Welcome to Comtech Telecommunication Corp's Third Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded Thursday, June 9, 2016. I would now like to turn the conference over to Maria Ceriello of Comtech Telecommunications. Please go ahead, ma'am.

Thank you and good morning. Welcome to the Comtech Telecommunications Corp conference call for the third quarter of fiscal year 2016. With us on the call this morning are Dr. Stanton D. Sloane, President and Chief Executive Officer of Comtech; and Michael D. 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 and the plans, objectives and business outlook of the Company's management. The Company's assumptions regarding such performance, business outlook and plans are forward-looking in nature and involve certain significant risks and uncertainties, including among others the risks that Comtech's and TCS's businesses will not be integrated successfully. Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the Company's Securities and Exchange Commission filings. I am pleased now to introduce the President and Chief Executive Officer of Comtech, Dr. Stanton Sloane. Stan?

Thank you, Maria. Good morning everyone. Thank you for joining us on the call. As announced yesterday afternoon, we reported our third quarter results of $124.2 million in revenue, and adjusted EBITDA of $12.5 million. I am extremely pleased with these results, which only include two full months of TCS operations. As Mike will discuss during his part of the conference call, this was a complex quarter from a financial perspective, so I will leave the details of this information to Mike. To begin with, I believe the acquisition of TCS is already a success and our integration plans are on-track. Additionally, although business conditions are still challenging, we are seeing signs of end-market stabilization for our legacy Comtech business, and bookings for both legacy Comtech products and TCS products, across most of our product lines were strong during the most recent quarter. With much of the integration work behind us, I look forward to a solid finish in fiscal 2016, and I am increasingly optimistic that fiscal 2017 will be a strong year for Comtech. As a sign of our confidence, I am pleased to state that our Board of Directors has established a targeted annual dividend for fiscal 2017 of $1.20. Although future quarterly dividends and the actual amounts of such dividends are subject to, one, business conditions; two, the terms and conditions of our secured credit facility; and three, ultimately Board approval, our Board does believe that quarterly dividends represent an excellent way to return capital to our shareholders. I will talk more about the state of the business and TCS later in this conference call, but first, I thought it would be good for Mike Porcelain to start with the financial perspective on our new company. Mike?

Thanks, Stan, and good morning everyone. I will speak first about Comtech's combined business, before providing remarks on our updated guidance. During our third quarter of fiscal 2016, we experienced strong order flow for Comtech's legacy business that benefitted from incremental bookings associated with new advanced communication solutions that we now offer, as a result of the TCS acquisition. In aggregate, we achieve bookings of approximately $139.2 million during the third quarter of fiscal 2016, which translates into a quarterly book-to-bill ratio of 1.12 compared to an average book-to-bill ratio of 0.81 for the two prior quarters. CCSL's contributions during the quarter represent roughly two months of operations, which began February 23, 2016, the closing date of the transaction through April 30, 2016. As such, the mix impact on segment sales, gross profit, and other operating metrics, does not reflect a full quarter of TCS contributions. Additionally, we continue to integrate our two businesses, and we have begun to jointly market our products to facilitate future growth. Thus, over time, historical sales patterns and mix trends will become less relevant and period to period comparisons of sales of legacy Comtech or TCS brands will not be meaningful. With that said, we would expect to provide as much detail as we can in the future periods. But for now, we would encourage investors to look at overall consolidated results and metrics, until we have reported our results for a few periods. I will point out to you that yesterday afternoon, we filed with the SEC, a recast of our historical segments. So we hope that this will give you a sense of the sales composition for this quarter, and give you a sense going forward. Consolidated net sales for Q3 were $124.2 million. These sales include approximately $66 million of sales…

Thanks Mike. With the acquisition of TCS now closed, our company looks markedly different. However at our core, we are providers of advanced communication solutions. These solutions deliver proven high levels of reliability, security and availability. TCS acquisition positions us for sustainable growth. In simple terms, we have more than doubled our annual revenue base, doubled our employee base, and our adjusted EBITDA in fiscal 2017 and expect it to grow in coming years. I believe our business is at a turning point, and I am excited about the growth opportunities I see ahead of us. With a combination of experience, careful planning and successful execution, we will be able to drive significant shareholder value for many years ahead. The TCS acquisition was a significant step in our strategy of entering complementary markets, and expanding our domestic and international commercial offerings. In connection with the acquisition, we began managing our combined businesses through two segments, commercial solutions and government solutions. Let me first talk about commercial solutions; which serves commercial customers and smaller governments such as state and local government, that require advanced technologies to meet their needs. The segment also serves certain government customers including the U.S. government, when they have requirements for off-the-shelf commercial equipment. I believe this segment is a leading provider of satellite communications, such as satellite earth station modems, Traveling Wave Tube Amplifiers, Public Safety Systems, such as next generation 911 technologies, and enterprise application technologies, such as messaging and trusted location based technologies. This segment, on a long term basis, should approximate 50% of our revenue, and its aligned with several large growing end markets. Our satellite based communication providers served satellite back-haul and services market, which based on third party reports, is predicted to grow at better than 10%. We remain the undisputed…

[Operator Instructions]. And we will go ahead and take our first question from Mark Jordan with Noble Financial. Your line is open.

Thank you. Question relative to the integration expenses; in your press release, I think you stated that you are estimating $24.6 million acquisition expenses through the fourth quarter or through the end of this fiscal year. I believe when the acquisition was made, you are estimating acquisition related expenses in excess of $40 million. I guess my question is two-fold, one, are you -- do you have any expenses that will fall into fiscal 2017 or so could you quantify it? And secondly, if it's all contained here in the current year, what has changed that calls for a lower level of acquisition related expenses?

Sure Mark. Let me just -- to clarify and confirm. We are still expecting $48 million of total merger and acquisition expenditures, as we talked about in the press release. Some of those expenditures are effectively capitalized, as part of the purchase price accounting. So for example, we had a little under $10 million of costs with our secured credit cost facility, which would be capitalized on the balance sheet as part of deferred financing costs. And a portion of those costs were incurred by TCS, prior to the acquisition closing. So in the January and early February timeframe, some of those expenses were effectively recorded on the income statement of TCS. So when you add everything up, it's about $48 million from a modeling perspective. But, you're correct, with what you see in the P&L for Q3 and $3.9 million is our current estimate for Q4 that would be it, in terms of what's going to hit the P&L for 2016. At this moment, we are not expecting any of the transaction costs to roll into 2017. So that would kind of wrap up by the end of our Q4, everything will sort of be wrapped up in a bowtie.

Okay. Thank you for clarifying that. So then simplistically, that $10 million of capitalized interest costs will flow through, is included in your 5% average fully loaded costs that you talked about in the press release?

Absolutely.

Okay. Final question for me, relative to the satellite modem business, that's a churns business, a book and ship business. Clearly, you saw an uptick in order rates, what gives you a feeling that this stabilization or improvement in order rates in the most recent quarter is reflective of the longer term trend that will show improvement?

So I would point principally to oil price and oil prices are back up a bit. And it seems to me, my observation is that we seem to be very sensitive to the oil prices. So I think that's probably the most encouraging [indiscernible]. I think the dollar exchange rate has stabilized a bit. Those are probably the principal things.

And I guess related to that, how much of those orders those orders are to some extent non-deferrable, because your customers are running up into capacity issues? Is that also something since you have had lot of delays, is that maybe impacting also?

So, I will answer that two ways. One is, our customers over time have to replace equipment. I mean, they just have to, things wear out. So what happens when things slow down, is there is a build-up in demand. There is pent-up demand for it. So some of what, I think we are seeing is, is the result of people just -- to a point where you got to start replacing stuff. Oil price is a catalyst for that. I think probably, oil price is more about stability, than it is to absolute number. And so, the outlook for the oil prices I think is, better than it has been quite some time. I think it’s a combination of two things.

Okay. Thank you very much.

And we will take your next question from Chris Quilty. Your line is open.

Thank you. Gentlemen, I was hoping you could comment a little bit about the troposcatter Over-The-Horizon pipeline and how you view that? And additionally, if you can talk about the current projects you have running right now, where they stand in a typical sort of two to three year deployment schedule, and what you have in terms of visibility for the next year?

So on tropo, we have an existing customer in the Middle East that we continue to provide support for, that has been ongoing for some time. On the new orders front, there are several -- I talked about SNAPs, so I won't dwell on that one. But on the international front, there are several significant orders that we have been pursuing for a while. One of which we just mentioned in the call, and we are open for a couple of those, and it will come through. Those are typically direct contracts. There was one that we were pursuing, that was a FMS sale, but for the most part, they are direct commercial. Typical period of performance on those things is like two to three years, and then they typically have a sustaining tail for the logistics that goes on for several years after that. So that's sort of the outlook. The thing that -- the dynamic in the tropo arena that I would mention to you, is the fact that we now have modems that are capable of running at much higher bandwidth. And that enables tropo for a lot of applications that previously they weren't viable for. So what we have seen lately, is an increase in interest from a lot of places that -- mostly international and the problem is converting that interest into contracts. And that's sort of where we are in the cycle. Some places can do that very quickly, some places take a long time, because they have to go through extensive procurement bureaucracies, but that's sort of where things stand. On SNAP front, military, I mentioned the RFI. So that's a pretty good indicator that the U.S. government is going to move out on a procurement. So that one is pretty encouraging.

Got you. And looks like this is the last BFT license rolling through; can you talk about what you see in the opportunities in that business area? I know a couple of years ago, you talked about looking at potential commercial applications for the core technology, and with the TCS acquisition, I think you pick up either some products or capabilities there. Is there something that you plan on trying to reconstitute and target?

So on BFT, couple of things. One, irrespective of the license fee, the government is going to operate BFT for some years. I mean, we do anticipate to continue to support that product for the U.S. government. We are also pursuing a couple of international programs that would include version of the BFT-1 transceiver. Those are in competition, so I don't want to talk too much about them. But we are pursuing those, and they could be significant. I don't know, you mentioned commercial, I don't know if you would call those commercial, those are direct sales to a foreign government. Other than that, I think the biggest opportunity on the BFT arena is whatever is the follow-on with the U.S. government and the government is going to have some sort of follow-on. They have had a couple of programs, BFT-2, BFT-2.5, and we are trying to do today is, is to be positioned for whatever the follow-on is, it's not defined as a particular procurement program at the moment. But we know it's coming.

Great. And final question, just on the Heights platform, you seem to have had some success. Can you characterize either by type of customer or vertical market, domestic, international, where are you seeing traction?

So Heights is applicable for a variety of verticals. It’s intended for operators, whereas we traditionally had sold components, this is more of a system application. So it enables the operators to control all of the peripheral devices on the network, optimize the network traffic and do that through a single platform that we provide. That's how to think about Heights. So it’s applicable in all verticals that we serve, so that's M&O, Maritime, whatever, and that's the way that we are going to market with it. Several initial expressions of interest appears to be very much -- a lot of customer interest has been -- do a couple of shows. We have a couple of demo systems that we are showing to customers, so that's sort of where Heights is at the moment.

Perfect. Thank you.

You bet.

[Operator Instructions]. And there are no more further questions. I would like to turn the conference back to the company.

Great. Thank you. Thanks again for joining us today. We look forward to speaking with you again in September. Have a great day.