Ladies and gentlemen, thank you for standing by. Welcome to the Comtech Telecommunication Corp second quarter fiscal 2008 earnings conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. At that time if you have a question, you'll need to press star and 1 on your push button phone. As a reminder this conference is being recorded Thursday March 6, 2008. I would now like to turn the conference over to Mrs. Stephanie LaMontia of Comtech Telecommunications. Please go ahead ma'am.

Thank you and good morning. Welcome to the Comtech Telecommunications Conference call for the second quarter of Fiscal year 2008. With us on the call this morning are Fred Kornberg, President and Chief Executive Officer of Comtech; Robert Rouse, Executive Vice President and Chief Operating Officer; and Michael Porcelain, Chief Financial Officer. A news release of the company's results was released yesterday afternoon. If you have not received a copy please call me and I will be happy to send you one. Before we proceed, I need to remind you of the company's safe harbor language in the following way. Certain information presented in this call will include but not be limited to information relating to the future performance and financial condition of the company. The plans and objectives of the company's management and the company's assumptions regarding such performance and plans are forward looking in nature and involve certain significant risks and uncertainties. Actual results could differ materially from such forward looking information. Any forward looking statements are qualified in their entirety by cautionary statements contained in the company's SEC filings. With that, I'm pleased to introduce president of Comtech Fred Kornberg.

Thank you Stephanie. Good morning everyone and thank you for joining us today for our fiscal 2008 second quarter earnings call. Today I am extremely pleased to announce the strangest quarterly performance in our companies history and based on our outstanding results the first half of the year, it gives me great confidence once again to state the FY08 will be our sixth year in a row of record revenues and profits. Before I provide updated guidance for FY08, Mike Porcelain our CFO, will provide an overview of our financial results for the quarter and then rob Rouse our chief Operating Officer will then provide an update on each of our 3 business segments.

Thanks Fred. Good morning everyone. Lets begin by reviewing some of the key income statements trends for the quarter ended January 31, 2008. Second quarter net sales were $152 million compared to $111.4 million in the second quarter of FY07. This represents an increase of 36.4%. The increase in net sales reflects significant growth in both our mobile data communications in RF Microwave Amplifier segments partially offset by lower sales as anticipated in out telecommunications transmission segment. Let me talk about the growth first. In our mobile data communication segment, net sales increased by $48 million to $87.7 million. This was a quarterly record for the segment. This increase in sales was due to the significant increase in deliveries to the US Army and Army National Guard in connection with our new MTS and Blue Force Tracking IDIQ contracts. As a note, last years Q02 FY07 net sales for this segment included sales of $3.8 million related to a favorable gross profit adjustment on our original MTS contract. In our RF Amplifier Microwave segment sales increased by $5 million to $14.1 million or 54.9% from that years Q02 sales of $9.1 million. This increase was primarily due to increased sales of our amplifiers and high powered switches that are incorporated into defense related systems, including sales associated with our participation in the crude 2.1 electronic warfare jamming program. Partially offsetting the increased sales in these two segments were lower sales as expected in our Telecommunications Transmission segment. Q02 2008 Telecommunications Transmission segment sales were $50.2 million. This represents a $12.4 million decline when compared to the Q02 sales recognized in FY07. Sales in this segment reflect increased sales in our satellite earth station products as we continue to see the benefit of ongoing strong demand for a bandwidth efficient satellite…

Thanks Mike. Good Morning and let me thank all of you for joining the call today. I will provide an update on each of our business segments including key programs and markets, products and trends. Lets beginning with out telecommunications transmissions segment. For those of you who do not know us well, our core capability in this segment is to enable satellite based and over-the-horizon based communications in environments where terrestrial communications are unavailable, inefficient, or too expensive. Our satellite earth station product line is well recognized as a thought leader in satellite modem technology. In fact, we believe we are the clear market leader in this area. What this means for our end customers is that using innovative enabled technologies, such as error correction and carrier in carrier cancellation techniques, we are ale to maximize satellite transponder bandwidth utilization, thereby directly and significantly reducing our customer's satellite operating costs. Our satellite earth station product line enjoyed another strong quarter with revue growth driven by the continued expansion of our market leading products into international markets such as Asia, Eastern Europe, Latin America, and Africa. Our optimistic outlook for our satellite earth station products continues to be driven by sustained market demand and our clear and compelling product differentiation. Among the factors supporting this view are the following; Our international customers, who comprised the majority of our revenues in this product line continue to execute on their growth strategies as evidences by their strong demand for our products. Although we are cognitive of the impact that the world wide credit crunch has had on the global economy, our customers appear to have access to capital and remain committed to a growth strategy focused on aggressively building new cellular based wireless communications networks in emerging markets. At this time, although we…

Thanks Rob. As I have stated many times in the past, our ability to provide revenue and EPS guidance is dependent upon a number of factors many of which are beyond our control. These factors include, but are not limited to the timing of bookings and related revenues of large contracts, such as MTS, Blue Force tracking, Crew 2.1, as well as on our north African over-the-horizon microwave end customer; to the uncertainty, particularly in todays environment regarding US government funding priorities and budget constraints; and finally to economic conditions, particularly in the current uncertain economic environment that we're operating in. That said, I will provide updated guidance as I have done in the past on a GAAP basis, which includes amortization of stock based compensation, as well as on a non-GAAP basis with excludes amortization of stock based compensation. With that in mind, we're tightening our 2008 revenues guidance range to $528 - $530 million from our previous guidance range of $515 - $530 million. If the FY08 MTS GWOT, or global war on terror funding, that Rob spoke about earlier had already been approved we would most likely have raised our guidance for the year, and should that funding be approved in the near term, some revenue increase could still be possible. At the same time, we're maintaining our estimated non-GAAP diluted earnings per share for FY08 of $2.77 - $2.82. Here I should point out that this guidance not only reflects the GWOT funding delays, but also reflects approximately $.06 worth of lower interest income expected in FY08. This because of the significantly reduced interest rates on our invest able cash balances. That's the bad news, the good news is that the $.06 decline was offset by additional operating efficiencies thereby resulting on our maintaining our FY08…

Good Morning. I think Rob went through this, so I just want to confirm the backlog by segment; 55.9 in telecoms transmission, 107.6 in mobile data, and 55.7 in amp.

Tim, telecoms is 55.7 and RF is 55.9.

Thank you. In terms of the telecoms transmission segment, your guidance of a flat year versus FY07 presumes some pretty big pickups sequentially in revenue from Q02 – Q03. Is that a function of a pickup in shipments of TRC170 kits or is there something in the satellite station business that's changing?

Its a little bit of both. Obviously we do expect some level of TRC170, in fact we have received some orders in that regard in Q02, so sequentially getting to that statement we made in our Q about the revenues being consistent in the periods there's a little bit of both, some of it is the TRC170 and some is the earth station satellite.

would you be able to comment on what you're expecting at this point in terms of TRC170 sales for the year compared to FY07?

I wouldn't want to get into that level of granularity. I can tell you, and Mike correct me if I'm wrong, that sales in Q02 were virtually 0. So if you remember, Q02 of last year had a very, very strong level of TRC170 in it so just to give you some order of magnitude, its closer to 0 than it is a million.

That was also the case in the first quarter, it was close to 0 as well?

That's correct.

This has been the case for the last 4 quarters with the US commercial business has been down quite a bit, and I think in this most recent quarter, US commercial business was down about 40%, what does that reflect? Because the satellite earth station business seems like its growing well, is that more amplifier or where is that decline coming from?

That piece is a relatively small part of our business, but certainly in the mobile data comm side it's virtually all US government. There are slivers of it in the amplifier business and in the earth station business, I don't have in front of me the breakout of that, I'm sure there's a piece of it in both but its not a primary growth driver for us.

It's a relatively small piece, understood. Just one more question if I may, and then I'll get back into the queue, could you talk about what's happening on the Blue Force tracking program, both in terms of the development effort that Viasat is working on, and also any impact of this move to JBPCP and how that might impact what you sell to that customer?

On that note, all I would say is that our guys at mobile data com are very focused on this area and we're pleased so far wit the progress that we've made in terms of our platform, from a competitive point of view, I would like to point out, as I did in my comments, that they've spent $95 million, they booked this year. I think the importance of this technology and the infrastructure is very much entrenched and we're very focused on making sure that we're there for the long term by investing our R&D with the progress that we're making.

Thank you

We'll take our next question from the line of Mark Jordan - Nobel Financial. Your line is open.

Good morning gentlemen. First question relative to the RF group, could you discuss what margins that organization should be able to derive once you've ramped up through the second quarter taking care of your design and ramp costs? Going into FY09 what kind of operating margins should we expect to see from that group?

I think if you look at that segment over the past few years when we were working on the GWOT program, those margins were unusually high, but if you look at our operating margins over the past 5-6 quarters, this past quarter we were at 7.5% range, I think operating margins in that 10% - 12% range are appropriate, unless we have a large product going through the plant at one time where we have more operating leverage. If you look out over time, that's where it should be if you take the startup costs out of the way and the large contracts coming in.

Second question relative to cash flow, obviously you significantly improved accounts receivable and inventory to address the surge in orders that you had in Q01, what kind of cash flow from operations would you expect to have by the end of the year?

In total, the way to look at it, we should be north of $400 million on the balance sheet by the end of the year and we're shooting for between 400 – 420.

Lastly, could you talk about, give some guidance, you said last quarter while you don't give guidance you gave a little bit of a sense of expecting a surge in sales here, one could you give us some sense of the topography of those sales moving forward and then secondly, can you address what should be the operating margin at Mobile data? It was phenomenal in Q02 at 32%, if you back out the adjustments that's 800 basis points, where should this settle as volumes settle back down to more normal rates in the third and fourth quarter?

There is no doubt, Mark, in the quarter of some benefit some leveraging this quarter. That's why we always tell people, even in this quarter where it's to our benefit, that you really u need to look at the business on more of an annual basis. I would just guide you to do that, just go back over the last 12 months to give you a general sense of where it would be. At the same time, as revenues go up for the year that leverage still exists, but not at the rate it would for this spike in the quarter. When you look at the operating margin for Q02 this year it was over 30%, I think it would be at some number between where we were in the first quarter and where we are in the second quarter, closer to where we were in the first quarter, for the full year given the leverage and the model.

Thank you Very much

Mike, we were at 24%?

That's right.

As part of my ongoing effort, Mark, to avoid giving poor guidance, if you remember last quarter I specifically said in my comments that we would expect the second quarter to be out of the ordinary, so by not talking about that, we don't see one quarter out of the year as being unusual. But the understanding is that we can have fluxes in between the quarters just based on other reasons, but we don't see an unusually high or low quarter out there for the rest of the year.

Thank you.

The next question is from the line of Tyler Oho. Your line is open.

I want to follow up on the TRC170 question tat was asked earlier, If you could help me understand what's causing some of the delays in getting that to stay at high levels of shipment on the TRC170's.

If you just follow the oder flow over the last 9-12 months, as I've said in my comments, we've been disappointed, we did get some orders in last quarter, but we can ship those pretty quickly, so its just really a funding the issue. Nothing really more than that. We're hoping that once the funding is finalized for this year, it starts to loosen up a little bit, we ship those very quickly after we get the orders in. It;s no more complicated than that for our perspective, we're certainly working with the company to try to get the funding release, but beyond that I can't really comment much.

Out of the 600 that are available to be retrofitted we have 400 remaining. Did I hear that correctly?

Yes, we've always said that we believe there are about 600 produced, but there's probably some of them that are badly damaged or misplaced, so our number has always been around 500. At this point in time we're probably in the 250 – 270 range in terms of what we either have orders for or what we've replaced. We';re approximately about 200 or maybe a little more than that.

Just a quick update eon TRC175, I haven't heard you talk about it recently.

That program, Tyler, has been out on the back burner because what they're trying to do is deploy as many units as possible in TRC 170 is a more cost effective way of doing that, because all they really need to do is replace the modem upgrade kit. So, if you look at the price of the modem upgrade kit versus a fully loaded terminal, it's must more cost efficient for them to do that, so we don't really see that as a growth driver for us until they're done with the TRC170 program.

Just 1 more quick question, the R&D expense obviously is up quite a bit, year over year, but sequentially it was also a little bit up, going forward is this a range that we should expect, is it more combination of the first and the second quarter?

Fair question, the R&D in the Q02 was a bit of an aboration, at least for this year on the low side as related to the timing of certain things, You can expect R&D as we see it now for the rest of the year to be more in line with the Q01 run rate than Q02 run rate.

Very good, thank you.

We take our next question from the line of Rich Valera. Your line is open.

Thank you. Rob, could you just go over the numbers, what was the base level of MTS funding in FY08 and also how much of the GWOT has been approved so far?

Sure, the baseline funding on the 08 budget now is $72.3 million and we believe, based on what we see going through the system, that of the $69.9 million plus $129.9 million almost $200 million of GWOT funding, that about $16 million of that was approved back in December, and the other $184 million or so its in the bill that the house and senate will be conferencing on over the next couple of months. I'll point out that when you look at the contribution of the 08 funding, no matter what the GWOT turns out to be, there's a relatively small amount of 08 funding driving our revenues this year.

Are you completed funded with what has been approved, for your 08 numbers at this point?

There are some additional orders that we are waiting for, but those would all come out of funding that we believe has already been appropriated.

Fred, you said in you comments regarding the guidance that you said you strongly felt that the MTS funding issues were a matter of timing and that you felt confident of actually getting those. Can you give any color on anything that underpins your confidence that these numbers, or that this funding will actually get approved?

Well, I can't definitive was congress will do in the next few months. What we're hearing in terms of our customer's expectations is that funding will be approved. It may be reduced by a certain percentage but I think that for the most part, we'll be approved.

Just on FY09 you mentioned that the base level of funding was significantly higher is there any visibility at all in terms of what kinds of GWOT funding might accompany that or is the intent really just to have no GWOT funding with this higher level of baseline?

It's very difficult to say Rich, if we use 2008 as a case study, there was $73 million and then there was $70 million in GWOT funding put on the table. If you add the 70 plus the 73, thats 143. That's not very far away from the 142 that's in next years budget, very early on in the 2009 budget process. On top of that last year, in 08, there was another $130 million request, so there are a lot of moving parts here, but to be fair about it, as I said, we do believe that the 142 does include some amount that maybe in the past would have been in GWOT, but it's impossible for us to say how much that might be.

That's helpful. Finally just with respect to the cash balance, I think you mentioned in the prepared remarks that you're still looking at acquisitions going on roughly a year now from your last analyst day, when you said that 6 months you would be doing something definitive with an acquisition or something else with the cash like a large buyback or dividend or something. Is there any further update you can give us there, or is it just that you've got so much in the offer from an end perspective that you don't want to do anything, when can we expect some decision on the large cash balance?

I would say that last summer when the credit markets started to deteriorate, that did two things for us, first of all it makes us more cautious about our cash positions, that financing isn't available now as it was back then, and secondly I think what its done during that period is that strategic buyers like ourselves probably have more opportunities to buy assets at more reasonable prices then we were at this time last year. Those are two factors that are under consideration, but it is something that we are actively looking at, the board addresses it on a regular basis, but we think that the amount of cash that we have right now, is still prudent but it is something we look at regularly. I say prudent in light of those two points that I mentioned in my remarks, given the credit markets and the M&A markets as we see it today. It is something I can assure you our board is very focused on and that we'll continue to address.

Thank you.

Up next is James Macorly from Com Stuart. Your line is open.

Thank you, good morning. Just one question, in Q01 you were saying that you thought telco would be up and now you're saying flat, so whats the delta, what came out of the telco expectation?

For the most part, Jim, it goes back to the TRC170's. We have been disappointed that we have not received orders for that model, but in terms of the language, that was the primary driver.

Terrific. Thank you very much.

We can take our next question from the line of Mark Bolser - Blue Fin Investment Management. Your line is open.

Good morning, This question is for Fred or perhaps Rob. Can you walk me through your satellite earth station business what your best understanding is, how much your sales go to new built networks as opposed to adding more Comtech product to networks that already exists?

I'm not sure that we can really answer that question Mark, a lot of our new work would be carrier in carrier modems that has really caught on very well. Its really both new and old networks, so its really difficult to give you a percentage of one or the other.

You probably know whats coming next because the primary competitor in the space, have you seen any impact in the competitive environment where perhaps customers are leaning towards you because they don't know about the future of radar?

I can't say that we've seen any impact of that decision, that they seem to have made. I would think that competitors probably are looking at it, there may be some in the future, but I don't think that we've seen anything as of yet.

Fair enough. Another question, you may or may not be able to answer, on the mobile data com business. What's your best understanding of the penetration you have on logistics vehicles for MTS and perhaps on the combat for Blue force tracking?

On that Mark, on the MTS side the numbers do move around but I can tell you that we believe we are less than 50% penetrated to what they would like do. Again, thats just within the MTS office, so the other commands that have a need are not in those numbers. On the Blue force tracking side we have even more limited visibility in that as you know, the types of vehicles that this could potentially be used on, is increasing for example Emraft, but we don't know the specific number of units that those would go on, we're really selling into that office, so on that one, I wouldn't even venture to make a guess, other than its a relatively low percentage.

Great, thanks. I must commend you on your transparency with respect to your cash, because you probably spent more time on it than companies that have bumped into problems with cash, but what interest rate are you assuming going forward, reflected in your guidance for cash positions?

We're not giving too much granularity. We are assuming that another reasonable rate cut, obviously this amount of interest income will affect our cash balance as well, but all I can say is we are assuming another cut going forward of reasonable size, that is baked into our guidance.

Thanks for your time.

We can take our next question from the line of Michael Ternily from Benning Incorporated. Your line is open.

....tracking, you said visibility in funding was somewhat limited, it looks like line items through 2013 are about $2.5 billion, if I'm correct you guys aren't sure just how much of that is allocated to your specific component of that blue Force tracking system?

Yes, that's correct Mike. Blue Force tracking platform itself is actually a terrestrial based platform, where satellite is used as a back up, so we certainly have become an important part of it as it relates to dealing with field limitations but unlike MTS we're a line item and we don't have direct visibility there, but for example if you look at this past year I think the number was $95 million of orders received for it, there was no way you would ever come up with that number looking at the budget as it stood this time last year. All we look to there is ongoing discussions wit the customer and fielding plans and the like, but it is hard to correlate that number as to what it means to us.

Fair enough. Just, obviously this was an exceptional quarter, do you get any sense that this might have been, not pent up demand, but more aggressive spending but the DOD in anticipation of a potential election change and they wanted to flush these orders through before any voids happen in November? Just trying to get at if you guys might experience some sort of slowdown in the first half FY09, depending on that election.

Well, a couple of things to point out Mike. On one hand, keep in mind that may of the orders that drove the revenue in Q02 were received in Q01 and if you recall there was a bit of a delay, we were speaking in the spring and summer waiting fr these contracts to be signed. I view what we experiences in Q02 as more the aftermath of what we experienced last sumer with some of the pent up demand, but again, it is one of the reasons we ask you guys to look at thinks on an annual basis because sometimes that's just the way they order. Going the other direction, if you look at our FY08, we've really received a very limited amount of funding out of the FY08 budget so far for MTS. On that hand that hold well for the future because we're still waiting on a lot of that stuff, GWOT hasn't even been appropriated, it's one of the reasons we caution people to try and look at it on an annual basis because when you do that you some of these peaks and valleys out of the equation.

Just more on, you guys certainly have a high level of concentration through out a handful of programs and government related revenues are very high, is there some concern on your part, there is a lot of noise around defense spending, the funding looks to be there fore early 09 and certainly beyond, but related to the acquisition front are you looking more at a commercial for diversifying the revenue stream into the commercial segment?

We try to focus, from an acquisition point of view, on leadership, so thats always going to be the first criteria, but sure, we would like to diversify as much as we could, but if there is a defense played that was very well positioned, you know it had a strong leadership position in the technology that looked it wasn't any particular conflict specific, we would look at it, but certainly this segment has down so well and grown so much that looking at the M&A area we certainly would like to diversify, but its really more based on leadership prospects than revenue diversification.

Just one last question, relating to telecoms transmission segment, what are you guys seeing as far as the global telecoms capital expenditure outlook from the carriers? I've seen some reports that say that spending might peak in 2010 or 2011, are you seeing any material changes from the carriers out there?

We haven't seen that so far Mike, and again as I mentioned in my comments, our telecoms work certainly in the earth station area, is in emerging markets where they're really building infrastructure to make those areas more competitive, so we have not seen that so far. Things can change quickly but we have not seen a deterioration in our satellite earth station customer base, at all quite frankly at this point.

Thanks for taking my questions guys.

We have a follow up question from the line of Tim Quellen from Stephens Incorporated. Your line is open.

Thank you. I know this is a difficult question, to what extent is your MTS and Blue Force tracking revenue tied to the US presence in Iraq? Specifically, its the service piece, what so you think of that service piece over the next 3 years with the potential decline of troop levels in Iraq?

As we've spoken about before, I'll point out that the funding numbers for 08 that we talked about earlier those were vetted in the late spring/early summer time frame last year, which was a period if you go back in time where everybody wanted us out of Iraq. All the presidential hopefuls, even President Bush, was talking about significant drawbacks, so I point out that those were vetted and increased at a time where the sentiment was that we would be out of Iraq which I think supports our view that MTS is more of a infrastructure issues than it is a conflict specific issue, but obviously we're no different than anybody else, we're subject to changes in spending and the like but I think this program has fared very well and stood up very well in times where there has been talk about leaving Iraq. Change in administration obviously anything could happen, but once again in the last few months I hear much more about that we probably need some level of presence there specifically Tim what that means to the level of satellite bandwidth they need, its impossible for us to predict that. We once again still believe at this point that this is more of an infrastructure play and based on my comments earlier we believe they have a long way to go. There is always uncertainty there, given the amount of ordering and the budgets that we're seeing, we still believe today that's intact.

Thank you.

I'm showing no further questions at this time. I'll turn the conference back over to our presenters for any closing remarks.

We want to thank all of you for your interest in Comtech, we certainly look forward to speaking with you again very soon. Thank you very much for attending.

This does conclude today's teleconference. Have a great day. You can disconnect at any time.