Ultralife Corp (ULBI) 2011 Q1 法說會逐字稿

Good day, and welcome to this Ultralife Corporation first-quarter 2011 earnings release conference call. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. John Heilshorn. Please go ahead, sir.

Thank you, operator and thank you, good morning everyone. This is John Heilshorn of Lippert/Heilshorn & Associates. Thank you for joining us this morning for the Ultralife Corporation's earnings conference call for the first quarter of fiscal 2011. With us on the call today are Mike Popielec, Ultralife's President and CEO; and Phil Fain, Ultralife's Chief Financial Officer.

The earnings press release was issued earlier this morning. If anyone has not yet received a copy, I invite you to visit the company's website, ultralifecorp.com, where you'll find the release under Investor News in the Investor Relations section.

Before turning the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. These include worsening global economic conditions, increased competitive environment and pricing pressures, disruptions related to restoring actions and delays.

The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. For a more detailed description of such uncertainties, is contained in the company's filings with the Securities and Exchange Commission, such as the company's report on Form 10-K for the period ending December 31, 2010.

In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful metrics that differ from GAAP. These non-GAAP measures should be considered as supplemental to corresponding GAAP figures.

With that, I would like to now turn the call over to Mike. Good morning, Mike.

Thank you, John. And thank you everyone for joining the call this morning. Today I would like to start by making some top-level comments on the first quarter operating performance and then I will provide an overview of and rationale behind some of the key events that have occurred since last quarter's conference call. After that, I'll turn the call over to Phil, who will take you through the detailed financial results and operational highlights for the first quarter. He will then give the floor back to me for some additional prepared remarks updating each of the priorities I stated in our last call and the outlook for 2011 before opening up for questions.

As for the first quarter reported financial results, during our last call we had been cautious about a slow start to the year due to delay in a government budget approval process and the impact that was having on our business model, particularly at our Communications Systems unit. Despite the negative impact the budget impasse was having on our operating results for the first quarter, we felt it was important to start the exit of Energy Services business to proactively resolve the government case, and to address other short-term operational inefficiencies, all of which further contributed to our first quarter operating loss.

On March 10th, we announced the decision to exit the Ultralife Energy Services business. After a thorough review of units business model against reasonable expectations for quality of earnings and considering its sizeable operating loss over last several years, we evaluated the potential time, duration, and resources that would be required to bring the business to acceptable profitability levels and the probability of doing so. Our conclusion was that our efforts would be more productively applied focusing on the growth of our other two higher-margin business units.

At the present time, we're in the process of delivering on our remaining customer commitments and are on track to complete the exit no later than the third quarter of this year. Each week, the executive management team and I review the status of the exit and I've been very pleased by the level of professionalism and integrity exhibited by our employees and our customers during this difficult transition.

On October 29, we announced a $2.7 million settlement in principle with the US government with respect to ongoing discussions we have had regarding three exigent non-bid contracts with the U.S. government from 2003 and 2004 that have been subject to an audit and final price adjustment. The company had decided to enter into discussions with the US Attorney's office in April to negotiate a settlement which would be in the best interest of its customers, employees and shareholders. Throughout the negotiation process, we had maintained strong relationships with our customers in the US government.

With this issue soon to be behind us, we look forward to concentrating all of our efforts on developing and delivering innovative new power products and communications systems that meet the soldier modernization requirements of an increasingly mobile military.

We exited the first quarter having made progress towards building a more profitable and unencumbered business portfolio and better positioned for when the Communication Systems' government defense revenue picks up and our commercial business expands.

We were also pleased that our core Battery & Energy Products business grew by 11% in the first quarter; driven by our charger business and our China operation, which itself almost doubled revenue year-over-year.

In a few minutes, I will provide an update of my immediate priorities focused on driving growth and improving profitability, but first I would like to now turn the call over to Ultralife's CFO, Phil Fain, who'll provide some additional comments on our first quarter financial and operational performance. Phil?

Thank you, Mike, and good morning, everyone. Earlier this morning, we released our first quarter results for the period ended April 3, 2011. There is no shying away from the fact that actions taken during the first quarter somewhat complicate the explanations of the quarterly performance in comparisons to prior year.

On March 10, we disclosed our decision to exit the Energy Services business. On April 29, we announced that the company would incur a $2.7 million charge accounted for as a reduction in first quarter sales, to reflect a proposed settlement of an 8-year-old pricing matter with the US government. This charge was recognized in our first quarter results in accordance with US GAAP.

We also faced the lingering government budget completion and approval process, which delayed orders from our largest customer. At the same time, we embarked on a Lean initiative, which we expect will yield some very favorable results as it encompasses our company and operating culture.

With that said, I believe that we have accomplished a considerable amount in the first quarter, which will be reflected in the future financial results of Ultralife.

Consolidated revenues for the first quarter totaled $30.7 million, net of the $2.7 million charge, compared to $38.5 million for the same period last year. Revenues from our Battery & Energy Products segment, excluding the $2.7, million charge were $27 million and exceeded 2010 by 11%, reflecting increased demands for chargers and commercial products from our China operations. To better align our portfolio of chargers with customers' for rechargeable batteries, we have reclassified charger revenue from the Communication Systems segment to the Battery & Energy Products segment effective January 1 for both periods presented.

Communication Systems sales of $4.2 million were down from $12.2 million for the first quarter of 2010 due to a slowdown in orders from the U.S. Department of Defense in light of the delays of finalizing the government budget. The year-over-year comparison was also impacted by an absence of SATCOM system shipments in the first quarter of 2011.

Energy Services revenue was $2.3 million compared to $2.0 million for the same period last year. We are in the process of completing orders during our exit from this business as previously disclosed.

Our consolidated gross profit was $3.5 million in the first quarter of 2011 compared to $9.8 million for the first quarter of 2010. As a percentage of total revenues, consolidated gross margin was 11.5% in 2011 versus 25.3% for the last year's first quarter.

Gross profit for the first quarter of 2011 included the $2.7 million charge for the settlement in principle with the U.S. government and the costs related to our exit from the Energy Services business. Excluding the $2.7 million charge in Energy Services gross profit for both periods, gross margin would have been 23.3% for the first quarter of 2011, compared to 27.0% for the same period last year.

Gross margin for our Battery & Energy Products segment of 21.4%, excluding the $2.7 million charge, was consistent with that of the year earlier period. The 2011 gross margin was negatively impacted by the completion of a low margin contract from 2009, which diluted the overall margin by over 200 basis points and the write-off of certain inventories, which did not meet our high quality standards.

For our Communication Systems segment, gross margin of 35.6% declined from 38.1% for the 2010 period as a result of sales mix and the impact of manufacturing variances due to low US government defense sales volumes.

Operating expenses totaled $9.3 million for the first quarter of 2011 compared to $8.9 million for the year earlier period. The overall increase over 2010 was a result of higher research and development expenses, reflecting new product development activity, and higher legal fees associated with the settlement in principle with the U.S. government. This was partially offset by a decrease in intangible asset amortization resulting from our fourth quarter 2010 impairment charge associated with our Energy Services segment.

First quarter non-cash operating expenses including depreciation, intangible asset amortization and stock compensation expenses amounted to $1.5 million versus $1.8 million for the year earlier period. The decrease represents lower intangible asset amortization in 2011.

We incurred an operating loss of $5.8 million in the first quarter of 2011. Excluding the $2.7 million charge in the operating and exit costs associated with the wind-down of our Energy Services business, the operating loss would have been $1.4 million. This performance reflects the impact of the lower sales volume and unfavorable sales mix for the Battery & Energy Products and Communication Systems segments.

Net interest expense for the quarter was $0.2 million compared to $0.5 million last year, primarily reflecting lower levels of borrowing. Our average outstanding revolver balance was $8.4 million for the first quarter of 2011 versus $10.6 million for the year earlier period. We realized a foreign currency gain of $0.3 million in the first quarter of 2011 due to currency fluctuations between the US dollar and the British pound. Our first quarter tax provision was $0.1 million compared with 2010 -- consistent with 2010 reflecting book tax differences related to the amortization of intangible assets.

Our net loss for the first quarter was $5.7 million, or $0.33 per share, compared to income of $0.3 million or $0.02 per share for the same period last year. The company's liquidity remains solid. Our net borrowings defined as the outstanding balance on our revolver less cash was $2.0 million compared to $4.3 million at the end of the first quarter of 2010 and $3.9 million at the end of 2010.

Our inventory position increased at the end of Q1 as we prepared for sales that have now been shipped or are planned for shipment in the second quarter. Acknowledging a slower start to 2011, our outlook for revenues from continuing operations has been reduced to $162 million. Our outlook for operating earnings from continuing operations is now $7.8 million, reflecting the $2.7 million charge and the benefits associated with our Lean implementation and other cost initiatives.

This guidance takes into account our previously announced decision to exit the Energy Services business and, once completed, to reclassify the Energy Services segment as a discontinued operation. The exit is proceeding on plan and with the cost parameters that we have previously disclosed.

Knowing that the timing and mix of our revenues varies from quarter-to-quarter, we continue to wring operating inefficiencies out of the organization and introduce higher margin new products. Although our operating expense base has been significantly reduced over the last 18 months, we continue our focus to ensure the critical balance between providing the necessary funds for product development and revenue generation and keeping our business model right sized to deliver value for our shareholders.

As an example, to be consistent with our anticipated revenue levels, we recently completed a reduction in staff, primarily in the general and administrative and other support functions, to provide funds to increase our sales initiatives. We now focus our attention on leveraging the improvements we have made over the last year and those being introduced in 2011 to generate strong incremental returns on revenue growth.

I will now turn it back to Mike.

Thanks, Phil. As we move past some of our short-term challenges, we have said that Ultralife possesses talented people and an exciting array of products on which to build for the future. We believe the elements are there to achieve significant growth by applying a disciplined focused execution in a more deliberate approach to new product development and sales.

To that end, during my last call we provided a finite list of top priorities and I would like to now update you on the status of each. Number one, optimizing the company's profitability. We have set a 10% operating margin target as an interim goal for earnings quality. To accomplish this, after the exit of the Energy Services business, we see our business model as capable of achieving gross profit as a percent of sales approaching 30%. As a reference, gross margin for the consolidated Battery & Energy Products and Communications Systems businesses was 28% in 2010. With this value proposition-driven gross margin rate as a starting point, to achieve our 10% operating margin objective we're building a structure that spends roughly 10% to 11% to sales on engineering new product development and sales and another 9% to 10% on G&A.

For gross margin improvement, we're making solid progress in our Lean implementation in Newark and have also performed a total plant assessment of our China facilities. We have set a stretch goal to achieve at least 300 basis points of gross margin improvement in support of our operating margin objective.

In terms of G&A expense, we believe that as the Energy Services business winds down and we optimize our facilities footprint, a reduction of several points of G&A as a percent of sales is achievable. And as we continue to reduce any non-value added G&A expense through our Lean implementation, we create opportunities for more product development and sales coverage, which will fuel our top line growth. To be clear, we intend to fully leverage our Lean efforts to make sure there is no degradation of customer service as we reduce operating expenses.

Number two, develop and execute a growth game plan. We will continue to be highly attentive to the needs of our largest served market, that being the US government and defense business. With established core competencies and valuable long-term customer relationships, we plan to continue to expand our business in this sector. At the same time, as we saw over the last several months, the sometimes unpredictable nature of the order flow does create its challenges. As such, we have redoubled our efforts to diversify our revenue beyond our core US government defense business and in the first quarter made some structural changes to our sales leadership. In order to provide for a stronger line of sight focus for our sales teams, we have switched from a pooled companywide selling structure to one in which we have dedicated leaders for targeted business area.

As of March, we appointed a Vice President of Sales for each of the following areas. In Battery & Energy Products, we now have a dedicated Vice President of Global Commercial Sales. Also in Battery & Energy Products, we now have a VP of Global Government Defense Sales. And in Communication Systems, we now have a dedicated VP of Global Communication Systems Sales. Each of the leaders chosen for these important roles are experienced veterans in their respective areas. In addition to the sales leadership changes, to accelerate new product development traction, we have established a strategic growth council chaired weekly by me and made up of the VPs just mentioned as well as some key laterally thinking product and program managers.

As I mentioned during our first call, we have many different opportunities for growth. That is not the issue. What we needed was to set a clear priority list for the new product development and not do so many things at once that we didn't get anything done in a timely fashion. We also would like to develop more market specific products such that we create more value for the end users we serve. In essence, we'd like to become more of a pull and less of a push business.

Some product areas on this screen will incorporate new cell designs, packaged solutions and manufacturing techniques. Targeted global markets will include medical devices, utility metering, renewable energy, telemetrics, security and of course, military and defense.

Priority three, perform business and product growth potential and profitability assessments. As we continue to look for ways to grow our margins and free up valuable human and financial resources to pursue the most attractive profitable growth opportunities, we will continue to make the tough calls regarding the businesses and the products we decide to stay in. It was this process that led to the decision to exit the Energy Services business. Again, we will screen and pursue new products and businesses that line up well with our core competencies and our ability to create a clear value proposition with a sustainable competitive advantage. I fully expect that this prune-or-pursue approach will continue indefinitely, though we may not discuss it at each earnings call unless a major decision has been taken.

Number four, leveraging our China operations to accelerate growth and cost competitiveness. During my first visit to our Ultralife Shenzhen operations in March, I was impressed by our strong local team and our business growth opportunities. Solid local management and low employee turnover has created a strong foundation and wish to expand their role in Ultralife's global growth and manufacturing plants. To immediately speed up this process, in April we conducted a week long Lean assessment similar in scope and intensity to what we performed in our Newark operations. Within this month, I will travel again to China to review their detailed action plans and resource needs.

As we are approaching capacity limitations in our present configuration, our China Lean activities will free up capacity for additional growth and increased margin leverage. As stated earlier, their first quarter revenues were up almost 100% year-over-year and we believe their served markets are still early cycle.

2011 outlook. In terms of the financial outlook for 2011, our total year guidance for revenue from continuing operations is $162 million and for operating profit $7.8 million. These numbers reflect the recent announcements regarding the Energy Services exit, the settlement in principle with the US government and some adjustments for government orders timing uncertainty, which is being offset in the operating profit by efficiency gains from our Lean implementation. Looking at the Battery & Energy Products segment, total year organic growth is still expected in the high single digits driven primarily by rechargeables and chargers.

In our Communication Systems segment where year-over-year comparisons can be heavily influenced by SATCOM contracts, we expect non-SATCOM year-over-year revenue growth to be over 25%, driven by increased sales of our specialty amplifiers. And although we are very pleased that there has been a noticeable increase of business activity since the Department of Defense budget approval, we must also emphasize that the timing of orders and shipments may cause variability in our quarterly results throughout the year.

Our mission for 2011 is straightforward. We will continue to refine our business model for increased profitability and position the company with more dynamic and deliberate plans for future product development and sustainable sales growth. I look forward to reporting the success of our efforts with you in future calls.

Operator, this concludes my prepared remarks and we'd be happy to open up the call for questions.

Thank you. (Operator Instructions). Our first question comes from Zach Larkin of Stephens.

Good morning, gentlemen. Thanks for taking my questions.

Good morning.

First off, I was just wondering if you could talk a little bit about your expectations on the Communications segment in a little bit more detail. I mean, obviously guidance implies a good pickup now that the Department of Defense budget is through. Could you give us maybe a sense of how you expect that to roll out, maybe just a little bit more of a quarter-by-quarter knowing that it can be a pretty lumpy business as well?

I think I will speak qualitatively about it and then Phil may add some comments to it. Certainly, there was some pent-up demand through the first quarter waiting for some final budget approvals. As Phil alluded to earlier, we had put some inventory in place to take advantage of some things happening in early second quarter. And at this point in talking to our teams, they are seeing some very high activity levels for our products. Where our uncertainty comes in is that there is a lot of different projects underway simultaneously and what's not clear to us is that everything that we have on the screen right now would be completed within this fiscal year. But at this point, historically the amplifier business has been rather backend loaded to the year. We don't want to suggest that this year is going to be any worse or better depending on how you look at into previous years. But given the normal purchasing cycle and the government's fiscal year, there is reason to believe that we will have a better second half than first half.

Historically speaking, the trends first half and second half generally run 35%-65%, 40%-60%, 40% being the first half and 60% being the second half. This year we are anticipating something in the order of 35% in the first half, 65% in the second half, breaking out the total year. Not different than what we experienced in the past.

Okay. Now that's very helpful. Thanks for the color on that. And then, as you are looking to continue winding down the Energy Services business, do you expect future charges related to this to be in line with the initial expectations or now that you are a little further into it, have you modified those expectations at all?

No, we have not modified those expectations. The team has been doing a terrific job under very difficult circumstances and we are tracking to the plans we stated earlier.

Okay. Great. And then also as you are looking at some of these new Lean initiatives and some of the restructuring that's going on, great to see you focused on that. Are you anticipating any special charges associated with that throughout the year or it's more just going to be part of normal business?

I am not anticipating any special charges at this point. But, if we see that there is an opportunity to create some efficiencies that would be beneficial for us to move quicker and resulting in a charge, then we will certainly do it. But in the first quarter we didn't make a big deal about it, but we did make a sizeable reduction in our G&A and just consumed that through operations.

Okay, great. Thanks again, gentlemen.

Our next question comes from Jim McIlree of Merriman.

Thank you, good morning.

Good morning.

Phil, I think in the answer to the prior question you said 35%-65%, first half, second half. Were you referring to Communication Systems or the entire company?

No, Communication Systems.

Okay. And then, Phil, also in your prepared remarks, you were talking about the gross margin x, a low margin contract as well as -- I forget how you describe the inventory, but some inventory issue. Are both of those issues complete? Is that low margin contract now gone and/or is the bad inventory or the high priced inventory, is that gone as well?

In both of those cases, the answer is yes.

Okay. So, if all else is equal, then you would have a 200 basis point improvement in gross margins in this quarter, again assuming all else is equal?

Yes, correct.

All right. If my math is right, you guys are looking for a 10% operating margin for the final three quarters of the year. I guess, two questions. One, is my math right? And then secondly, if it is, is that -- you will get there primarily because of the improvement in the gross margin, is that generally how you are thinking of it, the margins get a lot better and you kind of hold OpEx where it is?

Your math is pretty correct as it usually is, Jim. It -- from our standpoint, it's a combination of two things, impacted by the Lean initiative. First of all, we expect gross margin to resume to at least prior levels, sequential levels, absent Energy Services that we had experienced before. There is nothing to say that it would be lower than that. Also, we have the benefit of the Lean initiative that -- we are seeing the results with our own eyes very quickly. The second part of the equation is our strict control over operating expenses. We are certainly teed up as I mentioned making sure R&D and sales expenses are in line to deliver our expectations, but the hard luck is certainly in the G&A area and the support departments.

Okay. You guys talked a couple of times about how China doubled year-over-year, how big is China currently?

It's still roughly a single digit part of our overall revenue.

Single digit dollars or single digit percent of revenue?

Dollars.

Okay. All right. And finally and then I'll get back in line. Have you seen -- is the inventory increase that took place during the quarter, was that because you got some late orders, you wanted to build for those? Or you were just surprised by the government delays? Because it was -- looks like a relatively substantial increase sequentially in inventory.

Jim, there was no surprise whatsoever in the inventory build. The inventory increase is specific to fulfill orders and it's the timing of those orders that the shipments dates that cause the quarterly blip when you compare it to the year-end inventory.

So, have those orders subsequent to the budget being signed, have those orders been placed?

Yes.

Okay. And so Mike's comment was, you had the orders, but it's not necessarily they are all going to be delivered in this year. Did I hear that correctly?

We are, of course, going to try to convert as quickly as we can. We did have a case in the first quarter where there was a contract that was coming at the end of the quarter that did slip in the second quarter. And having lived through that in the first quarter, we felt that it was only prudent to assume that not everything we hope to have in 2011 would happen in 2011. We're not going to give up one bit, and we are going to push and try to position ourselves opportunistically to take advantage of any orders that we get, but it was just prudent to make an adjustment to the guidance.

Okay, great. Thank you.

We'll take our next question from Walter Nasdeo of Ardour Cap.

Hello, gentlemen. This is John O'Connor in for Walter.

Hi, John.

Hello. In terms of the OpEx and the Lean initiatives, modeling that out, I believe that it will be down quarter to quarter sequentially over the rest of the year or just stable throughout -- or just a stable decrease over the year?

On the operating expense side, first of all, the focus of the Lean initiative is -- initially goes after operations. The second and third phases will impact the operating departments. So on a sequential basis, I'm not necessarily looking for a decrease period-over- period, but once the Lean initiative does get into the operating departments, it will certainly show an impact throughout the course of the year, not to say John that we are just going to turn the other way and wait for the Lean initiative to take hold to impact our operating expenses. It's something as I mentioned in my remarks that Mike and I are on 24/7.

Okay. Great. And then one last one. In terms of China, do you see the demand keeping up to current rates for the Battery Products and what specific products are going on there right now?

The area that has been particularly flush at this point has been the area of electric metering, and the facility is putting out everything it can make at this point. Part of the Lean initiative was not only to be able to take advantage of some things we wanted to do in terms of some global manufacturing capability and some things we may be doing in Newark versus China, but also to more fully take advantage of that metering initiative. And we looked at what the overall metering volume would be over the next four or five years and what the -- the country has done to this point, we felt that it's very early in the game. We have a reasonably strong position there and so we are trying to increase our capacity to get the margin leverage that I referenced.

Okay. Thank you very much.

(Operator instructions). Our next question comes from Sam Bergman of Bayberry Asset Management. Your line is open sir. If you could please check your mute functions. And as there is no response, we will go to our final question in queue at this time. That comes from Jim McIlree of Merriman.

Yeah, thanks again. Can you provide the restated Communication Systems revenue for 2010, and of that how much was SATCOM?

Sure. The restated revenue for 2010 when we take out chargers and re-class it to Battery & Energy products would be $63.5 million. Of that, $31 million was SATCOM.

Okay. And when you guys are looking at 2011, I just want to make sure I understand it. So, you are saying the $32ish million will grow and the $31 million in SATCOM Systems is a big unknown in 2011. Are you assuming that you get nothing out of SATCOM Systems or something, but it's not going to be $31 million?

Our expectation is that we are going to be seeing something out of SATCOM.

Okay. But it would be prudent to assume that it's less than that $31 million?

That's correct.

Okay. I know -- Mike, I don't want to saddle you with prior management's expectations, but there were expectations by your predecessor that you could hit a lot of stuff out there. And so my assumption was that there was a lot of stuff to bid on. Is that true? Is there a lot of stuff to bid on, but you are just trying to be conservative about how quickly that might hit?

I think that's probably more the issue. As a matter of fact, we have -- as a result of the sales structure changes, we are actually adding feet on the street. So, I think there is a lot to go after and our sales force is being expanded and refocused to take advantage of that. It's just a matter of timing. We sit here in May and how much can we get done before December 31. But we think that we have a lot of runway out there.

All right. Okay, great. Thank you.

We have that one more question come in. That comes from Sam Bergman of Bayberry.

Good morning Mike and Phil, how are you?

Good morning. Good, Sam.

Several questions. Back on the 29th, you made a press release on the guidance of $165 million, five days later, six days later we get it at $162 million. As a shareholder, how comfortable should I feel that that guidance will not be knocked down another time or even several times because of the lack of visibility from the government?

Well, I think we're going to know a lot more through the duration of the second quarter. When we put guidance out there, we are trying to be as transparent as we possibly can be to what our current visibility is. We recognized that changing revenue guidance in such a short duration would be subject to criticism and questioning. But given the magnitude of the year-over-year decline of the first quarter, it just didn't seem logical that there wasn't at least some downward pressure of our guidance at that point. There is opportunities balanced -- risk and opportunities for the $162 million number that we have right now that we feel very comfortable with. We are all actually hoping we can achieve greater revenues obviously than that number, but just felt despite the possibility of the comments exactly as you just made them, that it was in the best interest for transparency to bring it down a little bit.

If you look at the quarterly run rate on R&D, you had said a few minutes ago product development is going to happen probably in a bigger way. We are looking at $2.5 million in R&D this quarter. Is that going to inch upward the rest of the year or is it going to be flat? And what other expenses do you expect to increase this year?

Increasing our output is more the focus than just increasing the input in terms of cost. We believe by being more focused and as we go lean on our product development cycle that we are going to get an acceleration of some of our product development side. I wouldn't necessarily say that we are planning to spend more money throughout the year than the run rate we currently have in our P&L.

Okay. The non-SATCOM business revenue this quarter, was that broken out this quarter versus last year this quarter?

We cannot certainly -- it hasn't been, but we can certainly tell you. I think it was in my remarks that there were no SATCOM shipments in Q1 of 2011. There were $5.7 million of SATCOM shipments in Q1 of 2010.

And going back to a question somebody else asked where previously you have mentioned opportunities. I know there were opportunities internationally for SATCOM business back November-December when we were on conference calls. What has happened to those particular contracts or RFPs? Are they no longer in your mix of quoting or have you quoted on them and just waiting for approval?

Without getting into specifics on ongoing transactions, there are still a number of outside-of-the-US opportunities we are pursuing. Whereas the government business in the US has now been somewhat revitalized with the recent signing of the Department of Defense budget, we haven't necessarily seen that activity level pick up as much outside the US But, we are cautiously optimistic that some of those opportunities will come and we will be able to talk about them in future calls.

Okay. And in terms of design wins for commercial, which design wins have you had recently that could possibly ramp-up into a substantial order with an OEM going forward?

Without disclosing customer names, the biggest area has been in the medical arena, medical devices. We have been involved with some clients doing some developments for their products that are continuing to fuel some nice growth in that area. Those are the most notable at this point in the medical.

And is there still a good percentage of R&D in the medical area?

I'm not sure I understood you correct. Is there...

Is there still a lot more money being devoted in the R&D area for commercial accounts such as medical versus other areas of your business?

Absolutely, absolutely. I mean part of the growth councils I mentioned is not only trying to pare down from literally dozens of just phenomenal ideas down to a manageable number that we're going to actually execute on, but it is also making sure that the engineering and R&D resources are applied appropriately. Historically, I think it's been, because we have had such a strong and successful relationship with US government defense, that the allocation of the technical resources to develop those products may be disproportionate. So, we are trying to do our best to manage that, but we will absolutely align the resources in R&D to deliver those products that meet our commercial growth objectives.

Last question, how much business from the DOD dealt with our mission in Afghanistan last year?

I have no idea. I don't know if Phil you have...

Yeah, it's never disclosed to us what the ultimate source of the purchases necessarily are. So it would be a difficult question to answer.

Yeah, I mean we do a lot of the special operations and we are not privy to a lot of where the stuff goes.

Okay. Thank you very much.

And at this time, there are no further questions.

Okay. Once again, I'd like to thank you all for joining us for our first quarter earnings call. Over the next couple of months, we will be meeting with several of you and other shareholders and analysts. I truly look forward to meeting with all of you and sharing with you our quarterly progress and also soliciting your inputs as to how we make this a very successful company we know it could be. Thank you very much for your participation today.

And this does conclude today's conference call. We thank you for your participation. And have a wonderful day.