share-based assumption. It looks like from my calculations in the first quarter, share-based ought to be about $29.7 million. Is that the right ballpark, and then step it down a little bit with the current quarter re-purchases for the balance of the year, which is what's baked into your assumptions?

Yes, Mark, if you're looking at a diluted number, I think that would be correct. If you're looking for the basic number, we're about $23.4 million just as of September 23, as we disclosed in our 10-K.

Right. Tax rate you mentioned 35%. Is that the normalized tax rate excluding the tax benefits assumed in the first quarter?

Yes, it is.

The RF had a operating loss in the fourth quarter, and really's had kind of a scratchy year versus fiscal 2010 where you had Op margins that were more consistent than I guess the 8.8% for the year. Looking at a 2012, do you see more consistency coming to that group, or do you still see it as a challenging year like it was in fiscal 2011?

Outside of the first quarter, in which we do expect to ship sort of our last set, if you will, of the developmental amplifiers, we are expecting a significant improvement in the operating margin in our RF, given the budget conditions and our customer requests. We've been working on a bunch of developmental programs that some are at a loss, and some are at very low margin, but we've been shipping those things and they've been accepted by our customers. So we have certain things in our backlog that we know will ship out in the latter half of the year at higher margins, and so yes, we would expect to get close to that 7% to 8% margin this year. We would be higher than that if we don't have the Q1 low margins, but that's sort of where we're headed.

Final question, relative to mobile data. Can you give us a sense of how much non-BFT/MTS revenue might be sort of the range of expectations for microsat, marine, and other that you might realize in 2012?

Yes, I think the best starting point, Mark, to get to that answer is if you look at the mobile datacom backlog of $50 million that we have at the end of the year, call it $40 million of that is our MTS and BFT, which leaves you $10 million of other, and that would include our microsatellite now. Our JMAPS contract, we do get incremental funding along the year and that would be incremental orders that we would get.

We do expect, as we've disclosed in our 10-K, that our microsatellite product revenue line will be down in fiscal 2012, simply because of the government budget pressures. They're kind of taking the revenue that they originally were going to do in 2012 and pushing that in 2013, and the program just kind of spreading out a little bit more to take in the funding at a slower rate. But that's sort of your number, and the rest is really your MTS and BFT.

We do have some, the Marinenet product line that we're working on, that's still in development, but we're not assuming any material revenue from that product line at all in our numbers. If we get it, that would be upside to the way we're thinking about it.

Okay. Relative to the roughly $40 million of backlog in BFT-1, do you expect that to be sort of level-loaded through the first 3 quarters, or what's sort of the topography of the revenue?

Yes, I think for now, it's fair to assume that the -- call it the $40 million that we have in backlog -- just divide that all the way through the end of the contract performance period through March 31, 2011, and we're assuming -- call it a similar amount for the period post that in our guidance related to the MTS and BFT-1 contracts. There are a couple of things that are still in negotiations with the Army in terms of the delivery of certain things. Some of it might come in earlier. Some of it might be towards the end of Q3. We're working through that and that may change what we said, but for right now, that's the best way to look at it is sort of a level-loaded kind of a revenue flow for the MTS and BFT backlog.

Thank you. One last question if I may. The buy-back, you've got an average re-purchase price of $28.30. You purchased as high as an average price per month of $30.33. Do you have any price sensitivity to your re-purchases?

I think the way I would just answer it, we think the stock is a very compelling value right now, and we think that we're going to be increasing at the same pace that we've just recently been purchasing, if not at a higher rate. But I don't want to put a price target out there that says we're going to stop purchasing at a certain price level, but we do think the stock is a very attractive value right now.

Thank you very much.

Thank you. Our next question comes from Tim Quillin with Stephens. Go ahead, please.

Hi, good morning. Let me try again, I guess in terms of the mobile data. I think at one point, a few months ago, you had talked about a revenue target in the mobile data segment in aggregate of $40 million to $60 million, and had talked about, I believe, operating margins in the 5% to 10% range. You have a fair amount of visibility right now. Do you expect to be at the high end or above that revenue range, and is that still the margin corridor?

Sure, Tim. Understand your question, a couple of comments to make. Our revenue's probably going to be a little bit higher for the segment than what we originally expected. That's just based on the continued need of the MTS and BFT programs and the orders that they placed to date.

From an operating margin, I really would say 2 things. Our microsatellite product line is just doing terrific, and the margins are better than what we thought when we gave you that number back then. We've also made significant reductions and cost-reduction efforts in our mobile datacom, MTS/BFT business at a higher rate. So yes, I would say to you that our operating margins in that segment right now are going to be higher than the number that I gave to you. I don't expect them to be anywhere near the level that we achieved in fiscal 2011, but it's certainly fair to assume it to be higher than the 10% operating margin number.

And if you do the math on taking the BFT/MTS revenue out of mobile data, you get about $40 million in contribution in fiscal 2011 from other businesses, I guess primarily microsatellites. You said you expect that to be down, but order of magnitude, do you expect it to be 50% of what it was in fiscal 2011?

I don't know, 50% may be too much but it is a lot, so anywhere between 33% and 50%, I don't know. It's very tough to figure out the contract, but significantly down is probably a better word.

Got it, and then you may have talked about this earlier, but can you quantify the impact of the write-down in the amplifier business? Then, how big of an impact the wind-down, I guess, of your military OTH contract?

In our RF microwave amplifier segment, we reported in Q4 a $1.1 million or so or $1.2 million operating loss in the segment. Between the inventory write-down, which constituted a large portion of that, as well as the developmental projects, that's where that came from. Our TFLA contract and our over-the-horizon microwave product line was a $2 million order, and it's fair to assume that the loss was higher than that number.

And was the loss then taken in the quarter when you wound it down, then?

Yes. It was a developmental contract, so yes.

Okay, and then just lastly, can you frame up at all what price tag you've put on the intellectual property? I think you said in the 10-K that you've given the Army a price. What is that price?

Tim, I really don't think we want to throw a public price at everybody at this point. We are in the middle of negotiations and we would just rather keep it in negotiations and private.

Yes, fair. Thank you.

Thank you.

(Operator Instructions)

Our next question comes from Chris Quilty with Raymond James.

Gentlemen, just a follow-up on the last question. Does the license apply to existing fielded Comtech units, or is that also an incremental license to apply to the newly fielded BFT units from your competitor?

No. The license, Chris, is strictly for the BFT-1 system, which we supplied. So it's our license for the wave form and other components that we supplied.

Got you, and with the expectation that the government customer is going to begin procuring and providing the bandwidth on their own?

Well, the customer has said that he will replace the BFT-1 system with the BFT-2 system. At such point, obviously, our equipment will be traded out, as you can say. However long it is used, and the government has initially stated anywhere between 3 to 5 years of the sustainment contract that they will use our IP and our equipment, until the BFT-2 equipment is ready to be fielded. That's the period of the availability of that license that we're talking about.

Okay, so have any of your units or any large percentage of your units actually been turned off and replaced at this point?

No, not at all.

Okay.

Right now, there are no fielded units of the new BFT-2 system that we know of.

Okay. Switching gears, it looks like the telecom business, this is I think the third quarter in a row where the booked-to-bill has been less than 1, though it improved up to about 0.9 times. Do you expect that you'll be able to achieve a 1.0 or better booked-to-bill in fiscal year 2012, and then what are the factors or end markets or customers that you think will be the primary driver?

Sure. Keep in mind that there's really two product lines. We've got the satellite earth station business, which is a booked-to-bill type of a business, so it's fair to assume that we'll certainly be at the 1.0 number for that, because we are expecting revenue growth in 2011. The negative to that is the over-the-horizon, where when we get a large contract, it's sitting in our backlog and we burn that off and record that as revenue. So your booked-to-bill, when you're looking at it that way, just will mechanically go down until you get the large contract. At the end of the day in fiscal 2012, yes we would be expecting our booked-to-bill to be significantly higher in 2012, simply as a function that we do anticipate getting the over-the-horizon microwave contract.

Okay, and ignoring the impact of that OTH contract, when you look at the base earth station modem business, still an expectation that you're driving sort of low 20s EBIT margins in that business?

I think for the year, outside of let's say a Q1, I think we are targeting north of 20% operating margins in that segment, and that's something that we've been able to achieve for -- going back to at least 2009, when the this global economy and recession has started. Despite the tremendous loss of revenue that we experienced in 2009 as a result of the recession, and despite the loss of the mobile satellite transceivers that we experienced during 2011, we have been successful at achieving a 20% operating margin. Again, 2012 we're going to have lower through-put through the factory, because we're not going to have those mobile satellite transceivers in 2012. But we do think that we're going to hit that 20% operating margin when you add it all up in the segment.

Okay, and have you seen any increased competition in that market, or any updates in terms of some of the IP litigation issues?

No. We haven't seen any.

Okay. Great. Thank you, gentlemen.

Thank you.

Our next question comes from [Steven Zaconi] with Needham & Company.

Good morning and thank you for taking my question. So just briefly, when do you expect the Army to make a decision on your BFT IP? I know you're in negotiations now.

Well I guess we really can't say. As I mentioned, it's difficult for us to predict exactly when the Army will do it, but we do have some end dates that we have to, we and the Army have to live with, and that is that certainly for the MTS portion it looks like about December 31 of this year and for the BFT-1 contract, we're committed for performance under that contract even though the contract ends in December 31, we're committed for some performance through March 31. Those are 2 kind of the end dates of when we and the government have to conclude these negotiations.

Okay, thank you. That's very helpful. And then just a modeling question regarding your EBITDA guidance. How should we think about D&A and stock comp assumptions?

Stock expense, we do expect to be a little bit lower in 2012, and I'd say the same thing from a depreciation and amortization perspective. We did take some accelerated write-downs of depreciation in our mobile data communications segment with the expiration of the MTS contract, so depreciation expense should be a bit lower.

Okay, great. Thank you.

Thank you.

(Operator Instructions)

It appears there are no further questions at this time. I'd like to turn it back to our speakers for any closing remarks.

Okay, thank you very much. With that I'd like to thank everyone for joining us today and we look forward to speaking with you again in December. Thank you very much.