Comtech Telecommunications Corp (CMTL) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Comtech Telecommunication Corp's first-quarter FY17 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded Thursday, December 8, 2016. I would now like to turn the conference over to Ms. Maria Ceriello of Comtech Telecommunications. Please go ahead, ma'am.

Thank you, and good morning. Welcome to the Comtech Telecommunications Corp conference call for the first quarter of FY17. With us on the call this morning are Fred Kornberg, Chief Executive Officer and President of Comtech; Michael D Porcelain, Senior Vice President and Chief Financial Officer; and Michael Galletti, our Chief Operating Officer.

Before we proceed, I need to remind you of the Company's Safe Harbor language. Certain information presented in this call will include, but not be limited to information relating to the future performance and financial condition of the Company, the Company's plans, objectives and business outlook, and the plans, objectives and business outlook of the Company's management.

The Company's assumptions regarding such performance, business outlook and plans are forward-looking in nature, and involve certain significant risks and uncertainties, including among others, the risk that Comtech's and TCS's businesses will not be integrated successfully. Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the Company's Securities and Exchange Commission filings.

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

Thank you, Maria. Good morning everyone, and thank you for joining us on this call.

As announced yesterday afternoon, we reported our first-quarter results of $135.8 million in revenues, an operating loss of $700,000, and adjusted EBITDA of $10 million. Additionally, we reconfirmed our FY17 revenue target of $600 million, with an adjusted EBITDA for the year of approximately $70 million.

Although international business conditions remain challenging, our first-quarter results actually exceeded our initial internal projections. Given this was my first quarter back as CEO, I'm hoping that this will, over time, become a positive trend.

Let me now turn it over to Mike Porcelain, our CFO, to discuss our financial results in more detail, and then I will come back and give you some additional comments before opening it up for questions. Mike?

Thanks Fred, and good morning everyone. Consolidated net sales for Q1 were $135.8 million. These sales included approximately $78 million of sales as a result of the TCS acquisition. Of the $135.8 million, approximately 35.3% were generated from US government end customers, 27.9% from international end customers and 36.8% from domestic commercial end customers.

Let me provide some color on Q1 sales information by segment. Net sales in our commercial solutions segment were $76.2 million, or 56.1% of total net sales. During Q1, this segment benefited from sales of our location and messaging-based solutions and safety security technology solutions, that we now offer as a result of the TCS acquisition. Sales of TCS products in this segment during Q1 were approximately $39.9 million.

The remainder of the segment sales in Q1 consist of Comtech legacy products, which we now refer to as communication technology solutions, which also include our satellite earth station products and traveling wave tube amplifiers. Although international market conditions for our satellite earth station products continue to be challenging, we believe that market conditions have become relatively stable.

Turning to our government solutions segment, net sales were $59.6 million, or 43.9% of total net sales. During Q1, our government solutions segment benefited from a variety of new advanced communication solutions, that we now offer as result of the TCS acquisition. These solutions include field support, space components, and cyber training. Sales of TCS products in this segment during Q1 were approximately $38.1 million, with the remainder of the sales in this segment being derived from Comtech's legacy products, which include sales of our over-the-horizon microwave products, solid state amplifiers, and BFT-1 sustainment support services.

Our Q1 results include $2.5 million of revenue related to our annual BFT-1 intellectual property license fee. As a reminder, after March 31, 2017, the US Army does not need to pay any additional BFT-1 license fees.

Consolidated backlog as of October 31, 2016 was $461.9 million. During Q1, we achieved bookings of approximately $113.7 million.

We have many known opportunities in our current order pipeline, in both our commercial and government solutions segments, and these opportunities are expected to bear fruit during Q3 and Q4. As such, we are optimistic that our book to bill ratio will exceed 1.0 for the year. Given all of this, we do expect sales in Q2 to be similar to what we achieved in Q1, before increasing in Q3 and Q4.

Now, let me give you some color on our operating metrics. Our gross profit in Q1 of FY17 as a percentage of consolidated net sales was 38.4%. We have a number of product mix changes that we are expecting, and based on expected order flow, and timing of performance on orders that are in our backlog, we are currently expecting our consolidated gross profit as a percentage to decrease, or be very similar to Q2, before increasing thereafter in the third and fourth quarters of FY17.

For the year, given the previously announced tactical shift in strategy in our government solutions segment, it remains difficult to precisely predict consolidated revenue and product mix. Nevertheless at the moment, we expect our FY17 gross margin percentage to be lower than the 40.8% we achieved in the fourth quarter of FY16.

On the operating expense side, SG&A expenses were $32.7 million in Q1 of FY17, or 24.1% of consolidated sales. Research and development expenses were $14.1 million in Q1 of 2017, or 10.4% of consolidated net sales that was comprised of $11.7 million of spending in the commercial solutions segment, $2.3 million of spending related to the government solutions segment, with the rest constituting amortization of stock-based compensation, which is not allocated to our two operating segments.

In fact, total stock-based compensation expense recorded as unallocated operating expenses was $1 million for the first quarter of FY17. We expect for the year this number to reach $5 million.

Amortization of intangibles was $6.1 million in Q1 of FY17. As expected, given the large amount of amortization associated with the TCS acquisition, we reported a consolidated operating loss of $700,000 in Q1 of FY17.

Operating income in our commercial solutions segment was $3.1 million or 4.1% of related segment net sales, and operating income in the government solutions segment was $2.5 million or 4.2% of related segment net sales. Unallocated operating expenses for Q1 were $6.3 million.

On a consolidated basis, based on everything we see at the moment, including the timing of expected new orders and the expected performance of orders currently in our backlog, we are expecting our Q2 operating performance to approximate the level we achieved in our first quarter of FY17, before increasing in the third and fourth quarters of FY17.

Interest expense was $3.3 million in the first quarter of FY17, and principally reflects interest on our secured credit facility.

Based on the type, terms, and amount of outstanding debt, including capital leases that we currently expect, we are estimating that our effective interest rate, including amortization of deferred financing costs, will range from 5% to 6% of total debt in FY17. On a cash basis, this percentage is expected to be lower.

Looking forward on the tax side, the Company currently expects that its FY17 effective tax rate, excluding discrete items, will approximate 32%. Adding it all up on the bottom line, GAAP diluted EPS was a loss of $0.11 per share in Q1 of FY17, and as Fred mentioned, adjusted EBITDA, as defined at end of our press release that we issued yesterday was $10 million. Adjusted EBITDA as a percentage of our consolidated net sales was approximately 7.4% in Q1.

We are not providing specific revenue or adjusted EBITDA targets for each of our two segments, because we continue to make tactical changes, and are adjusting our spending plans in each segment, but ultimately on a consolidated basis, we expect approximately $70 million for FY17. On the balance sheet side at October 31, 2016, we had $62.7 million of cash and cash equivalents.

On October 31, 2016, we had total debt, excluding unamortized deferred financing costs of $262 million, and achieved a net leverage ratio of trailing 12 months of adjusted EBITDA to net debt of 2.75X. This ratio was defined in the secured credit facility, which was filed back with the SEC back in February of 2016.

As most of you know, this definition utilized by our banks is a bit complex, but in simple terms, the net leverage ratio calculation includes certain add-backs for a period of time, and gives us credit for up to $50 million of cash. We must meet a ratio of 2.75X by the end of FY17, as that ratio is defined by the banks.

Given our expected financial results in FY17, we do recognize that it would be a challenge to meet this ratio, and during our second quarter, we have met with our financial lenders and have had and continue to have substantive discussions to modify various terms of the secured credit facility. In particular, the maximum net leverage ratio. Although I don't have a definitive answer today, we believe that we have a good working relationship with our financial lenders, and based on specific feedback we have received so far, we believe we are on track to obtain any necessary modifications and/or waivers if necessary, to remain in compliance with the terms of our secured credit facility.

Finally, our Board of Directors completed its previously announced assessment of our capital needs and dividends, and approved a dividend for the second quarter of FY17 of $0.10 per common share, payable on February 17, 2017, to shareholders of record at the close of our business on January 18, 2017. The Board is currently targeting that future quarterly dividends for FY17 will be $0.10 per common share. Of course, future dividends remain subject to Board approval, as well as compliance with financial covenants under our secured credit facility.

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

Thanks Mike. As I mentioned in our last earnings call in October, I believe our business is at a turning point, and I am excited about the growth opportunities that I see are ahead of us. With a combination of experience, careful planning and successful execution, I believe we will be able to drive significant shareholder value, by focusing and delivering on advanced communication solutions for both commercial and government applications.

Let me give you some color on what is happening in each of our segments. First, let me discuss our commercial solutions segment. We continue to be a leading provider of satellite communications products, such as satellite earth station modems, solid-state RF, and traveling wave tube power amplifiers.

We are also a leading provider of public safety systems, such as the next-generation technologies and enterprise application technologies, such as messaging and trusted location-based technologies. Our satellite-based communication products participate in the satellite backhaul and network services markets. In the satellite modem area, we remain the undisputed leader in single channel per carrier, or SCPC, driven primarily by our proven ability to deliver the most bandwidth efficient modems.

As most of you know, our satellite earth station single channel per carrier product line has experienced recent year-over-year declines, due to challenging international markets, a strong dollar, and low oil prices. To offset this decline, we have focused a lot on marketing and research and development on our new Heights Network solution product line.

Our Heights platform is designed to support the traffic load of demanding premium enterprise users on traditional satellite networks, as well as the new HTS or high throughput satellites. As such, it is an entirely new market for us, but one which is much larger than our traditional SCPC markets

We have been developing Heights now for a couple of years. In simple terms, the Heights network platform is the second generation of our advanced VSAT product line, which leverages the technologies from our entire satellite earth station product line.

The key features that Heights brings to the user include greater efficiency, far higher user data throughput, a more advanced and flexible network management system, and probably the most importantly, a vastly improved dynamic SCPC scheme. We believe this revolutionary new product line will be a significant revenue contributor starting in FY18.

Another area we are excited about, with high growth potential, is in-flight satellite-based connectivity market. Our solid-state power amplifiers help enable commercial airlines to provide in-flight connectivity services to their passengers. This is a new and growing market for us. This area has already become a significant revenue contributor for Comtech, and we believe it will continue to be a contributor over the next several years.

On the public safety side, our solutions include a 9-1-1 call routing for wireless, 9-1-1 routing over Internet networks, and next-generation 9-1-1 solutions for state and local public safety operations. We're also seeing demand for deployment of our 9-1-1 technology for Wi-Fi calling. Carriers are eager to offer this service, due to the cost efficiencies associated with this technology, by offloading their wireless networks in very congested urban areas.

During the first quarter of FY17, we also enabled text to 9-1-1 functionality in over 28 public safety answering points, or PSAPs, across 14 domestic states. We are now providing text to 9-1-1 to over 900 PSAPs across the US, with more on the way. We believe that our 9-1-1 technology for network operator compliance with FCC mandates is second to none, providing call routing and location functionality for any technology capable of reaching US emergency services.

As you know, we most recently were awarded a five-year contract with a potential value of over $45 million, to provide a state-wide next generation 9-1-1 emergency service IP network in the state of Washington. We're also continuing discussing similar deployments in California, Tennessee, and Florida. We believe this market will continue to grow for many years ahead.

Turning to our enterprise and trusted location solution product line, our solutions include GPS-enabled software, such as Verizon's navigator services, which makes it easier for users to find, locate and get directions to various points of interest. We also offer a text messaging solution and believe we are one of the leading providers of text messaging in North America.

We offer carrier grade platforms and high-performance short messaging services, or SMS routing, including Application Programming Interfaces or APIs for cloud messaging centers, wireless intelligent gateways, and a feature-rich operator-grade messaging platform. We believe this business brings repeat revenue to Comtech, and that we can also bring certain of these technologies to international mobile carriers.

At this point, let me talk about the government markets, and our government solutions segment, where we are and serve a large government end users that require mission-critical technologies assistance. Our government solutions are primarily sold to the US Department of Defense agencies and primarily consist of C4ISR applications.

Our solutions include satellite, line of sight and tropo ground terminals, management and sale of satellite bandwidth, and information technology outsource services. This segment is also a leading provider of communication system elements, such as digital multiplexers, troposcatter modems, solid-state power amplifiers, frequency converter systems, and RF power and switching technologies, which are all used in electronic warfare applications, and identification friend or foe applications.

As we announced back in October, we continued to implement a tactical shift in strategy in this segment, to focus less on larger commodity service type contracts with more emphasis on winning contracts using our niche products with higher margins. Some of the large opportunities that we are working on include the US Army access point program, commonly referred to as SNAP VSAT.

We believe that the US Army intends to purchase new SNAP equipment and maintain fielded SNAP systems for the next several years. Although timing and funding is always difficult to predict, we are optimistic that the US Army will begin purchasing these systems in the next 12 to 24 months.

On the cyber training front, we continue to see interest from the DoD and select national intelligence agencies for our cyber training PerformanScore scoring tool, which enables real-time performance-based training. On the BFT-1 front, we continue to work with the US Army and ultimately expect to receive additional sustaining contract work to continue to perform services beyond March 2017.

We believe that the US Army will ultimately purchase our next-generation system. Our primary goal here is to continue to provide the US Army with outstanding support, and in doing so, should position us well to participate in the next-generation platforms. Finally, as it relates to our over-the-horizon microwave or troposcatter solutions, we continue to market our troposcatter terminals and systems to international customers, and as well as US government agencies.

All in all, let me conclude this conference call by saying that I am pleased with our first-quarter results, and with that I would like to proceed into the question-and-answer part of our conference call. Operator?

(Operator Instructions)

Tim Long from BMO Capital Markets.

Two questions if I could. First, could you talk a little bit about obviously expecting a pretty big revenue ramp in the second half of the year, and what's coming off a down backlog into this quarter.

Could you just talk a little about the confidence in that? What gives you the visibility into the second half of the year, and what needs to happen to hit that?

Then, secondly, you highlighted some other opportunities in the next-gen 911 space. It sounds like there are several states that are opportunities. Could you talk about timing for potential wins there, and whether or not any of those would be included in the potential $600 million revenues for this year? Thank you.

A couple things. We don't have any new -- in our $600 million, we are not anticipating delivery of new next-generation 9-1-1 systems, other than what we have in our backlog. So anything we get from a new order, from the way we are thinking, that would be shippable in 2017 would certainly be upside to the way we're thinking about it, but we're viewing it as an 2018 type of revenue.

Our backlog is pretty strong. We finished the year and quarter with over $400 million of backlog, most of our over the horizon stuff, which is really long lead stuff, is in our backlog at the moment. We have the State of Washington contract that we booked over $40 million worth, that we are working on.

That revenue is not going to really be recognized until Q3, and then a lot more in Q4. So, from a trend perspective of what we see in our backlog, the trends and the analytical support, the way we're thinking about the business.

Additionally, in our satellite earth station business, I guess we used the phrase, "we do see stability", and in our mind, stability is a good thing in that market right now. There is plenty of opportunities that we're looking at and we're chasing, and it is just a question of booking and bringing them in, and that is our expectation.

Okay, great. Thank you.

Mark Jordan with Noble Financial.

I would like to look again or talk about the next-gen potential opportunities that you have. You mentioned California, Tennessee, Florida. Is that market evolving, and would potential contracts be similar to the state of Washington, which, as I understand it, you will build the system and then operate it for five years, and have relatively stable revenues over that extended service period.

Is that the way this market is evolving, or could those other contracts have different structures of just being an infrastructure sale?

I think, Mark, we really have two structures. One, which is direct as we did with the state of Washington, where we bid directly to the state and won that contract.

We are also discussing with carriers such as AT&T and other, let's say, prime contracts, which would include Motorola or General Dynamics and so forth, to support their entries into the similar systems that they have in various states in the US. So it is really a two-pronged attack, both direct and as a sub.

Okay. Could you give a little more clarity on when you expect the DOD to start purchasing small form factor tropo systems?

We have been attacking this for the last few years, and funding continues to be the main obstacle. It has finally, I think, gotten to the point where it is a program of record, and we believe now, although there will continue to be a delay for at least another six to nine months, the program of record will produce finally some tropo requests and contracts, probably in the middle of next year.

Okay. Final question, I was wondering, Mike, if you could go through the pipeline. You talk about a robust pipeline, could you highlight where you see the greatest strength in that pipeline, that could potentially impact the second half of the year?

I would say at the moment, Mark, it is pretty much across the board. Our satellite earth station business is an international orientated market, but the opportunities are there. We have a tremendous demand that we see in the pipeline for the new Heights product, where we are hoping to convert some of that in Q3 and Q4.

We are working on a new release that is scheduled for earlier in the calendar year of next year, and we think once we are completed with that development work and rollout that new system, that the orders will come in. And again, historically, we can turn that stuff within 30 to 60 days after we get the order. That is on the international side.

On the domestic side, the TCS business is over 90% based in the United States, and certainly that market is pretty good. From a geographical perspective, we have the visibility to the orders, and we see them coming in.

Okay. Thank you.

Mike Latimore with Northland Capital.

Just on the in-flight connectivity opportunity, can you quantify how big of a revenue stream could that be over time?

It is a revenue stream that I think is just really beginning to accelerate. Companies such as GoGo, for instance, you can see their releases in terms of the market share, and the number of planes that they are supplying with. We are a supplier to GoGo and as such, we just follow their growth pattern.

Okay. Got it. In terms of your CapEx outlook for the year, any change there? Or still $10 million to $15 million?

Yes, I think that is the right number. We do anticipate it increasing from the $2 million or so that we spent in Q1. And some of these things again go back to Mark Jordan's questions about the hosting platforms we're rolling out.

We do have some investments in the PP&E side, and we only do that when we see the revenues opportunities that are there as well. We have the ability to moderate that spending, if necessary.

Okay. You touched on sort of these tactical changes that are still ongoing. Any additional clarity on what is under consideration there?

I don't understand the question. Can you repeat that?

You touched on, you said that you are undergoing or you are considering tactical changes. You mentioned that a couple of times, just as a follow-on to the changes from last quarter, too, but any updates on where you see some of the priorities changing perhaps?

I think in general, just to answer that question, as I mentioned in my speech there, I think overall, we are really in the integration of TCS into Comtech. We're really looking at a change in strategy and going from large services contracts that have very low margins to maybe more strategic programs with more of the legacy Comtech, as well as TCS products, that will give us higher margins. Really, it is concentrating more on the bottom line than on the top line.

Okay. Just lastly, with regard to the second-quarter guidance, does that imply operating cash flow positive, as well?

We were actually expecting to be a little negative in Q2. We were pleasantly surprised by a lot of the effort that went into the balance sheet by our folks across the Company to generate positive cash flow. So, some of that is timing from Q2 to Q1.

But we are expecting very similar operational P&L performance both on the operating income line and on the adjusted EBITDA line, as compared to Q1. If we could pull in a breakeven cash flow or slightly positive cash flow for Q2, that would be great. At the moment, we are probably looking at a little negative, in terms of the operating cash flow just from a timing perspective.

Okay. Thank you.

Glenn Mattson from Ladenburg Thalmann.

I'm curious on the working capital for the year, would you expect that to be just directionally an increase or decrease in working capital this year?

By the end of the year we are expecting our book-to-bill to be over 1, and given some of the timing of shipments both in Q3 and Q4 and the build-up we will probably be looking at an overall increase by the time Q4 comes around. Now, while saying that, we have a number of initiatives to reduce the balance sheet, the investments and accounts receivable and the balance sheet investments in inventory, so we have those two things set to offset each other. But all else being equal, just because of the revenue growth we are expecting, you will probably see a build-up by Q4 with that stuff coming back into the P&L -- cash flow, excuse me, and balance sheet in Q1 of 2018.

That assumes a decrease in inventory days and DSOs?

No. If we are able to achieve that, that would offset that. So, again, it is difficult to tell you how much achievement we can do.

Saying it again, if things stay where they are, we will have a build up in working capital. If we are successful in reducing our investments, that would offset some of that investment.

Okay. Can you talk a little bit more about the negotiations with the debt to EBITDA ratios, and just what is keeping you from completing, I imagine you would have preferred to have an agreement done by the time you had this call, or just some progress on the talks there?

Sure. I think if you do the simple math of $70 million divided by the $262 million current debt level, those are the types of ratios that we are looking to see, from a starting in a reset point, and I think the banks understand that. So, this is a really good banking group that we have had since November of 2015 and prior to that, so they really have a good sense of the operations and the needs.

From a simplistic perspective, everybody knows what we need to do and the feedback that we are getting is there is a path forward, and obviously, we need to go through the process, and there is a number of banks that have a process. Our hope is, to your point, we would love to have had that all resolved by the time we had this call today, we are probably looking at Q3, if not before we announce Q3.

You mean an agreement by then?

Excuse me, Q2 results. Pardon me. We are looking to resolve that prior to the end of Q2, or with our Q2 earnings.

Okay. Thanks. That is it for me.

George Notter from Jefferies.

This is Kyle in for George. I wanted to dig in a little more on your comments about national. I believe last quarter, you said that you had a large pipeline of international deals for tropo terminals. I wonder how that fit with your comments from this call, and whether you are seeing any impact from the moves in the dollar post the election season, and what you are seeing in terms of your international business?

I think the international business, as I mentioned in numerous phone calls, has always been lumpy. Yes, we do have a large pipeline of opportunities, but dealing with the international community, especially with the dollar being strong, the oil prices being low and the impact on the funding that our customers have, these delays or movements to the right have really continued for us for a long while now. I believe that these pipeline opportunities will most likely become contracts sometime late in 2017, and probably FY18 for us.

Okay. Thanks, and what percentage of your backlog is international currently, is that something you have disclosed in the past?

I don't have that number and we haven't disclosed it, but I think generally, if you just look at the mix of our sales mix, that gives you a sense for where it is. It is probably somewhere between 30% and 40% of our total backlog at any given point in time.

Okay. Thanks. And going back to tactical changes that you're making to the government business, what percentage would you say of your government revenue is associated with those lower margin pieces of business that you are looking to move away from?

I would say probably 30% to 40%.

30% to 40% of the government segment?

Of the government segment, yes.

Okay, thanks. One last question on synergies. I believe you previously mentioned you're ahead on synergies, how much of those $8 million by one year, $12 million by two year have you already accomplished at the end of this past quarter?

We're pretty much hit, by this year and included in our guidance, based on the pluses and minuses within our $70 million, I think we have definitely exceeded the year two synergy number at this point. We were originally expecting $8 million and $12 million, and so I think we certainly hit the $12 million. We actually have some initiatives that we are looking to do to exceed that number.

Obviously, offsetting that is some of the revenue delays, and some of the things that we are seeing elsewhere in the business. But I think it is fair to say that there is more opportunity for us to reduce our costs, and we continue to do that, including in the government segment, as well.

Okay. Thanks. I guess net-net by the end of the year, should we expect OpEx to progress upward, or would you be able to -- would it decline at all on a net basis?

No. It's a good question, I think the goal that we have is certainly to maintain, again if our revenues increase the way we are seeing it, we actually expect our operating expenses be relatively flat. There will be obviously some increase from the $52 million that we recorded in Q1, and as the revenue is going to grow, obviously we will pay some extra commissions and so forth to our sales guys.

But we actually think a starting point, the operating expense number of $52 million is probably a good number. It will increase as those revenues increase, but not a whole heck of a lot, and that is what we think will really drive the adjusted EBITDA margin in Q3 and Q4. We have done that in the past, and if you look at Q4, again it was the first full quarter with TCS, but we did $18 million somewhat of adjusted EBITDA in that quarter, and then we have a lot of expenses in there.

So, those things are going away. Q4 is a good sense with the seasonality that we have had in our business, and you look at the Q4 we did, you add back in those incremental synergies and incremental expenses that will go away, the Q3, Q4 to us is pretty reasonable to be achieved.

Okay. Great. That is it for me, thanks.

(Operator Instructions).

Stan Kovler from Citi Research.

This is actually [Josh Keyo] dialing in for Stan. The question I wanted to ask you is, given the confidence of the second half of your FY17 guidance, which is now more back-end loaded than before, what was the impetus to cut the dividend in the second half of FY17 after reiterating it for FY17 in the 10-K filed in early October?

I think from where we sit, the Board decided to continue our dividend policy, obviously, but at a more appropriate level. For our Company, at this time, we feel that increasing our cash level will provide us with the ability to continue to do some small tuck-in acquisitions, and provide us with new technology capability and growth, in both our top and bottom lines. It is a matter of just the strategy going forward, and having the appropriate dividend.

The only thing, just to comment, everyone has their own financial models, but our Q1 actually was better than what we thought. Coming into the year, if you look at the average EBITDA estimate that the analysts had out there as a group, they were in the $8 million-range, and so we actually delivered $10 million.

So, from what the Street had as a collective group, we actually accelerated some of the pull-in. So, from our perspective, the way we are looking at it is, we did have a back-end loaded year and in fact some of that has been recorded in our Q1 results. But everyone has their own model, but from our perspective, that only has gotten better [over the] year.

Okay. Thanks. What is the outlook for Comtech in the energy vertical, and what percentage of revenue does it still represent following the combination with TCS?

The energy vertical as a whole is not really significant to us. We do sell to some oil rig companies and so forth, like that, but we don't have a whole heck of a lot of revenue, we never did.

Where our revenue does come from is on a geographical basis, countries like Russia and Brazil who are oil-producing countries, and that business, although a little challenging, it has been relatively stable for a number of quarters now, which we think is a good thing, given the insatiable demand for satellite bandwidth and demand. So at some point, they just have to place orders.

That is it for me. Thanks.

At this time we have no further questions, and I would like to turn it back over to the speakers for any closing remarks.

Okay. Thanks again for joining us today, and I want to wish everyone a happy holiday season and an upcoming new year. I look forward to speaking with you again in March. Thank you very much.

We would like to thank everybody for their participation on today's conference call. Please feel free to disconnect your line at any time.