Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp. First Quarter Fiscal 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Thursday, December 9, 2021. I would now like to turn the conference over to Mr. Jason DiLorenzo of Comtech Telecommunications. Please go ahead, sir.

Thank you, and good afternoon. Welcome to the Comtech Telecommunications Corp. conference call for the first quarter of fiscal year 2022. With us on the call today are Fred Kornberg, Chairman of the Board and Chief Executive Officer of Comtech; Michael D. Porcelain, President and Chief Operating Officer; and Michael Bondi, 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 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 Chairman and Chief Executive Officer of Comtech, Fred Kornberg. Fred?

Thank you, Jason. And good afternoon, everyone. And thank you for joining us in the call. Before we turn to our results for the first quarter of fiscal 2022, I want to take a moment to acknowledge that for both Comtech and our end markets, this is a time of significant and exciting opportunity. As we head into January, the start of a new calendar year, we see the beginning of a long multi-year cycle of communications, infrastructure improvement and investment. Comtech is well positioned to take advantage of this not only because we have the right products, but also the right people and the right strategy. We've refreshed our Board. And in Mike Porcelain have appointed a CEO who has demonstrated both operational acumen and a skill for execution. Mike has been very instrumental in leading context to win significant long term contracts. Also, as you know, we recently secured $100 million of investment capital to underwrite our long term strategy. This was from our committed common stock shareholder, who will bring not only a wealth of knowledge, experience and relationships for the company. From where I sit, the future is very bright. Given all these transformative steps, Comtech is uniquely positioned today as a secure wireless technology leader, poised to capitalize on tremendous growth opportunities ahead. Before I hand the call over to our new incoming CEO, let me provide an update on another event that took place in the quarter. And that event was the receipt of an unsolicited non-binding proposal from my Acacia Research Cooperation, as was first reported in the financial and industry media several weeks ago. Shareholders should know that Comtech's Board has been considering and continues to evaluate the proposal in consultation with our independent advisors. The Board will recommend and pursue the course of action it believes to be in the best interest of Comtech stockholders and the best interests that will maximize shareholder value. Unfortunately, that's all the detail we can provide at this time, but we'll continue to keep you all updated on the process. We want to deliver as much value as possible to all of our shareholders. We strongly believe we have the strategy, the management team and the Board in place to do it. With that, let me turn the call over to Mike Porcelain, our incoming CEO. Mike?

Thanks Fred. And good afternoon, everyone. Fred talked about this being an exciting and transformative time for Comtech and our investors. And he's right. I've said this before, but I continue to believe we are uniquely positioned to capitalize on growing demand worldwide for solid ground station infrastructure, a next generation 911 systems. We believe the total addressable market for SATCOM Communications equipment based on the study by Northern Sky Research is expected to grow from $5 billion to $9 billion by 2029. We also believe that the ng-911 market based on a study by Frost & Sullivan is expected to grow from $689 million to $1.7 billion by 2026. And as we work through COVID, and global supply chain issues, we believe we will capture our fair share of this growth. Although we have a ways to go, fiscal 2022 is starting to shape up to be in line with our expectations. We delivered a solid start to the year with net sales of $116.8 million and adjusted EBITDA of $5.5 million. Our team continues to do an excellent job navigating the impacts of COVID and supply chain disruption across our end markets. And as a result of these efforts, our financial performance appears to be running slightly ahead of schedule. Although reliable forecasting remains challenging in this environment, we continue to target fiscal 2022 net sales to be in the range of $580 million to $600 million and adjusted EBITDA between $70 million and $76 million. These targets reflect the strength of our backlog and strong sales pipeline, offset by the impacts of COVID-19 and timing considerations associated with global supply chain constraints and startup costs associated with the opening of two new high volume technology manufacturing centers. There are several large deals that we still expect to close in the second half of fiscal '22. And we have seen progress towards capturing them. I'll provide some more color on these and other key developments in our sales pipeline and end markets and product innovation. But first, let me turn the call over to Mike Bondi our CFO who will comment on our financials. Mike?

Thank you, Mike. And good afternoon, everyone. As Mike mentioned, Q1 results were slightly ahead of plan. Net sales were $116.8 million. Of these sales 78.6% were U.S. based customers and 21.4% were to international based customers. Bookings for the first quarter were at $86.4 million, resulting in a book-to-bill ratio of 0.74 for the quarter. While periods of period fluctuations and bookings are normal in our business, we see evidence that COVID-19 and supply chain constraints are continuing to impact the timing of new orders, deliveries and installations. Nonetheless, based on anticipated new orders, we expect to achieve our fiscal 2022 book-to-bill ratio in excess of one. Our gross profit percentage in Q1 of fiscal 2022 was 35.7%, SG&A for Q1 of fiscal 2022 was $28.2 million, or 24.1% of consolidated net sales. Turning to R&D, we invested $12.5 million in the first quarter, or 10.7% of net sales. Total amortization of stock based compensation during Q1 was $0.9 million. Total amortization of intangibles was $5.3 million in the first quarter of fiscal 2022. Our GAAP operating loss for the first quarter was $6.5 million and reflects $2.2 million of proxy solicitation costs, $700,000 of restructuring costs and $700,000 of COVID-19 related costs. Excluding such costs, our non-GAAP operating loss was $3 million for the quarter. Our adjusted EBITDA was $5.5 million, or 4.7% of Q1 consolidated net sales. On a segment basis in Q1, our commercial solutions segment contributed $9.1 million of adjusted EBITDA or 11.5% of related net sales, and our government solution segment contributed $600,000 of adjusted EBITDA or 1.6% of related net sales. Interest expense was $1.6 million in Q1 and our income tax benefit was $2.1 million. On the bottom line, GAAP net loss in Q1 was $6 million, or $0.43 per diluted common…

Thanks. As I said earlier, I want to take some time to talk about the developments we see today that we believe we are strong indicators that Comtech is the right strategy to deliver long term growth. I'm confident that we do have the right strategy. One key indicator was our strong backlog and long term visibility, a clear indication that our customers recognized Comtech is the right products and services to meet critical communication needs for satellite ground station infrastructure a next generation 911 systems. We certainly have a market leadership position in the next generation 911 space, as evidenced by our fiscal 2021 multi-year contract awards, totaling over 200 million. As evidenced of our industry expertise, some have even called our next generation 911 product line, a crown jewel, and we don't disagree. Our industry expertise has also enabled us to develop the strong leadership position in our satellite earth station product line, where we have been recognized as a leader in a growing satellite cellular backhaul market. Perhaps the best independent validation of our industry experience and our strength was the fiscal 2021 award of a multi-year contract to customize context, next generation broadband satellite technology. No doubt, our team has built a complete product portfolio that should serve us well for many years ahead. Based on our current pipeline of opportunities, we believe we have over 1.2 billion visibility into future potential revenue. I'd like to first highlight our team successes in terms of business performances and new contract wins, and then also touch more on the direction of our markets. In our commercial solutions segment, net sales were $78.9 million in Q1 of fiscal 2022. We received orders totaling $60.8 million in Q1, resulting in a book-to-bill ratio for the segment of 0.77x. Looking forward,…

Thank you, Mike, for the warm sentiment. As I look back over the years, I'm very proud to have served as CEO and President of this great company. It truly has been a privilege and an honor to have been fortunate enough to serve my roles, all these years. I have nothing but more confident that our company has the right Board and management team, the right strategy, and the right focus to create long term value for our shareholders for many years ahead. Reflecting this confidence in our business outlook, our Board of Directors, again declared a dividend of 10 cents per common share payable on February 18, 2022, to shareholders of record at the close of business on January 19, 2022. Now I would like to proceed to the question and answer part of our call. Operator.

And we'll move first to Joe Gomes with NOBLE Capital. Please go ahead.

So just wanted to talk a little bit about the next generation 911 business, got a couple of multi type, part type of question here. You did a great job in giving us all the contracts that have been won. So kind of the first question, on Ohio, what's kind of the hold up there in the funding for that? Also, I was wondering, maybe you could talk is there been potential projects that you've lost? And if so, maybe give us a little insight as to why you have and then, a couple years ago, you got an award over in Australia, and we really haven't heard much or anything about that business I was wondering, maybe you can give us an update on that?

Yes in terms of Ohio, it is strictly a question of funding and I will say the good news is from our understanding it's a pretty bipartisan funding effort that's going on. The Governor is in full support of the contract, as we understand and both the Democrats and Republican leadership's on the legislative side are working together to pull together the funding. We're not going into the intricacies of how the state tax system works in Ohio and the funding mechanisms. There is a requirement for the legislator to actually pass something and the Governor to sign it. So there's just a question of the mechanics that they're working to. And it took some time for them to come up to agreement. But it is possible that that award actually gets done in December, if not by April. And so, there's just, they have to work through the mechanics. But we're - I think everybody that is connected to the contract, as well as the state of Ohio, is anxious to get the program going on. So that's the Ohio issue. In terms of contracts we lost, I mean look, I had to go back, probably to California for maybe a year ago or so we did, California was a unique state, they broke up the state into multiple regions, certain counties within California had call it incumbents, if you will, and contact wasn't one of those incumbents. So we were coming at it from a newbie perspective. And then ultimately, I'll say, in a very odd way, the state of California chose a company that was based outside of the United States. And from our understanding is, the state hasn't made much progress with that vendor or with their new system. And you could assume that we're reminding…

Yes they did thanks, Michael one other one, if I may, you talked about the comment in the Troposcatter potential contracts here and new orders in the second half of the year, maybe you could give us a little more insight, if possible, as to, why you're confident in receiving those? And has the continuing resolution have any impact. I guess not just on that, but somebody or other government type of contracts?

Well, I don't want to disclose the specific country that we're focusing on, because that would, provide some information to potential competitors out there. But this particular country does have a need for communication services for a variety of both defensive reasons and communication reasons. And I can tell you that the award is really split into two pieces. It's one with the government directly, and one that is effectively being funded through the U.S. government. So again, both the foreign government and the U.S. government are working very closely together and again, without specifically calling out the country. I think we just feel pretty good that they need the equipment and there's an intense focus to make it happen. That being said, we call it up because as, some, of these things are just difficult to predict because of timing and lumpiness.

And we move next to Mike Latimore with Northland Capital. Please go ahead.

I'm interested to - learn a little bit more about the satellite backup services for PSAPs. Can you just provide a little more color there? What are their RFPs out already what can be the revenue per PSAPs. What's the catalyst to get, you know, these kind of services deployed?

Yes Mike, you look, there is roughly 4000 PSAPs, if I'm not mistaken in terms or 6000, I forgot the exact number it is in our slide. So bear with me on the difference. But look, a large majority of those PSAPs are in rural areas, where telephone lines or connectivity is not great to begin with. But it comes about - it really just comes up to backup. And I could tell you that state and local governments for the most part, they don't have backup, which is why when you see on the news, sometimes, the 911 systems go down for a variety of reasons. And the 911 system just doesn't work. And you have to call a local number directly to that PSAPs. So the market is pretty big. It's going to be a question of funding and getting the states and local agencies really on a onesie-twosie type basis to fund these things. We think programs and funding, such as the infrastructure bill, as well as some of these 911 bills that are floating around in the Senate of the house, will be helpful to making that initiative take off, if you will. I could tell you that there are states like for example, in the state of New York, there are states - or counties up in the rural parts of New York that do you use satellite backup systems. And in some cases, use satellite as the primary method of transmitting calls over the 911 system. So there's definitively a market, it's a question of funding. But the thing that's going to drive it is not only funding by the federal government and the state. But the fact that you're putting 911 systems now, with video and text messaging and imaging, just like any regular enterprise, backup, reliability, and redundancy becomes important. And again, the states are learning that as they go through this process. And so yes, some states are looking at putting it in the RFP. But I would also tell you, it's in the infancy stage from that perspective, because the state first needs to get the next generation nine one system up. So again, some of the stuff I'm talking about is not going to be revenue that's going to hate in 2022, and maybe not even 2023, although I like to be a little bit more optimistic. But these things will take some time. And look, you could do your own math. I'll use I'll stick to the low end 4,000 PSAPs times a $100,000 worth of equipment that's your market size. And you could double that if you want if it's 200,000 and maybe there's a recurring revenue. It's a new business model that, we're working on to roll out. And again, we'll report back to you, you know, when - as and when we get success in that market, but we are working on it.

Great. And then on the current 911 deployments, are they basically preceding the plan or have some of the labor shortages deployments?

Hi, Mike in terms of the deployments, they're moving along as planned, going to the milestone set with the customers so, fortunate for us right now. We don't see any issues with that. Certainly, as like in Pennsylvania being mindful of the winter and this is book work that being done outdoors, you know, laying fiber and stuff like that might slow things down. But I say overall, things are looking pretty good here.

Thanks and just last one, you know, I guess what is your interest level and making more acquisitions? And maybe what technology areas would be a top of interest?

Yeah, I mean, certainly, acquisitions do and are part of our thinking. And, both on a tactical basis and within each of the product lines, it's one of the benefits of having $100 million strategic growth investment, and the benefit of having folks like White Hat Capital and Magnetar associated with the company because of both given the industry expertise that we now have access to, as well as the relationships, and partner network, if you will. It's really going to be helpful to bring in better deal flow, if you will and also the capability and expertise to do some of the things. I will -- I kind of look at our markets and this sort of does -- I'll tease a little bit the way we're thinking about the segment information. But look, we've got 911, and location products, which we know very uniquely tied together. Although you do have cross pollination with a satellite business and redundancy and some of the cyber training stuff, we have a product line that is really satellite and space components. And when you sit back and you look at the 911 business, you have certain market dynamics that are growing there. And we feel there are some software companies that are out there some additional features and functionality from a technology perspective that we could add to our systems. And that, you can then sort of take that is, there's things such as evidence tracking, and dispatch systems and other things that you could add to the 911 system, if you start extending and talking to your customer. But I would say the electric sparks -- smart response is the reason why we develop that type of the system. Because I don't want to say it's like a plug-and-play. But similar…

And we'll move next to Kyle McNealy with Jefferies. Please go ahead.

Hi, thanks a lot. I'm for George Notter. I also want to say congrats on the transition Fred and Mike. And thanks for your additional clarity on your initial priorities after the change. I wanted to see if you could give us any clarity on the incremental R&D and sales and marketing investments, optics overall, that you're making on the new opportunities that you have that aren't necessarily generating revenue yet. Could you give us some clarity on dollars basis or percentage of revenue basis, we're trying to understand the split out of what the base business is doing in relation to revenue versus new opportunities that you're investing in, like LEO & MEO and then any new next gen 911 wins that flow in.

Hi Kyle, in terms of the investment, I would say that's not generating revenue at this point would be around $3 million. If you're thinking about it for you know, where we're spending that money it's focused on as you mentioned, the LEO, MEO space and upgrading, like Mike was talking about smart response areas of the business like that, that's where we're focusing.

Just to be clear, that's incremental spending versus last year - I mean, we're spending more than that in those areas, but it's incremental versus last year.

Okay is that a quarterly basis or is that annual figure that 3 million Capex?

That's an annual level.

Okay, great. Do you have any additional, anything additional in terms of the timing on when you know, bigger step ups and that LEO and MEO revenue opportunity can ramp up or any larger NG number one deals that might be on the horizon that can meaningfully and flex sales in that business as well?

Well, let me specifically tell you on my large contract for next generation contract, is I'm not going to discuss anything with that. My customer is extremely sensitive towards what we can say and talk about that. So I'll, just would like to punt on that issue. And obviously, when we get the order, we'll be able to talk about it. In terms of the 911 stuff, again we're thinking about the second half of the year and that's what we're thinking.

Okay, great. One last one from me, I'll jump back into the queue. But you're guiding for a pretty big step up in the back half for this fiscal year. I know that that's typically what a year does in terms of shape. But this seems to be even bigger ramp in most years, I'm curious how much of the kind of post pandemic normalization is required to achieve that back half? Like would you say is still conservative or is it dependent on face-to-face meetings opening up, back up in a bigger way? And some kind of bigger inflection in satellite ground station business, that's been relatively slow for the last few quarters or a year?

I would say the number one thing for us for the Q4 really is in the Comet and Troposcatter those opportunities that I was referring to. We have conducted in country trials already. So that's been that's been taken care of. So we've actually been in country and now we're out of the country. And we're trying to work with the customer to get those fundings. So again, sitting here in December, it takes a couple of months to hopefully work out those contracts, if not sooner. But like I said, the contracts kind of, being split into two funding mechanisms. And that's what we're working with. So, I don't think it requires a reopening per se. And I think, this is a matter of just getting that particular product funded, and with the customer. The rest of the stuff COVID and supply chain I think we have it factored in. I mean, it's not a pretty situation out there, at least from our perspective on the international front. If you look at our revenues in Q1 in our commercial segment again, we kind of almost did the same in Q1 this year, as we did last year. So the big drop in Q1 year-over-year is really almost all in the government side of the business due to the Afghanistan and other program changes on the revenue side. So I think again, we - I don't want to use the word muddle along if you will, this year. But look it's a it's a challenging year. No less, when you look at the comparative years', comparative year that we have, but yes we need those Troposcatter order for the second half.

We'll move next to Asiya Merchant with Citi. Please go ahead.

Thank you for the opportunity. Congratulations on the roles. I just had a quick question you know, a lot of them have been asked, but Q1 or October quarter was good for you guys a little bit ahead of expectations as you guys talked about. Was there any pull-in that happened from 2Q into 1Q it seems like the guide for 125 on the top line and 8 on the adjusted EBITDA is a little bit shy of what I was expecting. So just wanted to see if there was any quarterly changes that happened and a pull-in from the, and if it did, which segments were those in? Thank you.

Hi, Asiya in terms of the Q1 results I mean it was a lot of puts and takes, but nothing that was a pull-in from Q2 is just timing of when we could get stuff out and based on parts that we had and what we could get out the door. So certainly if we could get something out we will.

Okay, thank you. And then also on adjusted EBITDA anything there to be mindful off for the second quarter?

I would just say, you know, and we said it in the prepared remarks of our script. Our government segment is, going to be very similar to what we did in Q1. And we'll continue to be that way, even in Q3 before really, bouncing up in Q4. And our hope is that we might be able to get these orders in for the Troposcatter stuff early. And that may help us and that's one of the comments we make, if we get these things, you know, earlier in the year, it might be helpful to making Q4 not as high as it is. But you know, when we set the initial guidance at the beginning of the year - we're mindful of COVID, we're mindful of the global supply chain issues. We're mindful that things could go wrong. So yes I think Kyle's earlier point in his earlier question, yes Q4 is higher than it normally is and I'd like to think that that's conservatism. But I think I said on the same - so I'll use the same word I think I used on the Q1 conference call or I certainly have said is, I think we're being pragmatic and realistic. And if we're able to get the orders in earlier, you know, the quarters will be better, but we're just, we're navigating, still in a very challenging environment on the supply chain side, as well as COVID. And again, just this recent spike with Omicron is just causing people to, get all nervous, and countries, some countries are shutting down, and you got to go through test and quarantine again. So, it's just not - it's not a good time to be building satellite network systems. And even in the U.S., it's just, it's not a good time to go into a PSAP and do upgrades.

Move to a follow-up from Kyle McNealy with Jefferies. Please go ahead. Kyle, your line is open, you may be on mute.

Thanks a lot for squeezing me at the end. Again, a lot of your bigger success for NG-911 has been for core services. I know the Solacom has been doing well. But the big contract wins have been core services related. What traction are you getting now for Solacom? You mentioned a few things on the call. But is there an opportunity for your core services deals to pull through more Solacom PSAP call handling? I'm thinking states like Washington, Massachusetts, Pennsylvania, South Carolina where that you're deploying core services like what's the outlook there in terms of opportunities to kind of get some synergies between call handling and integrations with core services that might - work better with everything from the single vendor, the integration as well?

Kyle thanks for the softball question. State of Arizona is great example, we just won that contract and to do the core services. And with that, I call it we get a hunting license. We get permission to go to the PSAPs and sell the Solacom call in software, and that initiative is well underway. And you're exactly right. Our hope is that we're going to be able to extend Solacom into the state of Arizona, there's lots of counties in - Arizona, that do not do that. And we think, again, every time we win, a contract in the state of Arizona it will be basically taking market share. And you're exactly right. Customers like to have the same systems, connectivity it's more seamless one vendor to point to. And that's been part of our strategy, South Carolina, same situation. And I can tell you that that's a state that we've been executing to that strategy. So again, some of these contracts are small, because they're PSAP-by- PSAP basis, may not hit that individual, press release threshold, but yes, we're executing to that.

And it does appear there are no further questions at this time.

Okay, that concludes today's call. I want to thank everybody for joining us today. And we look forward to speaking with you again in March. But in the meantime, as a reminder, our 2021 Annual Meeting is scheduled with December 17. And we strongly urge you to vote the blue proxy card. Thank you very much.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.