Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp. Second Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Friday, March 8, 2013. I would now like to turn the conference over to Ms. Maria Salerno of Comtech Telecommunications. Please go ahead, ma'am.

Thank you, and good morning. Welcome to the Comtech Telecommunications Corp. conference call for the second quarter of fiscal year 2013. With us on the call this morning are Fred Kornberg, President and Chief Executive Officer of Comtech; and Michael Porcelain, Senior Vice President and Chief Financial Officer. Before we proceed, I need to remind you of the company's Safe Harbor language. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company; the company's plans, objectives and business outlook; the plans, objectives and business outlook of the company's management. The company's assumptions regarding such performance, business outlook and plans are forward looking in nature and involve certain significant risks and uncertainties. Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company's Securities and Exchange Commission filings. I am pleased now to introduce the President and Chief Executive Officer of Comtech, Fred Kornberg. Fred?

Thanks, Maria. Good morning, everyone, and thank you for joining us on this call. Our second quarter results were impacted by a very weak global economic environment and the continuing funding paralysis of sequestration. As announced yesterday afternoon, we reported second quarter results of $74.6 million in revenues and a GAAP diluted EPS of $0.14. Our adjusted EBITDA for the second quarter was $10.1 million. On our last conference call, we indicated that we expected that the U.S. government would make significant progress on its budget issues and that business conditions would improve. Clearly, this did not happen. And in recent months, in fact, we believe that business conditions have actually deteriorated. We believe that failure to resolve the sequestration and related U.S. government budget issues, first by December 31, 2012, and once again by March 1, 2013, has also resulted in increased uncertainty among our global customer base. At this point, because we're navigating through a very weak difficult global economy, we cannot predict the effect of sequestration on our markets, and we're continuing to experience weak order flow, we now believe that the revenues in fiscal 2013 will be in the range of $320 million to $330 million, and GAAP diluted EPS will be in the range of $0.80 to $0.92. Our adjusted EBITDA is expected to be in the range of $48 million to $52 million. Despite lower revenue and EBITDA guidance for fiscal 2013, our long-term growth plans have not changed. We still believe that our products and services remain well positioned due to a number of factors, including the continuance -- the continued reliance by our customers on our advanced communications products and systems, the continued shift toward information-based, network-centric warfare and the need for developing countries to upgrade their communications infrastructure. In light of our long-term growth expectations, our Board of Directors approved a dividend for our third quarter of fiscal 2013 of $0.275 per common share. This dividend is expected to be paid on May 21, 2013, to stockholders of record on April 19, 2013. To date and over the past 10 consecutive quarters, we have paid out approximately $57.1 million of dividends and continue to believe that our dividend program is an excellent way to return capital to our stockholders. In addition, during the second quarter of fiscal 2013, we repurchased approximately 400,000 shares of our common stock at an aggregate cost of $10.5 million. And in early February, we completed our $250 million stock repurchase program. As we announced in December 2012, our board also authorized a new $50 million stock repurchase program, and we have repurchased approximately $5 million under this new program to date. Now let me turn it over to Mike Porcelain to provide a brief overview of our second quarter financial results, and then I will talk more specifically about each of our 3 business segments. Mike?

Thanks, Fred, and good morning, everyone. I'll walk you through the Q2 results and provide some commentary on our updated 2013 business outlook. During Q2, we generated revenues of $74.6 million, of which 32.8% were for U.S. government end users, 54.3% were for international end users, with the remainder being for domestic, commercial end customers. Let me provide some color on sales by segment. Net sales on our Telecom Transmission segment were $45.8 million in Q2 of fiscal 2013 as compared to the $51.3 million we achieved in Q2 of last year, representing a decrease of 10.7%. This decline is attributable to significantly lower sales of our Satellite Earth Station products, which were partially offset by higher sales of our over-the-horizon microwave system product line. During Q2 of fiscal 2013, sales of our Satellite Earth Station product line were negatively impacted by reduced spending by both U.S. government and our international customers. Q2 fiscal 2013 bookings and related ending backlog for our Satellite Earth Station products were higher as compared to Q2 of fiscal 2012 and Q1 of fiscal 2013. Our bookings during the quarter included a $5 million order that we announced in February from a U.S. government system integrator to support reliable high-bandwidth war fighter communications. Despite this order, we believe that the order level we achieved on our most recent quarter was suppressed due to uncertainty that exists amongst our global customer base. We believe this uncertainty will continue to impact bookings for this product line for the remainder of fiscal 2013. In particular, our Q3 bookings are expected to be lower than Q2 before picking up in Q4. Based on expected order flow, we believe that the Satellite Earth Station sales will be lower in fiscal 2013 as compared to fiscal 2012. Sales of our over-the-horizon…

Thanks, Mike. At this point, I'd like to provide a brief update on each of our core product lines and then we'll go into a question-and-answer period. Let me start with our Telecommunications Transmission segment, which is the backbone of our current business. As Mike mentioned, total second quarter revenues in this segment decreased significantly. The decrease in Satellite Earth Station product sales, which was more than we had anticipated even a few months ago, was primarily the result of a weak global economic environment, as well as of the ongoing paralysis in U.S. government spending. Although overall bookings were up, several international regions, such as Europe and Latin America, were down, and we continue to experience shifts do the right in the international markets we serve. The U.S. government's failure to address the sequester has also not helped. We believe the failure to resolve timely the sequestration and related budget issues, first by December 31, 2012, and then again on March 1, 2013, has a caused additional uncertainty in our markets. We believe that the paralysis due to sequestration combined with a very weak worldwide economy has resulted in delays, not only to some of our U.S. government programs, but the reductions or delays in spending by many of our domestic and foreign customers. At the same time, some of our international customers are also being affected by increasingly volatile political conditions in their respective countries. In light of these ongoing and, in some case, worsening economic and government funding headwinds, we are not assuming a meaningful change in conditions for the second half of fiscal 2013. Although we do expect the fourth quarter to be stronger than the third quarter, as the mystery of sequestration becomes clearer and our customers resume their buying activities accordingly. In the long…

[Operator Instructions] And we'll take our first question from Joe Nadol of JPMorgan. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: I'd like to dig into the cost structure, a little bit, of the company. Because I hear you on the -- certainly, I hear you on the tough backdrop, the sales backdrop, both government and your commercial markets, but -- I mean, when you think about long-term growth in a -- if I just look at Telecom Transmission, put aside MDC, Telecom Transmission sales were below where they were 6 years ago and that includes -- you had some revenue in there from Radyne on top of that. So at what point on the R&D side and the corporate side -- your corporate costs are going down, but not in line with sales. R&D is not going down, sales are going down a lot. At what point do feel like you need to take more aggressive action?

I think to answer your question, yes, sales have been trending downward. Our R&D, however, is flat and being expensed. I think the way we look at it that this point in time is if this weak trend continues, we will obviously cut our R&D expenses as well. But as you know, R&D is planned well in advance and products have to be completed, or the R&D has to be completed, until the products are finished. So a lot of our R&D expenses are and will continue for certainly the near term until they're finished and are able to be offered as products. And then, we will look into cutting our R&D. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. And then just secondly on the visibility. I understand, believe me, in the near-term that it's tough with the sequester in particular. But it sounds like you're looking for a bounce back in bookings in Satellite Earth Stations next quarter in Q4? Correct me if I'm misinterpreting what you said. What is your visibility into that? Or how much of that is hope and how much of that is based on what you're hearing from your customers, specifically?

Well, I guess, let me first say that we've been expecting this bounce for quite a while. And obviously, it hasn't happened. Yes, we do expect a bounce in bookings. In fact, we've had a bookings increase in this past quarter, so we kind of expect it to continue that way. Will it happen? We don't know. Joseph B. Nadol - JP Morgan Chase & Co, Research Division: Okay. And then just finally, the change in the accrual for the earnout? Mike, was that in corporate or is that in the segment?

That is in our Telecom segment. So when you look at the 12% margin that we reported, if you wanted to get to a more normalized number for where we're currently running the business, you'd want to back that out.

And we'll take our next question from Rich Valera with Needham & Company. Richard Valera - Needham & Company, LLC, Research Division: Just trying to get a feel for how much of the delta in your guidance is due to things not improving as you had expected? Because I think in your Q, you talked about expecting significantly improved conditions versus things actually getting worse than they were a quarter ago due to sequestration or whatever other macro headwinds. Can you give us any sense of the split there between -- what's actually due to things getting worse versus just not getting significantly better as you had hoped for?

Rich, I think that's a good question. In our Telecom side on our Satellite Earth Station business, we're just not seeing the growth that we expected. Clearly, the issues that happened in December did cause what we were hoping is just a short time -- timing kind of a thing where Q3 bookings are going to be down and then will kind of bounce back bounce to where maybe the second half of fiscal 2012 -- '13 will be similar to what we did in the first half. So we would just say that business, we hope from a bookings perspective, will be flat. Where we did see the unexpected decline in bookings was on our RF Amplifier side. We did have a little bit more optimism that we would now only get the bookings but that we would be close to comparable revenue, let's say, in fiscal 2013. So that's where we saw the unexpected decline and we're going to see how that comes out. But we've kind of reevaluated where we sit on the bookings level. We've taken our bookings growth down to where we think, based on known opportunities and what we think is going to happen. Richard Valera - Needham & Company, LLC, Research Division: Great. In terms of the incremental impact from sequestration, if you had to guess, do you think it's been greatest in RF Amps at least to date?

I would say that, but I'd caution you, it's very, very difficult for us to tell you because our -- sequestration impacts some of our international customers as well. I mean, they're buying stuff and everything has just sort of been on hold, and I think a lot of people are just waiting. Richard Valera - Needham & Company, LLC, Research Division: Great. And then with respect to the fourth quarter rebound in Satellite Earth Station bookings, just, again, kind of wanted to understand what underpins your belief that will happen. Can you give us any color on maybe monthly booking trends at least the contour you've been seeing that would maybe suggest that there would be a reacceleration? Or is it stuff in your pipeline that you expect is going to hit in that fourth quarter? Just any color there would be helpful.

I think it's very difficult to predict. We're kind of in a perfect storm situation. We operate in really 2 major areas, and that is U.S. government and commercial, but commercial international markets. So we've got kind of a perfect storm. The sequestration has affected, obviously, the government portion of our business. The weak global economy, specifically internationally, has obviously affected that. And even the turmoil in some of the countries of that we have expected some growth coming from, specifically, in the Mid East. That seems to be a problem right now. So having those 3 issues at the same time has given us a little bit of a heartburn in terms of how well we can predict the bounce back. But I think we know if the programs -- we know how many have moved to the right and how long they have been moving to the right. So our best guess is what we've given you.

Yes. And Rich, certainly, we are expecting a pop from Q3 of our expectations. I mean, we do expect Q3 bookings to be quite lower than what we just achieved in Q2. Again, as you know, that business is a real book-to-ship business. So in light of the conditions that happened late in the year with the sequestration, short of being delayed and everything kicked to the can to the right, what we've seen and what we're guessing, really, is that a lot of this stuff just -- people just are waiting. And even now that sequestration has taken place in the first part of March, we do think it's going to take some time before that order come -- call it a normal ordering pattern, comes into place. We're not expecting growth in the sense if you look kind of back into, we're looking at the second half of fiscal 2013, and some really looking like we did in the first half of fiscal 2013. Richard Valera - Needham & Company, LLC, Research Division: That's helpful color. Just one more if I could. Just wanted to get your latest thoughts on the DCAA order of the BFT-MTS program. It sounds like you believe you're sort of in the clear there, but still a little ambiguity as far as the sort of the penalty that they said they were going to assess, but you're sort of protesting.

Yes. I mean, at this point, I would tell everyone that wants to know more information about it is to really just read the 10-K because we provided some pretty descriptive disclosure. We did receive a draft report and the orders -- we presented some information to the auditors and they basically agreed to go back and revisit their recommendation at this point. So we have really no idea whether or not they're going to continue with their recommendation or what. But based on the facts that they did present to us in December, we just believe, as we stated in the 10-Q, that their draft audit report was erroneous and flawed. And if that was something that, that would continue, well, we will vigorously intend to dispute it and fight it.

[Operator Instructions] We'll move next to the side of Tyler Hojo with Sidoti & Co. Tyler Hojo - Sidoti & Company, LLC: So just on the RF Microwave segment. Within the Q filing, you kind of discussed the sales CAGR expectation of, I think, 1.4%, I believe that's through 2017. And I guess what I'm wondering is, if I look at kind of how the business is running, you'll probably be down something like double digits in fiscal '13. What are you looking at, from a program level base, to kind of get you confidence in kind of a snap back?

Tyler, just to be very clear that those growth assumptions that you're quoting are actually on the low side of what we actually expect. Those numbers actually relate to a -- our goodwill analysis that we did, which as I'm sure everyone knows is a very sensitized analysis. So those growth assumptions are actually on the low side. From what we're expecting over in the next few years is obviously continued participation on a bunch of electronic jamming systems and participation on a bunch of electronic warfare programs that we think is, once this U.S. government budget issue gets a little bit more clear, spending will ultimately resume. And these are the areas that we think will be poised for spending growth. Tyler Hojo - Sidoti & Company, LLC: Okay. Anything specific that you can point to? Fred talked about JCREW program with not a whole lot of potential until fiscal '14, at the earliest. On the defense side, what are you looking at?

Well, as you mentioned, we're looking at CREW 3.3. We're looking at the WIN-T program. It is a -- we believe it's a program that the government will proceed with. It has moved to the right, but everything seems to have moved to the right. We're also very strong in the FAB-T program as well. So there are a number of programs that I think we're very bullish about. Tyler Hojo - Sidoti & Company, LLC: Okay. Great. And maybe this relates to kind of the first question that was asked. But when we look at the margins in Telecom Transmission, do you think you can get back to kind of the 20% or so level that you had been running over the last several years?

I think the short answer now, based on our updated revised revenue outlook, is that it's not going to happen in 2013. We do think that it's -- something that we can achieve is, once that revenue starts to come back in, if we get that second North African contract, that will be a very, very nice pop to the run rate as we look to 2014. But at this point, 2014 is a long ways away, even though it's 6 months, in light with what we're dealing with the economy, it's something that we're not going to get into. But -- It's not going to happen in 2013, but we do expect operating margins to ultimately come back over 20% and exceed that number. And that will be mostly driven by the revenue that we're able to earn. Tyler Hojo - Sidoti & Company, LLC: Okay. And I think it was in the Q, but maybe you can just talk about the follow-on North African contract. What's the timing surrounding that?

As you know, we -- it took about, I guess, 3 years for the -- for this particular phase that we have right now to finally get contracted for and -- at least at our level. That was the bad news. The good news is that the phase -- the next phase of that particular contract actually took a couple of months. And so our customer, which is a U.S. domestic customer, actually has now signed the contract, has received the down payment for that contract, and we're in the process of negotiating the final terms. It would not surprise me if we could book this as early as April. But certainly, no later than July.

And we'll take our next question from Mark Jordan with Noble Financial.

A couple of questions relative to Mobile Data. First of all, Fred, as you expect, the second year option to be picked up, is there anything that you've seen in the market with regards to plans to deploy BFT-2 that would call into question the probable exercising of option year 3?

It's really difficult for us to kind of give you some color on that because, obviously, we are not in the, let's say, in the information flow on that particular program. All I can tell you, Mark, is that we have not seen any of the follow-on, let's say, steps that BFT-2 should have accomplished at this time. So we don't really see it fielded in other than some experimental places, and we don't see any follow-ons going on. Obviously, with the government spending situation, that's probably a program that has to be looked at pretty thoroughly. We have been told, at least on the BFT-1 sustainment situation that -- in informal discussions with the government that that's going to be around till 2018, 2020. We'd love to believe that.

When you first started -- the government started revitalizing the tropo equipment, the TRC-170s, there was -- I think GD and Raytheon were interested in potentially getting back in that business with tropo starting to become more pervasive since Sweden and other countries looking at it, obviously the U.S. government doing some small form factor purchases of tropo, do you see anyone coming -- trying to start an initiative in that, in tropo, to potentially compete with you?

I think we've experienced the "try", as you call it, in the last few years certainly by General Dynamics and Raytheon. Those 2 being really the only ones that we've seen in trying to go after this market. I think most people don't realize, but the General Dynamics situation relies on a modem that we actually have as a Comtech modem. And it's an outdated version of it. So they're kind of behind the 8 ball as far as that's concerned. Raytheon claims that they're in development of some of that -- some of their tropo situation. We have not seen that out there. We have not lost a program to Raytheon at all. So it's difficult to tell you exactly what's happening in someone else's laboratory, but we don't see them as competitors at all.

All right. Could you give us any sense of what your plans are through the second half of the year relative to the buyback program and/or any thoughts on M&A, which has obviously been an area that's -- you've not seen anything meaningful in the last few years?

Well, again, we are always looking for additional M&A product expansion that we can use to beef up our revenue, obviously, especially in this particular situation that we're in at this moment. So yes, we are looking at various targets. I have to tell you that -- nothing that we like at the moment. As far as the buyback situation is, we will continue -- as the board did approve an additional $50 million buyback, we will continue buying back our stock during the next couple of quarters, and then we'll revisit the problem some more.

Okay. Final question if I may. If you look at the Telecom Transmission group, what percent of that is DoD-oriented and what percent of that kind of revenue stream would be tropo, which is not -- which would be foreign military sales or foreign sales and commercial or international revenue?

Mark, I guess, to try to stick with the public numbers is if you look at the 38% of U.S. government sales for what we did as a company and you kind of back out our Mobile Data Comp segment, that'll give you a good proxy for what that segment does on a stand-alone basis as a percentage of their respective sales to the U.S. government. And obviously, on the over-the-horizon portion, if I understood your question, I mean, almost all of that is international with the exception of our MTTS orders, which we announced publicly, generally, because of the size when we get them.

And we'll take our next question from Chris Quilty with Raymond James. Chris Quilty - Raymond James & Associates, Inc., Research Division: First a housekeeping, Mike. Can you give us the backlog by segment, please?

Sure, Chris. For Q2, our backlog in Telecom, we ended with $78.9 million in backlog. Our RF Amplifiers, we ended with $39.8 million. And on our Mobile Data Com was $7.7 million, and that should add up to about $126.4 million of backlog. Chris Quilty - Raymond James & Associates, Inc., Research Division: Great. Second question on the R&D effort. Can you talk about where you're concentrating that, both in the RF comps versus Telecom Segment, and whether these are developments primarily focused on enhancing the existing product line? Or are you actually branching out into some potential new opportunities that you're looking at?

I think, Chris, probably the answer is all of the above. Most of our R&D expenses are in the Telecom area. Some of our expenses in the RF and the Mobile Data Communications area are mostly customer funded, as that goes. So yes, we have new products on line. We have new bells and whistles to our existing products, so it's really a little bit of everything. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And your expectation in terms of the RF business? Again, I think you indicated that, in the 10-Q, that if you don't sustain your expected level of revenues that there could be a goodwill write-down. Is your expectation that any lift in that business will be driven primarily by a particular segment either on the military or commercial side or by a certain product type?

Well, the RF segment is really primarily government, but a large portion of our TWTA business is also international. Unfortunately, it's -- as I mentioned before in an answer, it's -- our business is international and government, so we're kind of being affected in both of those areas. But we do have, as I mentioned in the TWTA area, we have a number of programs that we really expect to book in the fourth quarter or the third quarter, actually. Chris Quilty - Raymond James & Associates, Inc., Research Division: And you did have one new product customer announcement recently with Harris and something on the mobility side. Can you give us an update of what's happening there and how that's progressing?

I guess it's progressing. I have a difficulty in giving you too much information in that area. But we -- the thing that I would like to kind of give you some color on is that we feel that, that new product, which is the -- our new advanced VSAT is one heck of a product that will have some good sales in the future. Chris Quilty - Raymond James & Associates, Inc., Research Division: So are you out selling that into other new potential customers?

We're certainly trying.

[Operator Instructions] It appears that we have no further questions at this time.

Okay. Thanks again for joining us today, and we look forward to speaking with you again in June.