Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp. Third 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 June 9, 2022. I would now like to turn the conference over to Mr. Robert Samuels of Comtech Telecommunications. Please go ahead, sir.

Thank you and good afternoon everyone, welcome to the Comtech Telecommunications Corp. conference call for the third quarter of fiscal year 2022. With us on the call today are Michael D. Porcelain, President and Chief Executive Officer of Comtech; and Michael Bondi, Chief Financial Officer. I'm Rob Samuels, Comtech's Head of Investor Relations. Before we proceed, let me 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. Now, I am pleased to introduce the President and Chief Executive Officer of Comtech, Michael Porcelain. Mike?

Thanks Rob. And I should also say, welcome aboard. I hope that everyone on the call has had an opportunity to review this quarter's Investor’s letter, where I talk about our business in detail and offer our candid assessment of the road ahead for Comtech. Before starting the substantive part of our earnings conference call, I want to remind everyone that in Q2 we changed the format and framework of our quarterly earnings announcement from a press release to a shareholder letter. In the past, we have traditionally issued a quarterly earnings press release that summarize comparative financial results, highlighted a few contract wins and included a quote or two from Management. I thought the shareholder letter format was a better way to communicate with our shareholder base and analysts and provide perspective shareholders a better way to learn more about us. I also thought it provided a good forum to share insights into my thinking and the way I intend to lead Comtech. Since then I've appreciated the feedback we received from investors and analysts, almost all of them overwhelmingly like the new format. Some of the feedback we received was that, since the shareholder letter was substantive, we should allow a bit more time between its release and our earnings call. So we have taken that into consideration, which is why today's call is at 5:00 PM Eastern Time, rather than 4:30 PM as usual time. Also it was suggested to us that this significantly shorten our prepared remarks and get to the question-and-answer portion of the call quicker. We agree with that suggestion, so our prepared remarks on this call will be a lot shorter than normal. As we start, let me echo a point I made towards the end of our new Q3 investor letter. It's…

Thanks Mike. For Q3 fiscal 2022, we recorded $122.1 million of consolidated net sales, of which $88.1 million were reported in our Commercial Solutions segment and $34 million were reported in our Government Solutions segment. Of the $122.1 million of consolidated net sales, 72% which is the US based customers, including 23% to the US government with the remaining 28% to international customers. Compared to the year ago quarter, our consolidated Q3 fiscal 2022 net sales declined $17.3 million or 12.4%, a large majority of which related to lower revenue in our government solutions segment, given the impact of the withdrawal of US troops in Afghanistan last summer, and the impact of the more recent Russia-Ukraine military conflicts creating geopolitical uncertainty in Europe on previously anticipated orders. Gross margins were 38.2%, reflecting slight but sequential improvement from the 38.1% we achieved in the second quarter of fiscal 2022 and 38% we achieved in the third quarter of fiscal 2020. This improvement primarily related to a more favorable product mix during the most recent quarter, as well as a lower provision for warranty obligations, partially offset by cost increases in raw materials, electronic components and labor. Inflationary pressures are real and do not seem to be going away anytime soon. While difficult as it may be, we have initiated conversations with customers about price increases to reflect this and to protect our margins. Our selling, general and administrative expenses of $27.6 million or 22.6% of sales reflect tight labor markets and our decision to continue to invest in both existing and new talent. SG&A costs during the most recent fiscal quarter also include $1.6 million of restructuring costs to move and streamline our operations. SG&A expenses in Q3 of fiscal 2021 were $27 million or 19.4% of sales. While we have…

Thanks. Last quarter, I spoke about how things were changing at Comtech. And I hope that you, our shareholders can see that we are making important strides in building the company for the long term, even as we hold our own in a challenging environment. If there is one thing to take away from this call is that, investors should not conflate timing uncertainty with underlying demand dynamics. Knowledgeable long-term investors will know from experience that our business, particularly as it relates to government and government agency contracts, it's difficult to time with precision as policy, procurement and approval processes, all combined to influence execution and delivery dates. The headwinds identified in our conference call here today and on in our letter are clearly evident in daily newspaper headlines and have created timing issues with regard to booking certain orders, along with the set of familiar supply chain headaches which hopefully will be going away soon. But our headline is this, the demand side of the equation is healthy in both our next-generation 911 and satellite ground station businesses. Our pipelines remain strong and we are excited about the opportunities before us. Our government backlog is up from last quarter and overall demand for our satellite earth station products is solid and our backlog for these products is beginning to grow. We have visibility into roughly $1.2 billion in revenue. Our investments in products, facilities and people are paying off and will continue to drive our performance as we move forward. To be clear, we're only just at the beginning. Despite these deeply uncertain times, we're confident in the importance and the value of the markets we serve and the way we are servicing them. Thank you for your time and attention. And now, let's take some questions. Operator?

And we'll first to George Notter with Jefferies. Please go ahead.

Hi guys. Thanks very much. I guess maybe I wanted to start out asking about the full-year expectation. I think you took about $40 million out of the full-year expectation. And I know there's a lot of moving parts here, but could you just walk through kind of your view on what pieces of revenue you thought were going to fall in Q4? And how they shifted? And give us an attribution of that delta on expectations?

Sure. Hi, George. This is Mike Bondi. When it came to the fourth quarter, let's start in the commercial solutions segment, we did have some 911 opportunities that we have been tracking for some time. We've been talking about Ohio as one example, where we were thinking the funding was going to get approved. And just based on where we think the vote is at this point in time and as we said, we think that that's going to fall out in the fall of 2022. And there was going to be sizable bookings that we were expecting. Another smaller order was for another 911 application for a new customer in the Southwest and there that was a another multimillion dollar type opportunity that, again, we've been tracking for some time, but just given the delay in their vote to get the project approved, we just thought it was prudent to push that into later in the quarter. And because of the timing, we're still expecting the award we just don't think we'll be able to generate any revenues in this fourth quarter. So it is like two main themes in the 911 space. We also, as we disclosed, we had some price increases from vendors, which we've tried to pass on to our customers. We had one customer in the Asia region in the country with the Philippines and there we told them about the vendor price increases and ultimately the vendor was unable to move forward at this point in time, so now we have to work on that opportunity to find a workable solution for that customer. Again, we still think it's a viable opportunity, but given the changing dynamics on the component pricing and this is in our government segment, we will have to be pushing that out into Q1 as well, just based on timing. So hopefully that gives you some additional color.

Got it. So in aggregate the $40 million or so comes, I guess, evenly across commercial solutions versus the government side then, is that fair or --

Yeah. I would say more so George on the government side.

Got it. Okay. In the press release, I think you mentioned $10 million associated with this customer in the Philippines. So it seems like there is other pieces on the government side also?

Yeah, I think it's a bunch of various orders, I would say, tied to more changes in defense spending and ongoing budgetary priorities changing on the fly. Again, we still see some opportunities over the long term, but just given the timing of where things are we felt it was appropriate to move that out of the year.

Got it. And then as you look to next year, obviously, a quarter left in this fiscal year, but as you look at fiscal ’23 in any sense for what the top line could look like, obviously you've got a bunch of projects that have been pushed into next year. Obviously, it's a pretty dynamic environment, but any early read on what you think next year could look like?

Yeah, I think at this point in time, George, we haven't given any guidance yet, but I would say we're looking at Q4 shaping up similar to Q3. And if you just take Q4’s expectations and multiply that by four, I think that's sort of a starting point for how we're thinking about FY ’23.

Got it. Okay. I'll pass it on. Thanks a lot guys.

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

Good afternoon. Thanks for taking the questions Mike and Mike.

Hi, Joe.

So your first kind of wanted to talk a little bit on the satellite contract that's been hanging out there for a while, you guys really haven't said a whole lot about it, kind of beat around the bush. I mean, can you give us any clear insider update as to where we stand on that?

Yeah, I mean, I think we're extremely excited about our participation in the LEO market and the MEO market in a very broad sense. As we've mentioned to you before, we obviously have non-disclosure agreements with several of our key customers in this market. So we're not going to speak specific to any particular customer. I think our view is, you could look at what the public documents are and I would point you to our shareholder letter where we've kind of made a few comments that we feel are relevant to us. First, as you think about the satellites, the public documents that have been filed with various FCC's and industry reports that are available, the majority of these satellites are not going to occur for more than a year plus. So when we take a look at it and map out the lining of our participation in those markets as a whole, we don't really have any revenue in fiscal year 2022 related to those things. And I would say, we're probably going to have modest revenues in fiscal year 2023. But clearly our belief is, as satellites broadly get launched and again, not trying to be specific to any customer, but as satellites go launched, you need those ground station equipment. And I think that's when we -- that's when you'll start to see tangible orders come in from our view is when we'll start to see that at the bottom line. So I do think it's a -- ’24 perspective is where you start to see sort of that bump in our participation. But we're not looking for much more participation in ‘23 than in 2022. We'd love for it to come in earlier than that, and we'll see how things play out, but we're making progress and we're hard at work -- working with our customers.

Okay, thanks for that. And in your prepared remarks you talked about you're assessing product lines and reviewing M&A opportunities. I was wondering if you might give us a little more color or detail there as to what exactly you're looking for in existing product lines or where kind of the broadly you'd be looking at M&A opportunities?

Yeah, I would say right now the biggest -- the biggest area we see at the moment and things can change from quarter-to-quarter or period to period is really in public safety and cyber security. We have a smart response software application that we're piloting with some real nice big customers out there. Feedback is really good, it requires us to have a lot of API information -- API connections and information flows to go in there. So as we look at the types of functions and features that our public safety customers want, that is an area where we see technologies, I would call them, and maybe some smaller companies that could fit right into our product line and would be synergistic to the efforts that we're doing. At the same time, I think cyber security is an area that we are looking at. We do have a very large contract, $125 million with the US government that we were performing cyber work for for the next four or five years. We have a couple of million dollars’ worth of work with various public service agencies today in our 911 segment. And as we look at the landscape, you see that every day with the war in Ukraine, foreign nationals wherever they may be are attacking both US government secured contractors, the 911 public safety system is part of our national infrastructure and we see a need out there by state and local municipalities that do not have the IT skill or the cyber skills necessary to defend those attacks, if not monitor those attacks and if not, be in a position to -- if they are attacked to get those systems up and running again. So again, as we work with our customers, Commonwealth of Massachusetts, State of Arizona, for instance, we see opportunities there. And I think I would point to when we won the contract with Arizona it was first contract that one of our existing customer sign for some of our cyber security solution. So again, we have a good captive, if you will, or loyal customer base. And so just within our own customer base, we're optimistic that we could grow the revenue that we're getting from that line, but those things take time, and obviously you need funding. But I think if we were able to make some smaller acquisitions in that area, it might accelerate our participation in those markets.

Okay, great. If I could sneak in one more here. So we know nine months or roughly year or so ago you had a firm offer, $30 a share for the -- for Comtech, closed today at $12.32 and last I looked after markets, it was trading below $11. You have a stock buyback out there, can you just maybe give us your thoughts on does it make sense at this point to maybe start picking up some of the shares at these type of depressed levels, given the fact that you're so excited about the growth opportunities for the company?

Well, what I would say first, the market as a whole has compressed pretty significantly. I mean, there are various stocks down 50%, 60%, if not more percent. And so, I think the market dynamics right now are pretty volatile and technology stocks, which of course, we participate in or temporarily suppressed and that's what I would say. I don't necessarily look at the day-to-day stock price as to what the intrinsic value is of the company at the end of the day. And I think we as a company would share that view. So in terms of the stock price today is achieved? Sure. I think I think it is. At the same time we have a number of initiatives that we're funding or capital expenditures that we’re funding, we have various commitments to our customers. And so, look, we've always used the phrase, we're going to be opportunistic as we look at a potential buyback, we haven't done anything today, but I would just tell you that, we continue to be of the view that we have a program, and we'll be opportunistic about when we decided to execute on that.

Okay, great. Thanks for those insights. I'll pass it along.

And we will move next to Asiya Merchant with Citi. Please go ahead.

Great. Thanks for the opportunity. You guys provided some sort of initial color on fiscal ‘23 and how we should think about that. Maybe if you can also talk to me about how we should think about EBITDA margins from here? Should we expect some of these price discussions that you're having with your customers to be reflected in perhaps a little bit better margins here? Anything else you're doing to kind of improve the EBITDA margin profile and how we should think about the EBITDA margin profile in ’23? And then just a couple of more on the ’22, how should we think about cash flow expectations for this year? And then just on this emerging technology, something that you guys exclude from adjusted EBITDA, can you guys can provide more color, like, what is that and why is that excluded from adjusted EBITDA? Thank you.

Hi, Asiya. This is Mike Bondi. I'll take the first question in terms of the EBITDA margin profile and also even our gross profit margin profile. I think we did show some sequential improvements over the last two quarters, but at the same time, we really are battling with increasing prices for labor and parts and just a sluggish supply chain. So I think overall when we look at 2023, I would say, just in the 10% range is probably for EBITDA margins, where we would end up at this point in time. And there is too much uncertainties as to next year to say we can do better than that right now, but certainly we'll be working towards that. In terms of the cash flows expectations for this year, we did reevaluate where we are in the year, we spent $14.4 million to date on our CapEx plans of $30 million and just based on where we are in the year and timing, we're expecting the CapEx to be about $25 million. And then when we looked at operating cash flows for the year, while we're at breakeven is our GAAP number that does have the proxy solicitation costs included in that and also we have our former CEO transition costs included in that. And when you back those items out, we'd be roughly around $25 million to $30 million of positive operating cash flows. And in terms of the third question.

Yeah, it was at strategic emerging technology. I think you mentioned you exclude that from your adjusted EBITDA. I was just kind of curious what that is and why is that excluded? Thank you.

Sure. Okay. So as we announced about a year ago, we also had a similar charge of about $300,000. This particular quarter, as Mike was talking about our partnerships with our LEO customers and attacking the MEO market as well. We're working with our customers, we identified some highly technical risky type endeavors that we chose to do ourselves to show our partnership with the customers and to progress in our relationships. And so in this particular quarter we incurred about $900,000 of those types of costs.

And, I mean, I think -- I think Mike’s description of it was perfect. I think from our perspective, look, there are R&D cost, no doubt about it, right? And what we would emphasize is, today we don't have any revenues associated with these projects. These are things that we are doing, you could call it very much on the speculative type take basis for us. The LEO market and the MEO market is new, right? Our business historically has been in the GEO market and the high-speed throughput type satellite. So this is an area where I don't want to kind of say it as you're trying to make a learn how a fly flies, but we're trying to develop really cutting-edge technology where we don't have any markets. We have not really identified end customer for the stuff that we are trying to develop. We have certain contracts, we know what our customer wants, so a lot of this is some of the trial and ballooning and we feel it's appropriate to call it out because it's something we wouldn't do if we wouldn't believe in the long-term aspect of the market. And as of today, we don't have any revenues from it, so we think its proper way to look at the company. So people know what we're spending.

Okay, that's fair. And then just -- this is more like -- the backlog that you guys have, is there like a time frame associated with it? Like, do you expect to fulfill this backlog, which may be -- because you have supply chain issues right now? Do you expect to fulfill this backlog in the next six months, 12 months? Like, what's kind of the timeframe associated with the backlog?

I think we've always said, our backlog is probably more of an 18-month type of a situation, may be even closer to two years. I think in one trend I would point out to you, our backlog here was slightly down from Q2, about $602 million in the quarter. Right now we're doing a lot of work in the 911 stuff and we really haven't announced any substantive contract work. But -- so, on one hand, our 911 backlog is sort of going down. But on the other hand, we're -- our bookings for our satellite earth station business and some of the other stuff like in our Government segment is actually pretty strong. So you're starting to see some of those trends that we're talking about into our backlog. And as our 911 customers start to come up for renewal, that'll add to the backlog. But if you just look at the $602 million, it's probably somewhere between an 18 month and 24 month sort of an average depending on which bucket it falls in.

Okay. Thank you.

And we'll move next to Mick Latimore with Northland Capital. Please go ahead.

Yes, thanks. On the -- the communications business grew pretty well sequentially. Is that just sort of deploying some of these 911 deals or what caused that growth?

Hi, Mike. This is Mike Bondi. Yes, this quarter we did see an uptick in the commercial sales. We did see some of our satellite ground station product lines do well. And I think also keep in mind last quarter in Q2 we did have some plots that were hung up. And so, you did see some of that pop in Q3 and some of that will also be in Q4. But yes, you're right. You're observing an uptick in the commercial.

And then these kind of one time R&D investments, you said $900,000 this quarter, is that something that is going to be sporadic or should we think of that as a cost every quarter going forward?

Yes, sporadic is the perfect word. It's something that -- if we're speaking to our customer or assessing the market, we may have another pop here or there. As Mike mentioned, the last time we decided to make an initiative investment was almost a year ago for a couple of hundred thousand dollars. So I think sporadic is the right way to look at it.

Okay, got it. And you talk about discussing with your customers, price adjustments given inflation. Are these discussions on contract renewals and new prospect discussions or are you doing that kind of mid contract as well?

No, it's -- I mean, obviously, we'd love to go back and adjust current contracts that provide to that. But obviously, if we have a firm fixed price contract with our customers, our folks expect us to honor it. But if they have a change order or something that they want us to do differently, we're certainly going to be pricing it -- it’s really -- there's not much in negotiation. We're certainly going to be pricing it reflecting the current labor market and the cost parts that we're seeing. And I would say to you, I mean, I think this is one of the issues that we and other companies are facing with inflation. I think right now what people are trying to understand is, inflation really at 8%, 9%, 10% and so they're pausing, right? People are waiting to see what they're going to do. In some cases, you might have some companies that just want to order because they think inflation is going to be continued at this number, so you might as well get the stuff now before it gets more costly. On the other hand, I think there are some companies that have to redirect some of their spending to fuel or labor as opposed to, let's say, hardware. So I think inflation is hurting us that. But go back to your core question, we're negotiating prices where we can. And anything that's new, we're going to be reflective of where market conditions are today.

Yes, got it. And then with the rest of the U.S. government vertical, I mean, they passed their budget a few months ago. How is visibility into just kind of U.S. government projects for you guys?

It's tough right now. I think for us that is the war in Ukraine and I think as you read in the headlines, the government is funded, they're having supplemental budgets, the DoD is shifting a lot of their current inventory to Ukraine. And obviously, that's resulting in the Army's budget and the DoD's budget to replace weapons that they may have redeployed to Ukraine, so as opposed to communications equipment. So I think from our perspective, visibility is tough. On the other hand, we have some large opportunities in the troposcatter work and our view is on the long term that's going to happen. But right now it's difficult to see when we're going to get orders.

Got it. And just last on 911, how many opportunities do you see in the pipeline for fiscal ’23 in terms of like new state deals?

Well, I would say there's certainly the two opportunities that Mike had talked about that we were I think in Q4. I think that those we hope and will continue to expect that they will become 2023 opportunities. I think we have seen a pause in some of the larger procurements that are out there in the 911 space. And I think again, between inflation costs that the states are being experienced and the need to raise taxes, if you will, on their side to pay for other types of things. I think we are seeing a little bit of a lull in new next generation 911 procurements. So I don't want to call out competitive stuff, there's a few things out there that we are bidding on. So it's not to say that there is none, but there's certainly nothing on the scale of, let's say, California was or Arizona was.

Yes. Perfect. Very good. Thanks.

And let's move next to Chris Quilty with Quilty Analytics. Please go ahead.

Hi, guys. Thanks. And again, I do appreciate both the shareholder letter and the extra half hour to read it, I'm a slow reader. Mostly some housekeeping questions here for Mike -- the other Mike. But you had a large CapEx here in the quarter and I think you just gave us an update on the full year, but it didn't seem like the PP&E went up all that much sequentially. Was there something in specific that dropped out?

Nothing stands out, Chris.

Okay. And also you had mentioned in your dialogue, the CEO transition costs. But as I look at the table for the adjusted EBITDA calculation, there's nothing that shows in this quarter on the adjusted EBITDA that was last quarter? Am I missing something there?

All of the CEO transition costs were expensed in full in the second quarter. So I think the total was about $13.6 million.

Chris, you may be conflating the expense, which is Q2 versus the payment of it, which is really in the Q3 quarter.

For the cash flow side of it. Okay. Got it.

Yeah. Correct.

All right. And also inventory levels understandably have been ticking up a bit here. Should we expect them to remain at a little bit of an elevated level on a go forward basis?

Yes, Chris.

Or is the current quarter sort of a good run rate or might we see them tick up a little bit?

No. Look, if we're able -- certainly Q4 inventory level is a good number going forward, at the numbers Mike was talking about, I would agree with that. I think we're still short of inventory to ship products. So the hope is that, we can continue to start to get parts. We're starting to see that breakthrough a little bit. As Mike mentioned, it's one of the reasons why Q2 was a little bit better in the commercial segment going to Q3. So we're starting to see parts come in a little bit better. But I think we're going to want to secure parts to make sure that we could deliver our stuff to our customers. But all in all, you add it up, I would say that Q4 number is probably the right number to think about.

And commend you on the donation of the troposystems to Ukraine. But a question here, are there opportunities for FMS type funding for that equipment shipment in the Ukraine? Are there any ongoing discussions? And I guess just more broadly, I think you mentioned in your letter that you're seeing broader interest, can you maybe add a little bit of substance or sort of sizing on how that opportunity is looking today versus perhaps where you were a year ago in terms of the pipeline?

I think the funnel for us Chris has grown significantly. We've mentioned in the past, obviously, we have the $400 million plus contract or so for our troposcatter program with the Marines. We do think that that's going to continue to come. We do know that there's another company out there that's much larger than us that has a $600 million contract for troposcatter stuff with the Army. And as I put a nice big picture in the letter for something that I took with my iPhone, the Army attended a demonstration of our equipment at their request. So when I look at the opportunities, I would say, growing with the DoD as they see what's happening in the world and the need to have redundant communications and have an ability to make sure that they could communicate in other modes other than satellite, and that's just with the DoD. You're also seeing NATO governments, not to point out a specific country, but it's more than one country that attended our demo down there. And we're seeing that the COMET is being hardwired into some procurement of communications in certain overseas procurement. Is certain equipment compatible with it? So again, these systems take a long time. I've used a phrase in the past and the company has a used a phrase, it's lumpy, very difficult to predict. Right now, we don't really have much in our backlog. We don't have much in our order flow and the way we're thinking about. And I think our view and our philosophy right now is, look, we could tell you the funnel is growing, but it's very difficult to tell you when we're going to get an order and we would rather be in a position to tell you when we got the order rather than put it into our guidance or something like that and just miss it because of timing. So that's going to really be our philosophy on this. But all in all, the opportunities are definitively growing. And again, it also applies to Ukraine and we continue to have conversations with them.

Topic on Ukraine, I think you quantified in your letter the revenue exposure to Russia. Can you just clarify? I mean, is that primarily in the earth station business or does that spread across other segments?

Most of it is in the satellite earth station business, but there was other equipment that we would provide to Russia, but not anymore.

Great. And final question, early days yet, but any thoughts on the Elevate product line?

I hate to use these words excitement, a lot of interest, but that's what we have. The Elevate products is designed to work with not only the existing GEO satellites, but the new LEO satellites and stuff like that. So it's part of R&D investments that we're making, but we do hope to announce some release dates. I'd like to say by the end of the calendar year, but our marketing guys might have better visibility as to when it's going to be shippable product, but lot of interest and we think it's going well.

Thank you.

And we'll move next to Chris Sakai with Singular Research. Please go ahead.

Hi, good afternoon. Just a question on, I guess, there was some $1.6 million spent in restructuring costs for SG&A. Just wondering is this going to lower SG&A in the next quarter or next year? How should we think about that?

Hi, Chris. Mike again. In terms of the restructuring costs there, for the most part that's relating to our facility moves that we've had ongoing this year. And as we said in our filings, we do expect that to continue into the first part of 2023. So we do expect it to continue. I think that was one part of your question. As we get into the new facility, for example, in Chandler, Arizona, we would think that that would abate because we're going to have one facility as opposed to the multiple facilities that were ongoing. But yes, I think you'd also have to consider at the same time while that might go away, we also have inflationary pressures that we don't want to understate and labor cost and other things. So that's something that we're still working through to figure out for 2023. And so at that point, I would say, don't expect just a wholesale drop off of the $1.6 million.

Okay. Thanks for that. And I wanted to ask about your updated guidance. Is this -- how much of this is still anticipating the reservoir prolonging into, say, the fourth for the -- into the -- by the end of the year?

Yes. I think this is the view that we think it's going to be prolonged. It certainly has been to date and we would expect it to continue into the fourth quarter. And just with defense spending priority still literally being defined, that's why we adjusted our guidance for some of the awards that we had been tracking that we still think are viable. But just as Mike said, as weapons systems are getting priority over communication systems, we just felt it was prudent to push those out.

Okay. Thanks for your questions -- thanks for your answers.

You're welcome, Chris.

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

Hey, great. Well, we appreciate everybody's participation on this call. Thanks for your time and attention. And if anyone has any additional follow-up questions, feel free to reach out to Rob directly or Mike and we'll be happy to answer them. Thanks very much and we look forward to speaking to you guys sometime in mid-September, most likely.

This does conclude today's program. Thank you for your participation. You may disconnect at any time. And have a wonderful evening.