Ladies and gentlemen, thank you for standing by. Welcome to the Comtech Telecommunication Corp's Third Quarter Fiscal 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded Thursday, June 8, 2017. I would now like to turn the conference over to Ms. 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 2017. With us on the call this morning are Fred Kornberg, Chief Executive Officer and President of Comtech; Michael D. Porcelain, Senior Vice President and Chief Financial Officer; and Michael Galletti, our Chief Operating 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 Chief Executive Officer and President of Comtech, Fred Kornberg. Fred?

Thank you, Maria. Good morning, everyone and thank you for joining us on this call. As announced yesterday afternoon, we reported our third quarter results of $127.8 million in revenues and operating profit of $10.2 million and an adjusted EBITDA of $18.1 million. I am very pleased with our third quarter performance on many fronts as we march towards a strong finish to what is turning out to be a very successful year. Our adjusted EBITDA as a percentage of revenue in the third quarter was 14.2% above our fiscal target of approximately 12%. I believe this percentage will even be higher in the fourth quarter with room for more growth down the road. In this regard we have just started our fiscal 2018 business planning process and I'm seeing positive signs across almost all aspects of our business. We continue to be focused on increasing shareholder value, being more competitive, reducing costs, and growing our revenues. Although there's still work to do I believe we're on the right path and I remain very pleased at the progress that we're making. I will tell you why I'm so optimistic about our future in a bit but let me first turn it over to Mike Porcelain, our CFO, to discuss our financial results and update on legal matters and our fiscal 2017 guidance in more detail. Then I'll come back and leave it up to the questions-and-answers. Thank you. Mike?

Thanks Fred and good morning everyone. Consolidated net sales for Q3 were 127.8 million of which approximately 32% were generated from U.S. government end customers, 26.7% from international end customers, and 41.3% from domestic commercial end customers. Consolidated backlog as of April 30, 2017 was 461.3 million and during Q3 we achieved bookings of approximately 135.7 million, a book-to-bill ratio of 1.06 which was led by strong bookings in our Government Solutions segment which achieved a book-to-bill ratio of 1.39 for the quarter and which is clearly a significant improvement from our last quarter and which bodes well for our future. Let me provide some color on Q3 sales information by segment. Net sales in our commercial solutions segment were 79.4 million as compared to Q3 of last year which were 72 million. This represents an increase of approximately 10.3%. Sales on the commercial solutions segment approximated 62.1% of total net sales. During Q3 this segment benefited from an additional month of sales of our location and messaging based platforms and safety and security technology solutions such as wireless and next generation 911 platforms that we now offer as a result of the TCS acquisition. In addition our commercial solutions segment benefited from increased sales of traveling wave tube amplifiers driven by strong demand from the in-flight connectivity market. Our book-to-bill ratio in this segment was 0.86. This ratio was lower than the amount we achieved in Q2 primarily due to timing associated with several pending large multi-year contract awards that we are still expecting and continued softness of bookings in our satellite earth station product line. Although market conditions for our international satellite station customers are definitively improving and sales to those customers have actually increased, overall sales for a satellite earth station products have been impacted by continued…

Thanks Mike. As I mentioned earlier I'm really excited about the growth opportunities that lie ahead of us. Let me give you some color on what is happening in each of our segments. First, let me discuss our commercial solutions segment. Here we are a leading provider of satellite communications networks and products such as satellite modems, up and down frequency converters, and solid state and traveling wave tube power amplifiers. We're also a leading provider of public safety systems such as the next generation 911 networks and enterprise applications such as messaging and trusted location based technologies. Our commercial solutions segment is focused on several large growing markets. Our satellite base communication products participated in the satellite back haul and network services market. In the satellite modem area we continued to be the undisputed leader in single channel per carrier SCPC driven primarily by our proven ability to deliver the most bandwidth efficient modems. Our strategy in the past few years has been focused on developing and marketing our new what we call Heights network solution for use with the new high throughput satellites. Last month we announced the general availability of our new Heights dynamic network access or HDNA technologies. The height solution is intended not only to meet the demands of traditional fixed satellite, but also provide distinct advantages for those system uses considering migrating to the high throughput satellite systems. This is an entirely new market for us but one which is much larger than our traditional single channel per carrier market. Last month we also announced that three different customers have now installed and are now using Heights to support their business needs. To date customer reaction has been positive and we have a growing sales funnel of our Heights opportunities. We anticipate that we…

[Operator Instructions]. And we can take our first question from Stanley Kovler with Citi Research. Please go ahead.

Yes, thank you very much for taking the question. I just wanted to ask you about your views on spending in terms of the list of the budgets recently and the outlook for defense spending overall and I have a follow-up, thank you?

I think our expectation is for defense spending obviously to rise. However the gridlock in Congress at the moment and the White House I think is pushing that a little bit out into the let’s say next quarter or the following quarter. Well really it’s hard to anticipate but I think overall certainly the expectation is for a rise in government spending.

And thank you and then on the Heights platform, can you help us understand also I guess just the size of the funnel, you started off with some three customers, what's the potential market opportunity or the eventual revenue opportunity of this market size, if we can get a better feel for that as well? And similar question for the in-flight Wi-Fi market, I will be curious to get your take on the pace of the deployments within various airline fleets and how quickly that ramp can happen?

Sure Stanley, it’s Mike. On the Heights products I mean this is a product that for all intents and purposes we have zero dollars in revenue earlier in the year. So from our perspective we're talking in the double-digit millions in terms of where we expect this product to be in the very short-term time period. And we did shift the double digits into next year from what we see in terms of the opportunity. So it is growing and as Fred had mentioned this is a market in total that again is going from zero to what could be hundreds of millions of dollars over the next few years. So we are really excited about this market. In terms of the rollout of the in-flight opportunities -- the in-flight connectivity market we can't really talk specifics because we have certain confidentiality agreements with our customers. But that all being said I think if you just look at the public statements by the airlines on what they're doing with their old planes and every single new plane, that’s the best gauge for where the markets is and where it's heading.

Thanks, and Mike I just have one clarification on the expense line, I wanted to better understand your comments about the SG&A trending up into next quarter especially given the lower legal that seem to be expecting going forward? Thanks a lot.

Sure, a couple of two things to talk about, right. Our Q3 did have a benefit of recovery of legal expenses so you got to kind of think about adding some back when you want to normalize it. And then just the fact that our Q4 is going to be significantly higher and we are chasing a bunch of opportunities, our SG&A in total in dollars is going to be higher. I think if you are looking for a dollar kind of framework for where things could be despite having significantly higher sales expectations in Q4, I think if you look at our Q1 SG&A that may give you a sense of where we kind of think the dollars would be.

Thank you very much.

We'll take our next question from Mike Latimore with Northland Capital. Please go ahead.

Hey, thanks, very nice quarter and good to see the credit agreement. On the tropo opportunity, you mentioned that is replacing under the legacy terminals, what roughly would that be in terms of revenue opportunity?

I think if you just look at the replacement of the AN Track 170 terminals there were 350 terminals that the army had and another 150 the Marine Corp had. And it's an old terminal obviously, it’s been around for a number of years. I think this is a program probably that will for us mean 15 to 20 years of revenue. I'd say the best estimate that I can give you is probably over $600 million over that span.

Right and then just about the EBITDA contribution commercial versus government so there was 15.5 commercial free government in the quarter, how do you see that playing out over time, I know you have talked about the revenue I think getting back to sort of 50:50 split but how was the EBITDA, what was – where might EBITDA go, it seems like commercial, is that related to commercial right now?

Well, there is a couple of things as we look at the dimensions going forward. First from a percentage perspective is the way I would tell you to think about it, we did 14.2% in Q3 and we almost hit 20% EBITDA margins in the quarter. A lot of folks were questioning how fast we could ramp that up but if you can see with the progressive price we did 13% or so in Q1, increased to 15% and now we are a little under 20%. We expect our Q4 as a percentage to continue to increase. On the government side we are still working through this tactical change and so I would almost tell you that the 6.4% we did as a percentage is certainly a low point. We are expecting that percentage to increase so then you kind of come back to the dollars and the contributions. As the sales come in and as the opportunities are closed, obviously the dollars will increase but for the moment right now the commercial side is driving profit but the government is not far behind in terms of coming back with some significant increases in dollars. And if these opportunities that we're seeing in the government's space come to fruition that dollar number contribution will increase.

And then obviously you are optimistic about fiscal 2018, I guess did you kind of indicate that you think EBITDA margins continued to improve next year or what was your comment on the EBITDA margins say next year?

So, we think in total for the year for FY 2017 we're going to be around 12%. I think if you do the math it's a little bit higher than just 12.0%, it's a 12.3 and change or something like that. So when we look at next year we're going to see that same quarter-to-quarter issue that we had in this year where we had a ramp up going from Q1 to Q4 and you know we've seen that trend for this year as well as the prior year. So we do expect to have significant back end loaded nature to next year as well. And even some of these opportunities that we're seeing, we're thinking of Q1 just in terms of EBITDA contribution in dollars as well as but dollars could be actually be lower than Q1 of this year. So in terms of the ramp we have to kind of see how it plays out but all in all if you think about just 12% being this number, our expectation without giving the number is that we should be able to beat 12% next year. We give our guidance in the September timeframe for FY 2018, we are going through our fiscal 2018 planning process. So we don't want to give out a number that we don’t think we could achieve but our kind of internal planning targets just to give a sense is we hope to be higher than 12%.

Great, fair enough. Thanks a lot.

Our next question is from Kyle McNealy with Jefferies. Please go ahead.

Hi guys, this is Kyle here for George Notter. Thanks for taking the question. Given the positive commentary around potential bookings for Q4 for the Heights platform and I guess into Q1 as well, does this suggest that there's some pent up demand awaiting the product? And I guess the question after that would be how lumpy it might be going forward, is there some big initial bolts that happen and then trails off slightly going forward or does the momentum continue to carry through 2018, how should we think about that shape?

I think what was mentioned is that we were finding this to be kind of a longer sales cycle. To answer your questions there is a pent up demand primarily because A) we announced it early and nobody wants to buy the serial number one. So that's the usual problem. But there is a pent up demand. I don't think it's going to be very, very broad in the fourth quarter but certainly in 2018 I think we expect that to be the breakout year not only for the commercial but also for the U.S. government applications.

Thanks and I know there are different products, the Heights versus just your single channel per carrier platforms but is there any kind of impact on it, I know you mentioned softness in this quarter, is there any kind of weight for effect or transition from those users of single channel per carrier that are kind of migrating to the high throughput satellite in the Heights platform.

I think the migration is just about starting to go to the high throughput satellite systems and I think a lot of customers are planning to do that. So we see that as happening in 2018 and beyond.

Great, thanks and one last one, your typical seasonality in the first quarter is generally down, how should we think about that relationship to the ramp in Heights, does it track better than historical or should we think of the Q1 sequential comps to be kind of generally in line with what you've seen historically.

I think what you probably saw in 2017 I think it seems to be a seasonal aspect for our business and I think we see the same type of transitions from first quarter to fourth quarter kind of hopefully a softer ramp.

Okay, great. Fair enough. Thanks a lot.

[Operator Instructions]. We can go next to Glen Mattson with Landenburg Thalmann. Please go ahead.

Yeah, hi, could you just talk about some of the dynamics that play that are elongating the sales cycle for Heights and you know why you have such confidence that you're -- you'll convert those opportunities in the first part of 2018? Thanks.

I think our great feeling and the opportunities are really based on some of the trade shows that we've had our people go to. And the really interest that we've seen in it. It is a longer cycle because it's a network whereas the SCPC market that we were a dominant figure was really a box of product supply. This really Heights is a network product. So as such it's much more value added and it's a larger market that we're addressing than the SCPC market that we had traditional interest. And finally the funnel in discussions with our potential customers, the funnel right now is pretty large.

But in terms of timing, as far as early 2018 perhaps converting some of those orders, is it simply just maturation of the process and what has you confident in that ability?

Well again it's a longer sales cycle because it is a network and it is the longest cycle for our customers as well in terms of planning their systems and how they go forward. So what we're really seeing is probably not the expectations that we wanted to in the fourth quarter, we see that more happening in fiscal 2018

Glenn just to add to what Fred is saying and elaborate a little bit, we're seeing two things right, we're seeing a longer sale cycle in terms of the orders. So we have this big build up of funnel. So if you look at the funnel, if you think about the sales funnel from Q2 to Q3 we have a much higher sales funnel of customers that we're actively talking with about the product. So that sales cycle overall is just taking longer but the funnel is also growing. So then we have the actual initiation of the order and getting that order in. And I would also say to you, the second piece that we also have is that, these are all sort of customized boxes. So if the order flow getting out of the facility also is probably a little bit longer. So the entire process takes a little bit longer. So when we're thinking about the ramp next year we may have this big increase in bookings and where we traditionally have a higher book to ship, right. That percentage may get down because we may have the order in backlog and it would take us some extra 30 days, 40 days to get the product out the door. So the entire process is longer than our traditional shipping boxes because as Fred had mentioned it's a network. So the orders are expected to start to come in more than they did in Q3 in our Q4 and in Q1 and we expect that trajectory to increase throughout the year. And then with the sales being little bit more weighted towards Q3 and Q4 simply because of the longer cycle time.

Okay, thanks that's helpful. And then just last thing on tropo, is there any other opportunities outside of U.S. government that are moving along at all? Thanks.

Yeah, we continue to have the opportunities in offshore oil platforms and also international, various countries with their defense systems or radar systems that require tropo for their communications or their C4 ISR needs. So, that market continues to be strong.

Okay, thanks. I will leave the floor.

And it appears we have no further questions at this time. I will return the floor to our speakers for any closing or additional remarks.

Okay, well thank you very much for joining us today. And we look forward to speaking with you again in September. Thank you very much.