Viasat Inc (VSAT) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fiscal year 2003 second quarter earnings conference call. During the presentation all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Thursday, November 14th, 2002.

I would now like to turn the conference over to Mark Dankberg, Chairman, President and CEO of ViaSat. Please go ahead, sir.

Thanks. Good afternoon everyone and welcome to the fiscal year 2003 second quarter earnings conference call for ViaSat. This is Mark Dankberg, Chairman, President and CEO and I have with me this afternoon, Greg our in-house counsel, Rick Baldridge, Executive VP and COO and Ron Wangerin our CFO.

Before we start, Greg will read our safe harbor disclosure.

Thanks Mark.

Many of the statements that we will make during this conference call will be forward-looking. Accordingly, ViaSat wishes to invoke the safe harbor for forward-looking statements provided by Section 27(a) of the Securities Act and Section 21(e) of the Exchange Act. Examples of these forward-looking statements include but are not limited to statements concerning ViaSat's future operations including projected gross margins, impact of new business and future cash flow.

These forward-looking statements are based on a number of assumptions and actual results may be materially different than those express or implied by the statement. For a description of the factors that may cause ViaSat's results to differ materially from those expressed or implied by these forward-looking statements, please consult the Securities and Exchange Commission filings of ViaSat, specifically the section titled risk factors or factors that may affect future performance.

Thanks Greg. We were expecting this quarter to be a turning point for us and I'm happy to say we've done what we needed. It's really important to consider Q2 in the context of our raw situation, so I want to go over some background.

The past year has been incredibly stressful for us and some of that stress is reflected in today's numbers. Last Fall, we were growing fast and were unique in converting from a defense company into commercial and broadband and our broadband business has decimated. In the March '02 quarter we won only $26 million in new contracts and schedule delays have hurt earnings, delayed invoices to customers caused accounts receivable to grow and consume cash and in the middle of that our bank, Union Bank added US Bank as a new partner to our revolving credit facility but our results triggered loan covenant violations which made things more stressful and last Spring, we could see though that things were going to change. We had a big wave of new defense orders coming and we began reorienting the company back to its roots.

The June quarter was tough but we got $80 in new orders, that was our second best quarter ever. We also brought on Ron Wangerin as our CFO, and Ron had experience at Deloitte and also had experience as a CFO in a startup telecom company. And he had the background to come up to speed, and he's got a mandate to do everything . So one of the things we did broadly was meeting with a number of new banks. We bought into to replace Union Bank on revolving credit facility.

We've been with Union Bank since well before we went public, and it's been a long relationship that we both value. And that relationship's been really important during this transition that we're going through. So adding Comerica, they had a lot of experience in financing defense contracts and they've seen our potential.

We had another key point in that our past performance, that's also dug us a whole in some of the moving average leverage covenants we've got. And both of these banks want us to have the best chance of success going forward. So the most expedient, simplest way to make tangible progress on that front was to do an immediate amendment to accommodate our Q2 results. It's from the expiration date of the agreement we'll replace U.S. Bank with Comerica. Now we're also already working on a number of enhancements and new amendment, including a way to covenants so that we start fresh with Q3.

So we really thoroughly reviewed everything during our Q2s so that the banks have the best understanding entering the agreement so that the Q3 and subsequent results aren't affected by the backwards-looking results. So that investors can clearly see what the bank's position is by the fact that even with these Q2 results we've extended the term and are improving the credit facility, and so we have the best chance of satisfying our lenders and the investors, going forward.

So in that context, what I'd like to do is keep a real brief discussion of the financial results, and then I'll discuss our business environment, and then Ron will go over the Q2 results in more detail, including the balance sheet. And then also since we've got a good solid backlog to work with, Ron can then go into discussion about our near-term outlook for Q3 and Q4 for the rest of this year.

Q2 Government earnings were very strong. The real issue for Government in the last two years for us has been trying to generate growth in the top line, and now we've got the programs to be able to do that. The overall Q2 earnings are depressed on Commercial segment issues. We've had a number of different issues which we believe are mostly, but not necessarily totally, behind us.

Talk about the business situation behind that more later. And then Ron will go into detail afterwards.

Q2, our new contracts rewards were for $63 million, which were led by defense orders again, and that continues our record pace this year. Our Q2 book to bill was better than 1.5 . Our backlog grew by about $23 million, and has grown $60 million so far year to date. And our best year ever in new contract rewards was about $235 million, and that was during fiscal year 2001, which was heavily dominated by the three main broadband projects. So far we're at 143 million in the first half of this year, and the awards are over two-thirds defense and are much less concentrated in a small number of programs than they were in that previous year.

We also made clear progress reducing our unbilled and total receivables and inventory in the second quarter. And that grows balance sheet progress and generated operating cash flow and Ron will go through more detail on that in his portion as well.

Just going to the business area. The government business area had really strong program execution and very rapid growth. Our fiscal '03 awards year to date are almost one-and-a-half times all of last year government sales. That's really, that's portends really good growth for us. It's especially been a break-out year for information security. We got over $30 million in new contracts, awarded, started there. We're still over 20 million and plus more proposals submitted, pending evaluation or negotiations.

And our release also highlights progress in our existing products, which approaching two times all last year's sales and new contract awards in just the first half of this year. They're generally more mature products and profitable, and we continue to make progress on mids and participated in a twin standoff demonstration with Northrop and were one of our modified mid units was used on war missile, to guide it's a moving tank .

On the commercial side, overall the Q2 earnings were depressed a number of different issues. That's our network products situation is actually a little bit complicated. That's where a lot of the issues were. One factor we can't ignore and appears to be of increasing significance is the lock is one of the two main competitors is operating under court protection from creditors, and that's in the presence of an apparently contracting market, which is worsening the competitive environment and that's a bigger factor than we thought a few months ago. Drop sales have declined from over $100 million a quarter in 2001 down to 51 million in the June quarter. And shared about 85 percent of the market. That indicates the extent of the market attraction we're dealing with.

And since our sales haven't declined anywhere near that much, and it feel pretty steady recently, it seems we're probably growing our market share.

Another factors is that our product mix is evolving in a way that's good for us long term, but hurt us kind of recently. Most of our sales over the last couple years were in older products, but that's switching fast to the newer, link-way and we've got with . That's good, because the margins are better, but it's, we're seeing coming down market and creating a lot of pricing pressure while decreasing volumes is hurting our margins in our older lines. So we're working to focus immediately on the newer higher margin products, which we think will help without necessarily hurting our sales volume.

So even though it looks like we're gaining market share in a down market, we still need to reduce cost, evolve our product mix and/or grow our revenue and gain some additional pricing power.

We also had some project overruns in that area, in Q2, that hurt our performance and we're addressing that.

We've also, talk about later, finished our archive system, and we're starting first customers installations and we think the security and bandwidth features and the cache will help us in that area and stimulate some demand.

So some things that are tough, but we think going forward, that we kind of been able to bound what the situation is.

In broadband, the second quarter we had an unexpected overrun on connection. We've already filed that and we're shipping units fast and have that behind us. We also announced an initial order from for their new business that broadband service called , which uses our archive technology. They made announced deal with Gulf stream, so we should see some additional orders .

Also both Liberty Media and the National World Telecom Coop, which was the original World Distribution for Direct TV has publicly stated their interest in investing in and direct on broadband. So there's been a lot of activity there.

Right now, the chances for WildBlue restart are higher than they've been in the last year. If anything's going to happen then be soon.

We don't our plans, but if it does happen, it could be a big upper for us. won't have any impact on our current Q3, but we could see some effect in Q4 if it happens.

So Q3 and going forward performance ought to be a lot better in broadband because we reallocated all the broadband engineers onto revenue generating funded projects.

We're still making some investments in our USM subsidiary. They're now supporting some of our government and broadband ViaSat internal projects. That's help us reduce costs and improve margins and USM's also finding a bunch of opportunities on other government defense projects. And finally there's really good potential there if Rob starts.

Our satellite foreign systems has recovered really nicely from the Astrolink termination driven by new orders for government customers. We've got two big awards that we've announced recently. range, range systems and the gap filler K Band system which is good because it takes some of our commercial broadband technology directly into DOD.

These are multi-year projects, for instance ITT announced $120 million potential total contract value and we received sub-contracts for about a third of the value of that contract.

So, in aggregate, we've got our programs in place there that replace all the Astrolink loss back on plus more and business is a lot more widely distributed and less centered into cancellation of a single program. Plus, we've made a good splash in the government tonnage remarket and still seen a number of opportunities there as well as in the more traditional end of business. That area has been consistently profitable for us and the outlook is good.

The other point is, our new order pipeline continues to be really strong yielding good potential to sustain our record new order pace. Our target list for the rest of the fiscal year includes normal course of business book and ship orders, additional contract value for the FAB T and joint tactical radio systems contracts that are not yet included in our Q1 or Q2 awards.

We've got significant information security contracts in an area called Unified Information Insurance Architect. We've got a number of other smaller information security projects. We've got potential international order of new satellite program potential. Additional airborne broadband equipment orders and add on to the and SLRS future contracts.

Our success rate this year has been really good but the only real disappointment, of course, being the program, terminal program and IP . And actually, neither nor are totally out of the picture yet. Besides the potential for it looks like satellite is getting within about a year of launch and that satellite has 45 and spot beams over the US and Canada. WildBlue is contracted for that US capacity on MSAT 2 so the past takes will be strongly influenced by the near term on the wild blue investment and that's another good potential opportunity for us.

I also wanted to talk a little bit about our archive software investment and we've been capitalizing that software investment in our and satellite system and we finished that this month so we will no longer be investing money on that. The system works, we are shipping to our first data customer pretty much as we speak and the second one ships next month. But the market interest seems to be really good and we think this is going to help our VSAT business starting as early as our fourth quarter.

Also, the same technology, the key part of the Bizjet contract we talked through . So that could be another area of business that will derive value from this investment.

At this point, I'd like to introduce Ron Wangerin, who will go into more depth on our financial results.

Thanks, Mark. I wanted to start off by describing the process we went through this quarter. First, we have a defined process for consolidating the financial position and results of our operations, which is consistent with our previous process. Once we compile the preliminary results, all things considered, they are reasonably consistent with management's expectations.

However, there were a number of items included in the preliminary results that required further review and validation. For example, the performance of the V-SAT business was poor, and because we recently implemented a new ERP system, we had some difficulty with their closing. We felt we would need to conduct additional research to confirm the preliminary results.

Further, we had items that we believe could improve some elements of our results. For example, we determined the amount of reimbursement we believe we are entitled under the purchase agreement with . The time period eligible for reimbursement ended so we were able to determine this amount. Ultimately, we determined that it was inappropriate to record this item at this time. In the end, resolution of these items led to unfavorable results, and because of the complexity of the issues involved, many of these items were not resolved until recently.

This brings us to where we are today. I'd like to first review the results of operations, then discuss key elements of the balance sheet in a cash flow context. For the P&L, our Q2 sales were down from last quarter, largely due to the non-recurrence of the accounting from the Bizjet contract awards we discussed last quarter. Absent that, sales were basically flat.

Gross profit was affected by a program charge taken on our connection program, while transition from development in phases of production, and much lower margins in the Commercial V-SAT product business area. Statistically, changes in our product sales mix, cost overruns on certain projects, and the realization of market pricing pressure.

Regarding connection, we're currently in production and shipping units to our customer. And regarding the V-SAT business, management has taken actions to improve their performance. However, our reduced profit performance was offset by reductions in IR&D and spending in the period. SG&A was basically flat over the quarter, thus leading to our results.

The way I'd like to walk through the balance sheet will have a cash flow context to it. First of all, I'd like to point out that we collected over 47 million in cash on sales of 39 million, and cash in bank was basically flat over the quarter.

We made good progress in key working capital accounts, and we ended the quarter with good momentum, which resulted in cash collections early in October. We were able to reduce total accounts receivable by 5.7 million, and inventory by 2.6 million during the quarter. Further, we created a favorable separation between billed and unbilled receivables.

We also received cash in the quarter through increases and customer advances of about 1.8 million, which reflects improvement in our customer turns. Cash we've used in the quarter for capital expenditures and in software development we're currently capitalizing. The rate of spending in software development was much less than in the first quarter, and reflects the winding down of our development efforts. As Mark indicated earlier, we conclude development efforts on this month and begin shipping units to our customers.

Cash was used in the quarter through the reduction of accounts payable by almost $2 million, which had grown over the past several quarters. Further, our vacation accrual was reduced, as well utilizing cash. As we discussed last quarter, the company has implemented a furlough program, some of which was reflected in the use of vacation.

Other current assets increased substantially. This relates to our current income tax receivable, which is a non cash item. Regarding liquidity in our bank agreement, as Mark mentioned, we are very pleased with the signing of our latest credit facility amendment. This amendment replaces U.S. Bank at Comerica, extends the data agreement to June 30th, 2003, and amends the Q2 covenant. And we're very happy with the strength of our relationship with Union Bank for a difficult past several quarters. We're also pleased to add Comerica in part because of their extensive experience and banking with government contractors, and they're equally excited about our prospects for future growth in the government business.

I'd also like to reiterate that while we signed amendment number four, we're working on the next amendment to future enhance our credit facilities and position us for our growth.

As we now begin to look forward, we're emerging from a period of a lot of uncertainty and our backlog grows significantly improves our visibility going forward. As we indicated in our press release, Q3 and Q4 revenue outlooks indicate strong sequential growth driven by our record new orders pace. Still there are some key variables that define a range of Q3 and Q4 outcomes, but it's in a much more manageable range.

These Q3 variables include the volume of VSAT sales, the effectiveness of our efforts to emphasize newer, higher margin products in the quarterly sales mix, the effectiveness of VSAT program execution changes, and the effectiveness of cost reductions. This provides a fairly broad range of outcomes on the bottom line in Q3 in regards to VSAT and should be in a narrow range in Q4.

Another variable is the timing on the, on one of the new contracts that Mark had mentioned called uniform, unified information assurance, UIA, and the potential for one-time issues like a natural links element, restructure of our VSAT business or FAS 142 goodwill impairment. And there could be other issues that arise in the ordinary course of business.

What we do know is that production ords from Q1 are ramping up, and we've increased our staffing on the development programs that were awarded in Q2, which generates revenue with people who are likely utilized at R&D in Q1 or on furlough in Q2. We have also started to work on some programs awarded already early in the quarter.

Looking forward, we expect to see an increase in Q3 revenue to the 47 or $48 million range. Pro forma earnings in Q3 are anticipated to improve substantially and we expect a range of one penny to four pennies per share, depending largely on the results of the VSAT business, driven by market conditions and product mix and cost reduction effectiveness and some program execution improvements.

Q4 is also influenced by a number of variables and those items will include again, within our VSAT products area, the book and ship and their mix and their operating improvements that we're able to yield. And once again, much like Q3, depending upon the timing, other one-time issues like Astrolink, like an Astrolink settlement, a restructure of the VSAT business or a FAS 142 goodwill impairment, the timing of anticipated new awards for Q3 and at the start of Q4, like UIA or ramp rate, a potential for a restart to currently Q3 or early Q4 impact both the broadband business and has a significant impact on USM, potential for some relatively small government orders for USM that would also have an impact on the bottom line.

We have several items that we can see today though, which would include the continued production ramp up in the government systems from earlier awards, increasing staffing levels on awarded development projects, as we move people from R&D and our capital projects to funded projects; therefore our Q4 revenue outlook still looks like about 20 percent sequential increase over Q3 to about 56 to 57 million. We expect Q4 to be our best revenue quarter in the history of the company.

Pro forma earnings look to be in the range of about 10 cents to 14 cents per share. The higher end of the range would depend on a WildBlue restart and or the better end of the range for VSAT products business and or very favorable value of book and ship government products.

Regarding cash flows, over Q3 and Q4 we've identified a number of contract milestones. We have improved customers terms on some of our contracts and additional cash to be mined from the balance sheet through performance. Accordingly, we expect cash flow from operations to exceed $10 million over the last half of the year.

Now, I'd like to turn it back over to Mark to discuss other items.

Thanks Rob. So one thing I want to do is put our Q3 and Q4 earnings in context be taking kind of a broad look at our fiscal year, '04. At this point, we're seeing pretty dramatic sequential growth in our Q3 and Q4 and a simple way to consider our has been to look at extending our FY '03 Q4 run rate out for a full year.

So, for instance, if we do about 58 million in Q4 that would translate into in the range of about 230 million or so for FY '04 even if we just stayed flat for the whole year given that's not necessarily the case, I'm just giving that to make a point.

If we were to do that, that would be a little over 20 percent top-line growth relative to this which, you know, in the current environment wouldn't be bad. So, for the rest of this year, we're completing a big transition from broadband back to defense and it just isn't going to happen instantly.

So if you look at kind of rough consensus estimates for our FY '04, those are about 54 cents pro forma for the year and that's basically reasonable for a year at that size with that kind of mix that we could expect.

So, just looking at the notion of extending out our FY '03, Q4 four quarters, you could kind of derive a flat 16 cent a share pro forma per quarter next year. So one way to think of that is kind of a steady safe target. Not that we will achieve that -- that will be a as a safety target for next year that we're going to transition to then you can use that as a parametric context to look at our plan to achieve say on to 4 cents in Q3 followed by 10 to 14 cents in Q4 and looking at kind of what we're transitioning from and what we're transitioning to that seems like a pretty reasonable trajectory there.

And, of course, all that -- you know, the real driver of all this is the new contract awards that we've been getting and on-going pipeline of potential new orders and we're definitely really pleased about that. On of the things that we've been able to do is we can really identify growth areas in defense so while we still have some active vibrant programs and we still think we can use broadband spot beam satellites and we still have a big technology leap but we're getting really good growth opportunities in defense and so we can right size our broadband business to match what the market is right now. We feel like we've made great progress in addressing our financial issues, especially in collecting cash, converting on billed receivables, reducing inventory and resolving and addressing our revolving credit facility.

So, we think we showed that we've been doing the things we set out to do. We're going to be growing again and we're going to be profitable. At this point, I'd like to open it up for questions. Operator.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1, followed by the 4, on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1, followed by the 3. If you are using a speakerphone, please lift your handset before answering your request. One moment, please, for the first question.

Our first question comes from the line of Tom Watts with SG Cowen. Please proceed with your question.

Good afternoon, Mark, and everyone. In terms of the result, we certainly weren't looking for a great quarter. I think the extended losses are surprising and it seems that there were problems in a number of different business areas. Can you give us--what comfort can you give us that these are one-time issues as opposed to--we can see similar cost over-runs or problems in the coming quarters?

We had--one of the things that we've put together is kind of a transition map that maps from Q2 to Q3 in each of these areas and, Ron, you can ..

Sure.

... address that?

Yes.

Thanks.

To address your question specifically regarding some of those issues that we identified in Q2, we recognize those and we've begun the necessary management actions to improve that performance quarter-over-quarter. An element of those were related to program charges like we had discussed and we recognize those and we to recur. Another element came from sales and product mix changes and we are identifying from Q2 to Q3 what our Q3 sales file looks like with regards to the more profitable product targets and it puts us within the in this area. And that's--we wanted to make sure that we could replace some of the sales that occurred in Q2 in our less profitable lines with those in Q3 in our more profitable product areas. In addition, from a performance standpoint, we are reducing our investment in quarter-over-quarter from Q2 to Q3 that will also improve our performance. The investments in are as we position that business for its growth in the future.

In addition, with regards to connection, we--our connection program, we have a--we took the necessary charges and, as both Mark and I indicated earlier, we're shipping those products now under a contiguous process and we had--and we believe that those issues are behind us.

OK. Hey, Ron, I know this is your first quarter. Is there any element of cleaning up the books or anything of that sort? Were there any things that represented changes in practices from the way things were done before?

No, I wouldn't say a change in practice from the way things were done before. I couldn't say that. You know, certainly I'm looking at all aspects of our balance sheet and our results of operations and trying to make sure everything's in the right context.

OK. And then, Mark, can you give us a sense of how--what orders have been so far in this quarter?

Certainly very good. I mean, it's a little, you know, it's a little bit hard to predict, I mean, actually things for the first half were higher than we would have estimated, but if you look at--one thing I say we had projections for how the first half would look, six months ago. We have projections on how the second half would look now. The second half projections are stronger looking than the first half were looking at the same point, I mean, that's a good sign. I mean the pipeline looks real promising.

I mean do you think we could see a book-to-bill of 1.5 going forward in third and fourth quarters?

That would be a little bit aggressive, because the sales are ramping up by 20 percent a quarter, each quarter. So that's, you know, that would be pretty rapid growth, but it's not out of the question actually.

OK. And so do you think you're still on track for a record order year?

Yes.

That would be what, the ...

Well 235 was the prior record, and we're at 143 million so far this year. So you know, we'd need 90 million more in the rest of the year to beat, you know, to beat that.

OK. Thanks very much.

Thank you.

Our next question comes from the line of William Kidd with Lehman Brothers. Please proceed with your question.

Good evening. Is it possible Mark to detail what the margins would have been if you didn't have these cost overruns, and can you give us a sense, you know, generally because of the mix of business or other issues, whether there's just generally margin weakness across in your other product lines and how much that was?

Let's see, what we could do is we could give you kind of some, you know, good idea of what, you know, let's see, one thing is you know, we've been kind of projecting margins in the, you know, maybe a little bit under 30 percent range and in this quarter, we're more like in the 26 percent range, I think, and that's really kind of driven by these overruns. I mean, to be ballpark. And that mix, does that answer your question? I mean, it's kind of few points of margin, gross margin.

I see, and is it possible that we can get a breakout for the commercial and defense segments, both on a revenue and an operating profit basis?

For this quarter?

Yes.

Yes. It's in our Q, but ...

Let me flip to the page. The operating profit for the commercial segment was operating loss of about 8.8 million, and the government systems area had operating profit of about 3.9 million.

And do you have gross margins as well for those, for the segments?

No we don't.

We don't break those out.

We don't break those out separately.

OK, and I guess on a, can you, I guess one of the stories last quarter was that the early mid terminals had lower margins as well as some of the early connection work, and at that business transition, doubt a little margins would naturally improve? Are you still seeing margin gains in those areas and are those just being overshadowed by other issues or is it, is, I guess, what's going right, I guess is what I'm asking, and that's kind of clear what's not going right.

OK, yes, on this end and connections, basically in both of those, we're dealing with start-up orders that are part of the overall development contracts. So we're dealing with those on an overall percent complete basis and because the development portions are so large and sort of dampens the production margins. When we get follow-on production orders and that would probably start next calendar sometime, then we'll see the margins of a stand-alone production basis for those products and those will be good in historical, but right now as we complete the production on current orders, it's all -- it's kind of blended with the development margins.

And then in terms of what's going right for us, you know, we have a number of products on the government side that are just in that steady state production base and those are very nicely profitable. Those are, you know, for instance, in the first quarter we announced 15.4 million add on to our modem contract. That's -- those are excellent margins, it's strictly crank them out stuff. Sort of our standard UHF terminal product that are in the same boat.

I appreciate it. Thanks, Mark.

Our next question comes from the line of Robert Kimowitz with Bull Pack Capital Management. Please proceed with your question.

Thank you. Good morning. I just wanted to clarify a couple of points. Excuse me, good evening. Clarify a couple of points.

Mark, regarding the guidance that you gave for the next two quarters next year, is this -- this is the first time you're giving guidance for your quarterly results is that -- that right?

Right. I mean, we really haven't had the visibility to do that before. We said we had -- you know, had a little bit of -- a lot of uncertainty and so we said, you know, what we have said, kind of going back I think three quarters, as soon as we had you know restored some backlog and had some visibility we would do that and this is -- this is the time.

OK. That's good. and for next year, if I understand you where you trying to say that if you were flat every quarter at 16 cents that you would hit a 54 cent number by year end, but my sense is that you're not anticipating it to be flat every quarter.

Right. What I wanted to do is just say, you know, if you look at the -- what I was trying to do was describe a trajectory from where we are now to 64 cents next year, that would put the guidance, you know, that we're giving for the first time Q3 and Q4 in context for people to see how we expect to migrate from, you know, those Q2 to how we would be at kind of what people see as consensus for next year.

But if you're flat -- I would imagine if you're flat every quarter next year that you'd be disappointed with that considering the level of growth that you're having in your backlog?

Exactly. Exactly right. But of course, just taking that as kind of a bottom case, I was just trying to describe a trajectory. That's all I'm trying to do. Just to put the Q3 number and Q4 numbers in context.

Can we review just one more time, the improvements that you've made in the balance sheet? I think there was issues with the billed and unbilled receivables as well as the liquidity. Can you just review that again?

Sure. This is Ron. The -- with regards to the billed and the unbilled. When you go back where we were at the end of last quarter and the progress that we've made this quarter. The end of last quarter first, our accounts receivable were about 37 million and our unbilled accounts receivable were about 43 million.

And we've been able to, through a combination of contract performance and -- and timing on contracts from the normal billing process, been able to flip those so that now our billed receivables are roughly 39 million, so we had growth of about 2 million within quarter over quarter with the bills, but we saw 7.7 million decrease on the unbilled side.

So now we have some separation between our accounts receivable and our unbilled receivable and the key thing for us is to look at our unbilled pipelines to ensure that we're converting that to billed and then to cash.

Has there been any further progress since quarter end of note?

We -- as I indicated, we had a lot of good momentum coming out of the quarter, and we continue to sustain that momentum during the quarter. Are we gonna have that same exact performance? There's an element of our backlog that is gonna have a normal amount of un-billed in them. But, what we're working to do is as we hit certain contract milestones and making sure we have good focus on the billing process to ensure that we get these things built and collected.

One of the big where we still have un-billeds sitting is on the Boeing connection, and we're delivering them -- building those, delivering those units and billing for them.

You're delivering those units now?

Correct.

Yeah.

OK.

And that was one of the points we made about -- Q2 results was that we had an overrun there. We had expected to complete that in Q2, but didn't. It into the first part of this quarter and we finished and have been shipping units since. So that's going to help on the unbilled receivables.

So, you should see further improvement this quarter as well then -- is what you're saying?

We expect further improvement on the balance sheet that can be offset, though, as we begin to grow -- so, if that'll happen. But, it's growing -- the improvement is that we're working on and focusing on some of the items that have been there, and getting them from un-billed to billed in .

But, we did -- one thing we did point out was about $10 million in cash flow in the second half from operations.

And I think what you'll see is, you know, our DSOs should continue to improve from Q2 to Q3.

OK. And the liquidity?

Liquidity -- I think it's worth noting that we really haven't touched our line since the middle of June of this year. We continued to generate cash from operations during the quarter, despite the difficult performance -- mining cash out of the balance sheet, and we continued to mine cash out of the balance sheet -- I think you saw in amendment three -- we've paid down a portion of our outstanding line, and we forecast that we're going to continue to generate cash from operations.

Balanced with that, though, we also have our credit facilities where we -- you know, with the pay-down earlier in the Q3 -- have increased our availability. And with working out our next amendment, we expect that we'll have the financing in place to help finance our growth for the future.

Great. And finally, what is the -- what is your current backlog?

It was $200 million at the end of the September quarter.

200 million?

Yes.

OK. Thank you very much.

OK.

Our next question comes from the line of Wes Cummins with B. Riley. Please proceed with your question.

Thanks.

Just some clarification on this gross margin issue; I kind of missed what you went over there. But, can you break out -- or kind of help me understand what the one-time items were? Did you say that without the one-time items, it would have been 26 percent this quarter -- somewhere in that range?

No, no. It's just a really to walk you through. Really, the one-time items that we had -- we had additional program charges on connection that we think are behind us. And we think -- we've recognized certain business project overruns during the quarter that we've written those off as well. And we don't expect those to recur because that's a normal part of our contract evaluation process.

And we also saw a deterioration in the quarter with regards to our product -- at least, that products' business, because we had a much higher percentage of sales from some of our older, less profitable product line, and we have a renewed focus on trying to sell some of our newer, more profitable products on a go-forward basis.

OK. I guess what I'm trying to understand is how much is from cost overruns? How much in the sold line comes from cost overruns, and how much of the increase comes from lower margins in the VSAT business?

When you look at the cost overruns or the project charges, they constitute about $3.2 million of our impact.

OK. OK, and then on your guidance for Q3, you didn't guide, or you didn't give any kind of indication of what op ex would be. If you did, I missed it. Should it, should we assume that's it's, you know, going to be kind of similar to what it was in the previous quarter?

Yes, it should be similar.

OK.

Quarter. We don't, we have a lot more funded programs from that standpoint. So it should be.

OK, and then you mentioned something about a potential Astrolink settlement, can you give us a status update on where Astrolink is right now and the potential for at least collecting that receivable or removing some of the balance sheet items you have there?

Astrolink, you know, has expressed interest in restructuring and restarting Astrolink for quite a while, you know, dating back to last summer. So far as we're aware, they're still trying to do that, but more recently they put their focus on apparently, and so we actually, you know, whereas three months ago, see if you'd ask me, I'd tell you, Astrolink was closer to restart than , now it's the other way around. So they're really, it's not been any events associated with Astrolink right now, and so there's really not any change. You know, I think, you know, we'll do what makes the most sense going forward, but as long as these restructure, as long as this stuff is in process, you know, it's not not bankruptcy, the, everyone's still negotiating and so there's been no change yet.

OK, two more quick ones. Did you say that, it sounded like you said IP star is basically not a potential for you anymore, and also can you update me on progress you've had with being any kind of action or sales there?

Yes, on IP star, there doesn't look like they've made an award, but we, you know, we don't, we just don't have that on our active list anymore.

On what I would say is that from our perspective, you know, the band market is the biggest way that that's going to take off, and the prospects around band right now, there's a lot of activity on band, because of had WildBlue. So that's where we're focused, and I think that's, you know, that's probably what we will try to focus on for the next month or two, and then I think we'll know by then if it's going to happen to band or not.

OK. All right. Thanks guys.

Our next question comes from the line of Rich Valera with Needham. Please proceed with your question.

Thanks. Good evening guys. First, just quick on the tax rate, Rick, could you give us some idea of what you expect the tax rate to be in the next quarter and sort of what's your normalized expectations for tax rate?

Hi Rich. What we have, I think what we described last time is that given the fact that we're in a kind of a lost condition, we've moved to, it's called the discreet method of forecasting our taxes. So it's a normal statutory rate of about 40 percent of the earnings. And then we're discreetly, if, valuing our R&D tax credit in the period. And I think we've got, Ron, I think we've got about ...

What we're finding is an estimated annual effective tax rate of about 32 percent, our income before taxes.

32 percent is your annualized rate so that would be something we could use for fiscal '04, but for the upcoming quarter, you think it's actually going to vary from that because of the -- the R&D tax credit situation?

Yeah. I think from an R&D tax credit we have about 2.1 million in our year that's split roughly evenly by quarter.

OK. That's very helpful and in terms of the bookings this quarter, did you get the split commercial defense for that?

We've got two-thirds government, one third commercial for our new orders.

Yeah.

Yeah.

And how do you expect that -- that pattern to -- is that kind of the level you generally expect going forward for the next couple of quarters?

Yeah. I actually think for the year as a whole we'll do in the range of 60 plus percent government. OK. I mean, the one wild -- you know, it depends on what happens on some of these broadband things. But I'd say 60 plus percent government. That's kind of what we're looking at.

Great. And just a couple of questions on a couple of programs that have been out there, sort of, in the past. Anything going on with and you mentioned, I think, that the wideband gap filler stuff wasn't completely dead and I think that was awarded to Titan can you give us any clarify on where -- where that sort of stands.

We haven't looked in on . We haven't made any announcements on yet but I think you should look out for that and on I think we talked about the fact that we had filed a protest on that -- on the way that award was evaluated and actually what happened was -- we protest -- we've never protested before. Protests don't win very often but it looks like on this one the -- basically the contract was stopped following the submission of our protest and it's going to go probably to the end of the evaluation process and we'll find out the result. I mean, just getting to the end is a little unusual and we ought to know that by the end of November.

And what that means -- and what the end will be is it could -- you know, just be a recompete. That might be a favorable outcome or it could -- the award could be upheld. It's not quite dead yet.

OK. Thank you.

The next question comes from the line of James McIlree from C.E. Unterberg, Towbin. Please go ahead with your question.

Great. Thank you. Since the software capitalization is now over, do you start amortizing that account going forward. And, in addition, would you have periodic expenses for that rather than capitalizing it going forward?

Yes. We -- our -- the way we amortize capitalized software is that we look at it on a units of delivery basis but at a minimum it would be evaluated quarter over quarter so that if our units of delivery basis does not exceed a normal straight line method, then additional period expenses would be charged. I think it is worth pointing out though that we're just completing it and the foundation for the program is based upon and it will receive a portion of the amortization as well.

Yes. But just to clarify, I mean, the fact --

What is it is we've completed the development so the system works. Now, as a normal course of business, you know, you would have engineers making enhancements or improvements or sustaining and those thing would just be expense, those wouldn't be added to the capital

Right. So if you added up the amortization, as well as the ongoing expenses for the changes, modifications, et cetera, what does that run, give or take, on a quarterly basis?

$600 thousand, about that. About 500K in amortization on a quarterly basis.

OK.

And, , I mean this is actually the amount of expense, you know, in sustaining engineering. It would all depend a little bit on what type of contracts, what we have for it and, you know. For instance, right now we're doing things related to it on a couple--on the program because that's kind of the basis for that. So some of that might be charges program expenses, for instance.

OK. Let's see. Someone asked earlier about the split in revenues this quarter, government and commercial, and I heard the answer for the operating income, but not the split for the revenue. Could you provide that again?

Yes, the commercial revenues for the quarter were basically 23 million and the government were 16.5.

OK. Why was the government down so much quarter-to-quarter?

That was because of the contract accounting that we had discussed last period.

Right. OK, great. Great. Thanks. And lastly, on the ramp that you're expecting for the second half of the year, is that kind of split evenly, commercial/government? Let me say it this way, the split that you've had so far, commercial/government, in revenues, does that sustain itself on a proportionate basis in the second half?

No. No, I mean if you just look at our awards, the government's growing quite a bit faster than the commercial is so, you know, we expect--and, you know, let's say, you know, year-over-year, we expect a little bit . I mean you just take the numbers that we've got in the first half and add in the second half kind of projections which puts us at 188, 190, you know, somewhere in the 188, 189 million range for the year.

Right.

OK. Overall, we'll be a little more than half government . Now, the only confusing part is government's going to come in two flavors. One is we have our government segment, OK, which is kind of what we've , that was 62 million. And this year will be kind of mid-80s, you know, 85, you know, kind of in that range, 84, 85. OK. Then, on the commercial side, part of the commercial--one of our commercial units is the unit and that's the unit that's been selling products to ITT for range telemetry systems . And probably, you know, on the order of half of their sales will be--close to half will be for government applications. So if you add those two together, that's how you get to, you know, kind of maybe in the ballpark of 100 million of our 190 being government. And the governments growing fast so that'll probably more, the way things look for next .

OK. So just to be clear, you're talking 85-ish from what you call government and then an additional 15 million or so out of the ground station business that you call commercial. Even though it's not.

It's really ...

Yes, OK, great. Great, I got it. Thank you very much.

Thank you.

Next question comes from the line of Kevin with Asset Management. Please go ahead.

Hi guys. On the WildBlue revenues that you might be expecting, you're already figuring that in your range for Q4.

Well actually we, I would say it's not in the, it's not in the revenue range, but it is and I know this is a little funny, if it's not in the revenue range, but it is, if we achieve, what we gave on this range of pro forma EPS, that's one of the ways we get, we would get to the top end of the range. It's not the only way, and if we did that, it would have some revenue impact, you know probably be a couple million more revenue.

OK, and then what, do you have to do any more development work there? Would you have to do any more for them? What more do you have to finish?

Well I mean basically what WildBlue needs is productization, so we've done a lot already, but they need to ramp out, and they need to put up a bunch of gateways and to have, you know, many thousands , you're probably 10's of thousands. I mean we got to look to look at what they're plans and their rollout plans are would be that there's a lot of productization, a lot of test, and then there's also this gateway infrastructure build out that we need to do.

So just to get to start, how much is that worth?

You know, I don't want to, a lot will depend on their plans, which we don't know, but I mean, a reasonable, just to give you an order of magnitude, it's going to be in the low tens of millions of dollars probably.

To finish all the gateway stuff?

Yes, I would say, no, a lot of it will depend on the terms that we negotiate with them, or if they just want to continue things exactly, just pick up exactly as they were. There's also some differences, because at this point, the at two satellite probably leads their own WildBlue one satellite. I'm not hedging, I'm just trying to say, you know, just the way it restarts will be probably a little different than they contemplated when things suspended. But I would bet that between the time it starts and the time they want to go into service, which would be the end of '02 or early '04, they're probably low tens of millions of dollars of things that need to be done. And that would be, and that would be inclusive of completing development, deploying the initial gateways, and some number of start-up terminals.

OK.

Does that help?

Yes, now tell us that independent of WildBlue is almost the same deal, six gateways ...

No, just to put this in perspective, the , if WildBlue starts with , which would make sense because at this point, that would probably be launched earlier than would be, then WildBlue would get the U.S. capacity, which is about 30 beams, and would take the Canadian capacity, which is about 15 beams.

So I think between the two of them, you know, that represents, I mean, basically would need about half of what WildBlue would need for instance.

OK, but you're, you count on very little from either in your numbers?

We just, I'm trying to, I'm trying to take into account that we don't know what the terms would be for their reinvestment, you know. When they were going to go before they had a rapid roll out finance. We don't know if their current plan is really a more, you know, economical, you know, build a little, test a little, build a little, test a little plan or whether it's, you know, I think what I would -- and this is pure speculation is, you know, some of the speed at which they go will depend on what happens with Direct TV, what happens with News Corp. How liberty aligns with them. You know, depending on all that, they could have a very fast ramp up or a slow ramp up and I was kind of describing sort of the mid to slow one.

OK. Ron mentioned determining a reimbursement amount from Scientific Atlanta, is that something you can share with us?

That item is -- is in dispute. It's -- at this time and it wouldn't really be appropriate to discuss it, I don't think.

OK. But that's -- you just determined that this last quarter?

Well, the time period for -- for notifying them was -- occurred just five weeks ago, four or five weeks ago.

OK. And that -- the bottom line on that is if you inherited receivables in the Scientific Atlanta acquisition they are -- they have to pay them out if they go unpaid after a certain time?

It's -- a lot of items in the claim and I really don't want to get into discussing them at this time. This wouldn't be appropriate.

OK. Let's see. On the -- so you took a charge on the connection work. That's just a you were late, you owe us this much money and it's a penalty?

No, no. All we're referring to is because it took us longer it increased our costs beyond what we had expected so in the percent complete method, as soon as you recognize that you've got that situation, you need to account for it. That's all it was.

Now, last quarter you gave us some idea of the amount you were bidding on. Can you update that?

Yeah. I mean the -- the amount of stuff in play for the second half is still well over $200 million

Right. And that's what you expect as far as awards to come in this second half.

No. I didn't say that.

Not what you expect but --

I said the amount of stuff that's in play.

Timing I mean.

Pardon me.

Well, that's awards that fall into the second half, not necessarily that you will get?

Right. Yeah. That's if you look at the value of things that ought to be decided in that time period, it's in that range.

OK. How about you talk about getting back into how do you do that?

There are a couple -- couple of possibilities. You know, I mean, basically, the team we were on is out. There is -- there are two other teams that are in. It's possible that we could join those. Probably more likely is either the awards that were made were called, concept development phase awards. Each team got, I believe, $40 million to do concept development. What will happen is at the end of the concept development phase there will be a new competition for a substantially greater amount of money for early development and anybody can bid on that; not just the two concept development phase winners.

So, we're in discussion with another company that would potentially enter at that point.

OK. One last question. How about your -- there's a lot of places you could have business in regards to the joint strike fighter. What's going on there?

You're correct on that. And you know, that is part of some of the items that we expect to be determined in the second half.

OK. OK. That's it.

Thank you.

The next question comes from the line of Armand Musey with Salomon Smith Barney. Please go ahead with your question.

Hey, good evening, guys.

A lot of my questions have been answered, but could you talk a little bit about the type of applications that you're seeing VSAT demand for? What applications have you seen trailing off, and where is the new demand coming from? How's that shifted?

Well, let's say the area that we're the most interested in are for broadband IP applications, so those would be applications where there is, you know, some type of a network at the VSAT end. And we're actually -- one area that we're still seeing a lot of interest in -- historically, you know, haven't been ones that we've run after -- but we are competing on these lottery applications, but now you're seeing more IP based lottery terminals. So, that's one. ArcLight certainly will be good for that, but we've even -- you know, we've got some good partners going after some LinkStar based ones.

One of the things that we've, you know, really wanted to go after -- and you'll see some positive news on this pretty soon -- is kind of the North American market for enterprise with some of our new products. We've made some progress there.

And the other area that -- you know, there's been pretty well contested are kind of service providers -- being an example, the contract that we talked about, in India -- that basically kind of, you know -- I would say that the market that we're defining is bandwidth-intensive IP applications, and that's what's we're going after, and we're seeing those. We're basically just not going after rural telephony or other kinds of telephony things any more.

OK. And this is mostly North American based? Or what kind of geographic ...

No. I would say in general, you know, most of our business -- and this kind of comes from what kind of had been doing with international. I think we've been doing pretty well there. But, the thing that we'd really like to do is penetrate North America, because we think that that's where the best customers are, and that's half the market. So, we think we're gonna show some progress there. And I think that's real -- you know, that's gonna be a good sign of our arrival, I would say, if we could that.

OK. Thank you very much.

The next question comes from the line of with GKM. Please go ahead with your question, sir.

, Gerard Klauer.

A lot of talk about the growing opportunities in defense and the growing order book there. What do think -- given your current headcount and capital structure -- what do think is the amount of business, the amount of bookings that you're able to take safely without jeopardizing any potential cost or schedule overruns?

We don't really see our, you know, financial situation as being a limiting factor. Well, let me put it this way: the other thing that we're doing -- you know, when we bid programs, is the factor. And so, one of the things that we're doing is we've been pretty successful in negotiating very favorable financing terms on a number of our projects. Now, a lot of our customers are big, big defense , and generally that's an area that they have maneuvering room in, so that's one way that we're financing our growth.

On the commercial side, we're basically just not financing people. I mean, we, you know, it's the other way around. So on VSAT projects, for instance, you know, we're just there's one in the market. I mean there are a number of competitors that I'd say, you know, are very aggressive right now and they're doing things like giving and we're not doing that. And I don't think that that's going to be sustainable from any of our competitors.

So short answer is we don't really see financing as a factor to, you know, to the extent that we believe we're being prudent in the way we finance our contract.

What about on the average for, I know all government contracts have different delivery schedules and there's many different types of development stage versus production of contracts, but do you think what's your through-put for being able to handle additional government orders. I guess that's what I'm trying to figure out if we do have a, you know, book-to-bill of 1.5, again the future, at some point are you going to be encroaching on your capacity given your headcount?

I'd say we've, you know, we've historically, we've had changes in product mix constantly, and so as we shift businesses to operations, you know, we've been able to move engineers around to accommodate the growth. We've also been able to hire fairly effectively, quickly when we've needed to do that. I mean we did that, you know, as we've ramped up on the broadband business. So I think that while we want to manage the growth, obviously in the right areas, and what we prefer about mix, we don't really see a constraint right now given our order flow.

Another item is that we outsource a significant amount of manufacturing, in some cases in turnkey to where we did a finished product back.

One of the points that I think is, when we're in the defense business and you have kind of, at our results say, you know, FY '96,'97, '98, '99, our returns on capital have been very, very good. We don't consume when we're in the defense business, we're getting contract financing, you know, we don't tend to need a lot of capital for that part of our business model.

But the flipside is, you know, we're, we're looking at who can grow, you know, talking about 20 percent sequential growth, quarter-over-quarter, third quarter and fourth quarter, that's very fast growth. But, you know, if we do, you know, 25, 30 percent growth year-over-year next year, that's, we're going to be pretty happy with that, and we'll be able to choose, you know, and give us the luxury of choosing that's the business that we do a little bit. You know, we can adjust ourselves there and right now we just don't see that as a constraint and also part of the reason for working with the banks that we have is that you know, they're experienced in financing government growth. We'll have that.

OK. One final question. What is the current headcount?

About 800, around 800 people.

OK. Thank you very much.

Thank you.

The next question comes from the line of with . Please go ahead with your question.

Good afternoon guys. So given what you just said, and let's assume 20 percent plus top line growth in fiscal '04, I guess, next year's '04, right, '03, '04. And I don't have your balance sheet right now, can you just tell me how much you have out in your line now and then kind of walk through the next six months and then into next year, how this kind of growth will affect working capital and financing needs?

Well, first of all, to answer your question at the end of the current quarter, we were at little over $18 million. Basically flat from where we were at the end of the previous quarter. We've since paid that down by several million dollars and I think when we filed our 8-K at the end of October we showed that we had about $4 million of availability.

As we look at, you know, Q3 and Q4 and going forward, we see a combination of a number of items. One is the fact that we have a number of contract milestones that were going to be achieved that allow us to make immediate progress in turning items from unbilled to billed.

In addition, once we hit some of those milestones, they allow us to bill a greater amount of our future costs, just based upon how the contract terms were outlined. In addition, when we look at some of the improvements in some of our customer terms, you know, Mark had indicated, we can obtain favorable financing through those contracts based upon more favorable customer terms.

We're also looking at some of our contracts where we might be able to bill only on a shipment stage to be able to progress bill on those. Those would improve the cash flow.

When you combine all that, by working with the banks that we are to enhance our credit facility, we're taking into account the fact that, you know, if we need to fund this growth outside of mining cash from the balance sheet and the improved customers terms and hitting those contract milestones that we'll have those items available.

So quantatively speaking here, the line or the amount that's in goes down over the next quarter or two given the milestones and sort of the momentum you have, you know, that you built in this quarter and then next year as the growth really starts ramping you might have to tap into the line again to fund some of this, is that --

Well, I think when you look at -- I indicated earlier, what we're looking at over the last half of the year is cash provided from operations of around $10 million and that's in consideration of a portion of that ramp. So, when we -- you know, I would say that when we look at from Q2 to Q3, Q3 to Q4, the fact that we're, you know, generating cash in that ramp, that is the steepest ramp we're going through as we end this fiscal year.

When we look at our -- you know, we expect to be -- with that cash generation we have a variety of things that we could use that for. For reinvesting in the business, for paying down our bank line but it's difficult for me to say that, yeah, our bank line's going to be this at that date. What I think we're going to do is generate cash from operations allowing us and providing us flexibility.

Let's say six -- you know, you hit these numbers, there's continued improvement for the next six months, what is your idea -- what's your ideal sort of permanent or permanent, let's say three to five year financing structure that you'd like to have in place?

Well, I think we wouldn't rule a variety of things out. We could look at a combination long-term, short-term structure. Historically, the company hasn't had debt and it's -- it's only within the recent past several quarters that we began using our line. So one of the things that I'm looking at is -- from coming on board, is what should be our ideal debt structure on a go forward basis in relation to what our current and future capital needs are.

So it would be fair to say it would be nice to demonstrate your prowess over the next six months and then go back to Comerica and say, "you know, here's what we really want is a four and six year facility with X amount subject to this event," and kind of end these quarterly or every six month negotiations?

I would say yes, but Union Bank is still definitely part of this -- definitely part of our credit facility, so it'd be a joint discussion with the two banks.

So, Comerica was just added -- that Union Bank is not exiting the scene entirely?

That's correct. No, Union Bank is still the lead bank on this facility, and has joined it replacing U.S. Bank. They do have a 50/50 share, though, in the .

Right. OK.

And we have had discussions about, you know, flexibility as we grow and demonstrate performance, looking at alternative capital structures.

And Mark, Just summarizing all the, you know, engineer talk here -- what would you identify as the three largest potential awards or areas over the next -- you know, that will contribute financially over the next 18 months, if you had to prioritize them?

Probably the big three areas for us -- one would be information security, and we still have some things pending there . Number two is , and there's two components to that -- one is from international business, and number two would be the next annual by . So that match probably represents the largest individual dollar volume during the quarter to us. And then, third, I almost -- I think that right now I don't want to put the broadband stuff aside. It's not baked into our plans, but there's -- you know, is looking pretty interesting right now, plus this business stuff.

So, that one's a little -- that's not baked in our plans, but that -- if you look at what could have a big impact -- that's it.

And the first two -- the and the info sec -- are those, as part of this, you know 200 million-plus potential awards you're bidding on in the next six months?

Yes. Yes.

All right guys. Thanks.

Thank you.

Thank you.

How about we take one more question?

We do have a follow-up question from the line of Rob with Capital Management. Please go ahead.

Thank you.

Just -- most of my questions have been answered. Over the summer you had furloughed a number of -- I know just touched on this a little bit -- but how many people were furloughed and how many are back to work now?

We had about -- all in all, Rob, we had about 90 -- we had about almost 100 people that were affected in one way or another -- about 90 of them for a reasonable period of time. And almost all those folks are back to work.

That's great. I understand just anecdotally that a number of them actually worked for free during their furloughs. Is that true?

I don't know how to answer that. We have some really committed people that, you know, obviously, that we don't have total control over, and some of these guys are just incredible. You know, it's amazing -- the level of commitment that we have with some of our people. Why don't we just leave it at that?

That's testimony to your culture. And one -- I guess one final question. From a moral standpoint, do you feel like you've turned the quarter here looking forward -- you know, putting this quarter behind you and the change you've made in your business going forward?

Oh yes, definitely. I mean, you can just tell. From here, everybody's back at work on the programs and a number of awards are going out and things are--I mean, this is what we've been aiming for for the last six months.

Well, congratulations on fixing all the balance sheet issues and making all the progress in your business going forward and we'll hope that the difficult quarters are behind us.

Thanks, Rob. OK, well, thank you all very much for your time and attention on this and looking forward to talking to you again three months from now.

Ladies and gentlemen, that does conclude the conference call for today and we thank you for your participation and ask that you please disconnect your lines.