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Executives

Luria Soleno [ph] – Comtech Telecommunications

Fred Kornberg – President and CEO

Michael Porcelain – SVP and CFO

Analysts

Mark Jordan – Noble Financial

Rich Valera – Needham & Company

Ryan Rackley – Raymond James

Tim Quillin – Stephens Incorporated

Jim McIlree – Collins Stewart

Tyler Hojo – Sidoti & Company

Peter Arment – Broadpoint.AmTech

Michael Ciarmoli – Boenning & Scattergood

Comtech Telecommunications Corp. (CMTL) F2Q09 (Qtr End 01/31/09) Earnings Call Transcript March 10, 2009 8:30 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp’s second quarter fiscal 2009 earnings conference call. (Operator instructions) As a reminder, this conference is being recorded Tuesday, March 10, 2009. I would now like to turn the conference over to Ms. Luria Soleno [ph] of Comtech Communications. Please go ahead ma'am.

Luria Soleno

Thank you and good morning. Welcome to the Comtech Telecommunications Corp. conference call for the second quarter of fiscal year 2009. With us on the call this morning are Fred Kornberg, President and Chief Executive Officer of Comtech; Michael Porcelain, Senior Vice President and Chief Financial Officer; Jerome Kapelus, Senior Vice President Strategy and Business Development; and Frank Otto, Senior Vice President Operations.

A news release on the company’s results was issued yesterday afternoon. If you have not received a copy please call me and I’ll be happy to send it to you. 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 and objectives, the plans and objectives of the company’s management and the company’s assumptions regarding such performance and plans are forward looking in nature and involve certain significant risk 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 & Exchange Commission filings.

I am pleased now to introduce the President and Chief Executive Officer of Comtech, Fred Kornberg. Fred?

Fred Kornberg

Thanks Laurea, and good morning everyone, and thank you for joining us today for our fiscal 2009 second quarter earnings call. Yesterday afternoon we reported second-quarter results that were particularly impressive considering the further deterioration in the global economy since we last spoke.

I attribute our solid second-quarter results to our strong leadership position in the markets we serve, the differentiated and compelling value of our products, our strong position on critical and expanding US government programs, and the continuing benefits we are generating from the Radyne acquisition.

Because of the more difficult business environment in which we are currently operating, we intend to provide today – provide you with a through business outlook for the remainder of fiscal 2009 as well as our initial broad perspective relating to fiscal 2010.

Let me first turn to Michael Porcelain, our chief financial officer, who will provide an overview of our financial results for the second quarter of fiscal 2009. I will then provide a business and financial guidance update. Mike?

Michael Porcelain

Thanks Fred. Good morning everyone. As Fred mentioned, our Q2 results were solid. Let me review the results of the second quarter of fiscal 2009. I will start with the top of the income statement and work my way down.

Q2 of fiscal 2009 net sales were $143.9 million, which represents a decrease of 5.3% versus Q2 of fiscal 2008. Our results this quarter reflect incremental sales in all three of our business segments associated with the Radyne acquisition, and core organic growth in both our telecommunications transmission and RF microwave amplifier business segments, all of which was offset by an expected significant decrease in sales in our mobile data communications segment.

In our telecommunications transmission segment, net sales for the second quarter of fiscal 2009 were $65.9 million. This represents an increase of $19.3 million or 38.4% from Q2 of FY 2008. Despite difficult economic conditions and some recent softness in commercial bookings, sales of our satellite earth station products increased due to incremental demand, particularly for our modems, which incorporate our DoubleTalk Carrier-in-Carrier technology.

Sales also increased due to the inclusion of sales of Radyne-branded satellite earth station products. Sales to the US Government were and remain strong. As expected, sales of our Tiernan branded video encoder and decoder products, which we acquired from Radyne very weak. Based on what we see, sales of our video products are likely to decline from Q2 levels for the remainder of our fiscal 2009.

We expect that the second half of fiscal 2009 will be more difficult than the first half. Given the recent softness and bookings that we have experienced, we're taking a cautious approach to the remainder of fiscal 2009. Accordingly, we anticipate quarterly satellite earth station product sales in Q3 and Q4 of fiscal 2009 to be lower than the level we achieved during Q2 of fiscal 2009.

Turning to our Over-The-Horizon Microwave systems product line, net sales of our Over-The-Horizon Microwave systems for the second quarter of fiscal 2009, as expected, were significantly lower than the second quarter of fiscal 2008. As we mentioned in our last conference call, and as Fred will discuss later, we do not see any incremental revenue contribution from any of our three large international opportunities for the remainder of fiscal 2009.

Our telecommunications transmission segment represented 48.3% of consolidated net sales for the second quarter of fiscal 2009 as compared to 33% for the second quarter of fiscal 2008.

In our mobile data communications segment, net sales were $38.9 million for the second quarter of fiscal 2009. This represents a decrease of $48.8 million or 55.6% as compared to the second quarter of fiscal 2008. This significant decrease, which was expected, was primarily attributable to both the absence of sales during the three months ended January 31, 2009, to the Army National Guard and a decrease in deliveries to the US Army for orders placed under our MTS and Blue Force Tracking contracts. As a reminder, sales to the Army National Guard during Q2 of last year was funded by a supplemental Defense Appropriation Bill commonly referred to as the Leahy Bond Amendment that was passed in fiscal 2006.

Net sales for the second quarter of fiscal 2009 in our mobile data communications segment include the benefit of sales relating to the design and manufacture of Comtech AeroAstro’s microsatellites and from their mobile tracking products that incorporate Sensor Enabled Notification or SENS technology. These product lines were acquired as part of our Radyne acquisition, and net sales were generally in line with our expectations.

As Fred will describe in more detail later, we continue to believe that demand for our mobile data communications segment products and services has never been stronger, but order timing is very difficult to predict. In January 2009, we announced the receipt of $281.5 million MTS order, the single largest order in our history. The order is for the supply of new ruggedized tablet MTS computers and related necessaries, all of which are expected to be integrated into previously deployed MTS systems. These ruggedized tablet computers are manufactured by a third party.

We do not expect to recognize any revenue from this large MTS order until our fourth quarter of fiscal 2009, and even then we anticipate shipments of only around $15 million. As a result, and when combined with the fact we do not expect to receive significant additional orders in fiscal 2009 for products that contain mobile satellite transceivers, we expect sales in our mobile data communications segment to be significantly lower in fiscal 2009 as compared to fiscal 2008. On a directional basis, we currently expect sales in Q3 to be significantly lower than the levels we achieved in Q2. Sales in Q4, which include anticipated tablet computer shipments, are expected to be slightly higher than Q2 sales.

As disclosed in our 10-Q filed yesterday, if the timing of deliveries relating to this order is delayed or this order is ultimately cancelled, our revenue assumptions for fiscal 2009 could be impacted.

Our mobile data communications segment represented 27% of consolidated net sales for the second quarter of fiscal 2009 as compared to 57.7% for the second quarter of fiscal 2008.

Now turning to our RF microwave amplifier segment, as a result of the Radyne acquisition, we more than doubled sales for the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008. In addition, we also experienced increased period-over-period sales of our solid state, high-power, broadband amplifiers and switches that are incorporated into defense-related systems. Net sales for the second quarter of fiscal 2009 were $35.5 million, an increase of $21.4 million or 151.8% as compared to the second quarter of fiscal 2008.

Although we continue to see increased demand from our military customers for our RF microwave amplifiers and high-power switches, as a result of the current difficult economic conditions, we do not expect to achieve the same record levels of bookings during the second half of fiscal 2009 as we did in the first half.

Some of the government bookings that we received during the quarter such as our multi-million dollar Ground Multi-Band Terminal or GMT order will not ship until fiscal 2010. That said, based on the timing of orders that are in our backlog and that we expect to receive for the remainder of fiscal 2009, we still anticipate that sales in our RF microwave amplifier segment for the second half of fiscal 2009 will be higher than sales in the first half of fiscal 2009.

Our RF microwave amplifier segment represented 24.7% of consolidated net sales in Q2 of 2009 as compared to 9.3% in Q2 of last year. Of our consolidated fiscal 2009 second quarter sales, 36.3% were to international end-users, 51.3% were to the US Government, with the remaining 12.4% to domestic commercial customers.

Gross profit as a percentage of net sales was 41.3% for the second quarter of fiscal 2009 as compared to 46.3% for the second quarter of fiscal 2008. Let me give some color by segment.

Our telecommunications transmission segment experienced a significantly lower gross profit percentage during the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008. This was primarily due to lower net operating efficiencies at our high-volume manufacturing center in Tempe, Arizona.

We experienced lower usage at our high-volume manufacturing center primarily as a result of a decline in production of mobile satellite transceivers for our mobile data communications segment. The impact of a lower production of mobile satellite transceivers more than offset the improved gross margins we achieved as a result of our successful execution of our Radyne related restructuring plan.

In an effort to offset the lower expected volume of production of mobile satellite transceivers for the reminder of fiscal 2009, we have initiated companywide cost reduction activities.

Our mobile data communications segment experienced a significant decline in gross profit percentage during the second quarter of fiscal 2009 primarily due to lower sales, as expected, of our mobile satellite transceivers. Based on our expectations of lower sales in our mobile data communications segment for the remainder of fiscal 2009, we expect our gross profit as a percentage of net sales in our mobile data communications segment to further decline during the second half of fiscal 2009 from the levels we achieved in the second quarter of fiscal 2009.

On a go forward basis, gross margins and operating margins in our mobile data communications segment will be greatly influenced by the mix and number of ruggedized tablet computers, and mobile satellite transceiver orders, which we ship in any given quarter. Our $281.5 million MTS order consists entirely of ruggedized tablet computers and related accessories. These tablet computers are manufactured by a third party and have significantly lower gross margins than products, which include our mobile satellite transceivers.

In addition, as disclosed in more detail in our 10-Q, there are a number of unique risks associated with this order. Our MTS customer intends to switch from using ruggedized laptop computers to ruggedized tablet computers. We currently have approximately 2000 of the ruggedized laptop computers and related accessories on hand with a net book value of approximately $11.2 million.

We have shipped in excess of 15,000 ruggedized laptop computers to date, and we expect to ultimately sell the computers we have on hand. However, given the uniqueness of these ruggedized laptop computers and the speed at which obsolescence can occur, we will continue to monitor our sales and marketing efforts to determine if we need to record a write-down of the value of these computers. Our guidance for fiscal 2009, which Fred will provide in a minute [ph], does not assume any potential one-time write-down relating to these computers.

Our third segment, RF microwave amplifiers, achieved a higher gross profit percentage due to a more favorable product mix. This was attributable to a slight improvement in gross margins in our legacy product line of solid state, high-power, broadband amplifiers and switches as well as the Radyne acquisition.

Our RF microwave amplifier product line now includes satellite earth station traveling wave tube amplifiers, which were sold at higher gross margins than those of our legacy product lines. Margin for our legacy product line were slightly higher in Q2 of fiscal 2009 as compared to Q2 of fiscal 2008. We expect our gross profit percentage for the RF microwave amplifier segment for the remainder of fiscal 2009 to remain relatively consistent with the second quarter of fiscal 2009.

On the expense side, SG&A expenses were $26 million in the second quarter of fiscal 2009 or $4.7 million higher than the second quarter of last year. As a percentage of consolidated net sales SG&A expenses were 18.1% in Q2 2009 as compared to 14% in Q2 2008. The increase in both absolute dollars and percentages is attributable to incremental spending associated with the acquired Radyne businesses as well as increased legal and professional fees in connection with certain legal and other matters that I will discuss later. In addition, despite lower sales in our mobile data communications segment, we continued our selling and marketing efforts associated with our next generation MTS and Blue Force Tracking products and services to the US Army.

R&D expenses were $12.5 million in the second quarter of fiscal 2009. As a percentage of sales it was 8.7% in Q2 of fiscal 2009 versus 6% in Q2 of last year. The increase in expenses primarily reflects our continued investment in research and development efforts, as well as incremental investments associated with the expanded product lines that we now offer.

Amortization of intangibles with finite lives for the second quarter of fiscal 2009 was $1.8 million. This represents an increase of $1.4 million as compared to the second quarter of fiscal 2008. Almost all of this increase is attributable to the Radyne acquisition.

Operating income for the second quarter of fiscal 2009 was $19.2 million compared to $35.4 million for the second quarter of fiscal 2008. As a percentage of net sales, operating income was 13.3% in the second quarter of fiscal 2009 versus 23.3% for the second quarter of fiscal 2008.

Operating income for the second quarter of fiscal 2009 includes $2.3 million of stock based compensation expense as compared to $2.6 million last year.

Interest expense, which primarily represents interest associated with our 2% convertible senior notes, was consistent between the fiscal quarters at approximately $700,000. Interest expense in fiscal 2009 is expected to be significantly lower due to the full conversion of our 2% convertible senior notes as of February 12, 2009. As a reminder, although interest expense will be lower in the second half, this conversion will not have any impact on our diluted EPS calculation going forward because our historical diluted EPS calculation is fully accounted for the assumed conversion.

Interest income and other decreased from $4.1 million in the second quarter of fiscal 2008 to $600,000 in the second quarter of fiscal 2009. This decrease was primarily due to the significant reduction in our cash and cash equivalents, primarily due to cash payments for the Radyne acquisition and lower period-over-period interest rates as well as a change in our investment strategy.

As of January 31, 2009, we had over $232 million of cash and cash equivalents. We continue to follow what we believe to be a prudent approach in managing our cash and cash equivalents. Our strategy involves investing in both commercial and government money market funds, short-term U.S. Treasury obligations, and bank deposits, substantially all of which have interest rates below 1%.

As a result, we expect interest income in each of the remaining quarters of fiscal 2009 to be slightly lower than the amount we earned in Q2 2009.

Turning to income taxes, our effective GAAP tax rate for the second quarter of fiscal 2009 was 32.8% compared to 34.5% for the same period last year. This decrease is primarily attributable to the retroactive extension of the Federal Research and Experimentation credit from December 31, 2007, through December 31, 2009.

Our EPS for the second quarter of fiscal 2009 was $0.46 compared to $0.91 for the second quarter of fiscal 2008. Our non-GAAP EPS, which excludes stock-based compensation, was $0.51 for the second quarter of fiscal 2009 as compared to $0.96 in the second quarter of fiscal 2008.

Earnings before interest, taxes, depreciation and amortization or EBITDA was $27.1 million for the second quarter of fiscal 2009 compared to $40.7 million for the second quarter of fiscal 2008. Cash flow provided by operating activities for the six months ended January 31, 2009, was $24.4 million compared to cash used in operating activities of $1 million in the six months ended January 31, 2008.

Now let’s turn to backlog. As of January 31, 2009, reported backlog was $462.1 million compared to $201.1 million as of July 31, 2008, and $219.2 million as of January 31, 2008.

Before turning it over to Fred, I would like to provide a brief update on certain legal matters, all of which are more fully described in our 10-Q filed yesterday afternoon. I'm pleased to report today that we have made and continue to make significant progress on all legal matters.

First, as announced on January 20, 2009, the Anti-Trust Division of the United States Department of Justice closed its inquiry into Comtech EF Data Corp acquisition of the network backhaul assets and certain product lines of Verso Technologies. We were pleased that we were able to work on a voluntary basis with the Department of Justice to fully resolve this matter quickly.

Second, as described in more detail in our 10-Q, in order to bring the Brazilian subpoena matter to a conclusion, just yesterday we paid fines aggregating $7500 to U.S. Customs and they have released our inventory. We look forward to shortly reshipping the inventory to our Brazilian end customer, and we were pleased that we will be able to put this matter to rest.

At this time, I would also like to give you an update on the DOD subpoena, we received in December. Here too, we made some progress and we can now provide you some additional details. First, we believe the DOD's investigation is focused primarily on whether or not a limited number of previously shipped high-power switches are susceptible to a specific quality issue that could over time, and when subjected to certain environmental conditions lead to component failure.

Second, we have informed our direct customer about the issue, and third, and perhaps most importantly, we have had and continue to receive orders for new switches from our customer, who has not informed us of any field failures relating to these specific switches. As a reminder, the subpoenas we have received do not allege any specific violations of law, either criminal or civil. We have had preliminary discussions with the DOD and intend to fully co-operate with their investigation.

Additional details on these as well as our State Department export compliance review, which remains ongoing may be found throughout 10-Q, which was filed yesterday afternoon.

Now let me turn it back to Fred, who will provide additional color and insight into our three business segments as well as provide an update of our financial guidance for fiscal 2009 in our initial broad perspective relating to fiscal 2010. Fred?

Fred Kornberg

Thanks Mike. I will begin with an update of our telecommunications transmission segment. Our satellite earth station product line delivered solid results despite some moderate softness in the second quarter bookings area. Despite of the weak global economy, the results delivered by this product line in the first half of fiscal 2009 demonstrated very clearly the powerful franchise we own.

Radyne, now fully integrated into our existing satellite earth station business, has made us even stronger from every perspective. We are positioned today as one company with the widest array of satellite earth station products to meet the varying needs of both our government and commercial customers.

We believe that demand from the government for our satellite earth station products continues to be strong based on our ability to enhance bandwidth efficiency in an environment where the government continues to face the challenges of meeting the satellite bandwidth needs of its various missions, and based on our various compelling solutions to maximize bandwidth without the cost of leasing additional transponder space.

This we do through the use of our flagship government modems, the model SLM-5650A, which now offers our Carrier-in-Carrier technology. In our Over-The-Horizon (inaudible) microwave product lines, we remain the de facto go to supplier of worldwide leading (inaudible) data communication systems. As we sit here today, our two North African opportunities continue to make progress, albeit slowly.

We are seeing a lot of stops and stops [ph] based on normal course of business negotiations, relating to project scope, budget, and timing. Although the economy is of some concern, we believe that these issues are secondary and that these orders remain a matter of timing.

We are also working with a number of other countries interested in our products. And as we have reported in the past, we have at least one near-term opportunity that is of reasonably good size. However, here to it is difficult to predict the timing or the ultimate size of these orders.

We are also continuing to work closely with the US Government on a large opportunity to upgrade a key component on the AN/TRC-170 troposcatter [ph] system. While we are not able to is pinpoint the specific timing of this order, we believe that our incumbent position with the DOD, and our proprietary leading-edge technology has put us in a strong position to capture this component order as well as future orders.

Although bookings and sales in this product line are currently low, we are confident that we will be rewarded for our continuing and unwavering commitment and patience in troposcatter technology with new and powerful products.

Moving on to our mobile data communications segment, which includes revenue from our BFD and MTS contracts. By means of these two contracts, Comtech has been a strategic partner and provider of mobile satellite communications equipment and network services to the U.S. Army for almost 10 years.

We are the prime contractor for the MTS network under a $605 million, 3-year ID/IQ contract, where we provide an end-to-end satellite-based communication system providing logistics and combat support with a secure, real-time, global two-way messaging, vehicle location and tracking capability.

As Mike mentioned, we recently announced the receipt of a record $281.5 million single order from the U.S. Army. Including this order, total orders received through January 31 are $427.1 million against the company $605 million ID/IQ contract. This contract ends in July 2010. We are thrilled to have received an order of this magnitude, and believe that the U.S. Army's decision to perform this MTS computer upgrade is a clear demonstration of its long-term commitment to the program.

Currently, we believe that approximately $43 million of approved and appropriated funding remains in the U.S. Army's budget to fund additional MTS program orders in fiscal 2009 and beyond. We also understand that a proposed fiscal 2010 DOD presidential budget, which is actually slightly higher than the FY 2009 budget, but details will not be available on the total budget until April of this year. When released, we expect that this budget will provide visibility on MTS specific funding and should provide an indication of MTS demand going forward.

Although visibility is currently limited, we believe that the demand for our products has never been stronger. For example, on February 20, 2009 the MTS Program Office issued a request for information or RFI. This RFI presents operational requirements in anticipation of putting forth a formal request for proposal or RFP for the next MTS contract.

The RFI states the Army’s requirement that systems developed under the next contract must be able to communicate with existing equipment. As we stated many times before, backward compatibility remains essential for the U.S. Army, and it is something we are uniquely capable of providing. We responded to the RFI on March 6, 2009.

Let us now switch to Blue Force Tracking, a $216 million five-year ID/IQ contract with Seacom, the communication electronics command. Here Comtech provides the satellite communications backbone for BFT or Blue Force Tracking. Orders received through January 31, 2009, from BFT total $161.7 million against the $216 million contract ceiling. These orders will translate into 75% usage of the contract ceiling, while only 18 months into the five-year program. I believe it is a clear validation of the strong demand for our products and services.

As a result of this strong demand, we are only $54.3 million worth of orders away from running up against this contract ceiling. We believe that the army has addressed this limitation by issuing a public market survey during October 2008. The survey stated that the government is considering increasing the BFT contract from $216 million to $833 million, a dramatic increase of $617 million. In addition, the survey indicates a plan to extend the Comtech contract by two years from December 2011 to December 2013.

The survey also includes a number of requirements that are highly favorable towards Comtech. Included in this list is the requirement that Comtech equipments or its operational equivalents continues to be used and that the supplier be required to provide continuous support to the BFT network users. While the outside date given for this potential modification was December 2009, we believe that it will happen much sooner, perhaps, within the next 3 to 6 months. We also responded to this survey in November 2008, and will continue to work closely with our BFT customers.

We are also making solid progress as it relates to our next generation BFT products. In fact, yesterday we issued a detailed press release officially launching our next generation BFT solution. As part of the product launch, we will be hosting a series of meetings and demonstrations during the week of March 23 at the Satellite 2009 Industry Convention in the Washington DC area. Participants will be able to view live data feeds from moving vehicles around Washington DC that contain our next generation transceivers known as the BFT-HC for high capacity.

This on the move demonstration will allow Comtech to demonstrate the speed and reliability of our BFT-HC solution, live and in real time and not in a sterile [ph] laboratory environment. We believe that our BFT-HC solution, which is fully backward compatible with our existing networks meets or exceeds all of the customer requirements for the next generation BFT system.

Certain components within our solution have already been deployed into our network of earth stations to improve the capacity of the existing BFT-1 system. Speaking of our BFT-HC transceiver solution, we recently responded to a statement of work from the BFT Program Office to provide up to 50 BFT-HC transceiver prototypes, including an entire test network environment in order to allow the BFT Program Office to further test and evaluate the Comtech platform, and hopefully its eventual integration into the BFT program.

We are optimistic that we will be able to announce an order related to this statement of work in the near future. We believe, we are strongly positioned to be chosen by the BFT Program Office as the supplier of choice for their next generation BFT network.

I believe without question that the recent large MTS order, the RFI for MTS, and the BFT survey expressing interest in significantly increasing the BFT contract ceiling, all demonstrate the demand for our mobile data communications products and services has never been stronger. We have often warned our investors about the lumpiness of our order flow, and it is no different today.

Interest remains cloudy, not by fundamental demand issues, but by the timing and delivery of the new MTS and BFT orders. These timing issues do not concern us. We will continue to be patient because we understand how critical our equipment is to the safety of our soldiers and to the U.S. Army's overall communication needs.

Now, let me turn to our RF microwave amplifier segment, which continues to perform admirably despite the challenging economic environment. In our traveling wave tube or TWT amplifier product line our strong results this quarter are directly related to our innovative amplifier designs, our established incumbency in a number of active government satellite programs, and our diversified customer base.

Together with our satellite earth station business, we recently announced a $19.1 million follow-on order in January for tri-band and Ka-band amplifiers as well as satellite earth station modems to support the DOD Ground Multi-Band Terminal program or GMT.

Here too as in the telecommunications segment, we've seen some weakness in our commercial business. But to this point stronger than expected military sales have offset this commercial weakness. While we address a competitive market, we are seeing clear signs that our hard work and steadfast commitment to investing in highly efficient amplifier designs is generating contract wins that are continuing to strengthen this franchise.

The update on our solid-state amplifier product line is similar to that of our BFT line. As you know, our primary applications in the solid-state area include electronic warfare, radar, improvised explosive device jamming, and other commercial applications. Yesterday morning, we announced a $12.9 million order for our high power, solid-state amplifiers and switches, and we expect most of this to ship in the fourth quarter of fiscal 2009.

We continue to be a key supplier to the crude 2.1 program, and in fact growth in our broadband solid-state amplifier product lines for 2010 as compared to fiscal 2009 will be primarily dependent on the volume and size of new orders that we received on this program.

Overall, our RF microwave amplifier segment gained significant moment as a result of the acquisition of Radyne. We are very confident that our leadership position in each of these amplifier product lines will continue to be a competitive advantage, and we are now sharing technology building blocks to make each of our product lines stronger.

Now, moving on to fiscal 2009 guidance, I will provide guidance, provide a framework for fiscal 2009 – not only guidance for 2009 but also provide a framework for fiscal 2010 and share some closing remarks.

As I have stated many times in the past, our ability to provide revenue and EPS guidance is largely dependent upon a number of factors, many of which are beyond our control. These, as I have stated before, include but are not limited to; the timing of bookings and related revenues on large contracts as well as the challenging economic conditions, which we expect to continue.

That said, let we now provide a fresh set of guidance for the reminder of fiscal 2009. While we have skirted the economic downturn longer than most, we're not magicians, and the softness in our commercial businesses as previously described requires us to continue to take a cautious and realistic approach as we look towards the remainder of the year.

With that in mind, our revenue guidance for fiscal 2009 is in the range of $610 million to $615 million. This guidance incorporates the slower commercial bookings we have seen to date and that we expect to continue, a nominal amount of revenue orders for new mobile satellite transceivers as well as deliveries of some MTS tablet computers, which are scheduled to occur in the fourth quarter.

From an EPS perspective, our guidance is as follows; we believe that GAAP EPS will be in the range of $1.77 to $1.82, and non-GAAP EPS will be in the range of $2.20 to $2.25. Our non-GAAP EPS excludes both the acquired in-process R&D charge we recorded in Q1, as well as our annual amortization of stock-based compensation.

As a result of the challenging economic environment, we're taking a hard, fresh look at all of our businesses as we continue to consider actions that could further reduce our costs. Our GAAP and non-GAAP guidance for fiscal 2009 does not assume any one-time charges associated with any potential actions that we may take in the future.

Let us now discuss fiscal 2010. While we usually do not provide any financial outlook for the following fiscal year until well into our normal financial planning process, these are extraordinary economic times, in a normal year, detailed bottoms up budget is only completed during the fourth fiscal quarter. However, in light of the current negative global business environment and the current lack of visibility on major future orders, we want to provide you a realistic perspective on how we see fiscal 2010 potentially shaping up.

That said, we believe that the overall difficult business climate that we are operating in will continue into fiscal 2010, and playing it very cautiously, it is reasonable to assume that each of our product lines, excluding revenue generated from our MTS and BFT contracts will not experience the same level of growth that we have experienced in the past several years.

We believe it is realistic to target a consolidated revenue growth of 15% in fiscal 2010. Assuming challenging business conditions continue in 2010, we anticipate that revenues in our telecommunications transmission segment will be flat, revenues in our RF microwave amplifier segment will be lower, and given the large backlog of MTS computers that we expect to be delivered in fiscal 2010, we expect our mobile data communications segment will once again show year-over-year growth.

From a GAAP EPS perspective, including the impact of further cost reduction initiatives, we are also targeting a 15% growth in fiscal 2010. Keep in mind that a large portion of our mobile data communications segment revenue is currently expected to be derived from deliveries of low-margin MTS tablet computers.

While there is no question that we are seeing the effects of a tough economic environment, I believe that our outlook is realistic based on the facts that we currently have in front of us. And I believe that there is a significant upside to this outlook. The fact that we can anticipate revenue and EPS growth of 15% is a testament, I believe, to the leadership position that we have in each of our three business segments. We remain highly profitable, debt free, and furthermore we expect to finish 2009 with around $215 million of cash. And that is not a bad position to be in in this global environment.

As I see it today, I believe that Comtech’s future is bright and that we have an exciting platform from which to continue to grow and build fiscal 2010 and beyond.

With that said, let me turn to the question and answer part of our conference call. Operator?

Question-and-Answer Session

Operator

Thank you Mr. Kornberg. We will now begin our question and answer session. (Operator instructions) Our first question comes from Mark Jordan at Noble Financial.

Mark Jordan – Noble Financial

Good morning Fred. The question first on RF. You stated that you saw that lower in revenue. Is that making – is that also include the assumption that Q2 with a large award that you had last week that is not incorporated in it, because I thought you said in the discussion that that could grow if Q2 comes through as expected.

Fred Kornberg

Yes, I think Mark the only thing that we're trying to say here is losing my voice here – the only thing that we're trying to say here is that we are being very, very cautious and because things are very, very cloudy right now. We have been talking to ITT [ph], and we're not getting a very comfortable feeling that we really are getting to know when those orders are going to recur. I personally believe they will occur, but we just don't know when.

Mark Jordan – Noble Financial

Okay. Looking at the Blue Force Tracking and your next generation with the enhanced terminal and the capabilities it has, does it improve, does your equipment improve the functionality of the legacy terminal and hardware in the first generation product, and therefore be an incentive to install your next generation product in advance within the sort of the next gen terminal and softwares available from Northrop Grumman.

Fred Kornberg

Yes, Mark, I think what I kind of alluded to is that we have already done some improvements in our satellite network that provides a better solution to the existing network of the BFT-1 transceivers. Our new transceiver will not only be using, you know, a much higher speed up to over 230 kilobytes per second, but also will be switch selectable, which will allow us to use any speed below that 230 to meet up with the speed of the present network. So I think we have a tremendous advantage that we can field some portions of the future network even with our existing network and slowly grow into the final network.

Mark Jordan – Noble Financial

Right. Our final question, you know, obviously this has been a tough market environment and that, you know, you have continued to generate a lot of cash. You have resisted, you know, share buyback, obviously the stock is down, the market is down, the cautious outlook you have is you know, probably also going to you know, put pressure on the stock. Question is have you considered changing your long-standing resistance to any meaningful share buyback?

Fred Kornberg

I think being very conservative again in this area, I think we have always been very wary of our cash position and probably leaning on the holding side than most companies. And I think that will continue to be true. I don't think we would want to in this environment to spend our cash necessarily on either buybacks or for major acquisitions. I don't think we're going to not do acquisitions but maybe they will be part cash and part stock.

Operator

We will take our next question from Rich Valera at Needham & Company.

Rich Valera – Needham & Company

Thank you. First Mike, could you give us a backlog by segment?

Michael Porcelain

Sure. Backlog of $462.1 million was comprised of $53.8 million in our transmission segment, $319.7 million in our mobile data com segment, and $88.5 million in our RF amplifier segment.

Rich Valera – Needham & Company

Great. And then on Blue Force Tracking as I'm sure, you know, your competitors there for the next gen has suggested that you could run essentially parallel systems to their next gen sort of side-by-side with yours on different hubs admittedly, but sort of connected through the IP layer. So it could be essentially changed from sort of a single source program to a dual source. Do you see that as a viable potential path that that program could take?

Fred Kornberg

I guess Rich one could always say that one can run parallel systems, and eventually at the final use a network kind of combine the information maybe on a big screen, but you're still using two networks. The economics of it really don’t make sense. Can it be done? Yes, it can be done, but we believe that with our system there is no need to do that. We will be able have backward compatibility with our waveforms that we are using at the present time.

Rich Valera – Needham & Company

Great, and then with respect to the GAAP EPS growth in fiscal 2010 of 15%, you know, your GAAP EPS in 2009 include, you know, a significant, the $6.2 million R&D write-off, which obviously we wouldn't have in 2010. So if you sort of adjust for that you are really talking, you know, quite modest EPS growth there and obviously implying some fairly significant margin compression. You know, we know that the BFT, I'm sorry the MTS upgrade has lower margins than in the standard transceivers, but is there anything else on the margin side we should be thinking about for 2010 relative to 2009 that would result in the margin compression.

Fred Kornberg

Yes, Mark when – excuse me, when you look at the operating margins for the segment, you have to remember two things that we're going to have a significant decline in mobile satellite production for transceivers and those transceivers not only will impact the operating margin, you know, our mobile data communications segment, but they will also impact the operating efficiencies that we achieve at our Arizona facility. So our telecom transmission segment will be impacted as well. So you know, just taking a quick look, if you look at Q1, you will see a decline in our telecom transmission from 29.7% down to about 25% just in Q2. Those numbers will continue to decline when you model out FY ’09, you will look at your Q3 and Q4 and you’ll see that number come down and really that is what is driving the lower EPS into fiscal year 2010.

Rich Valera – Needham & Company

What is the prospect at this point for getting additional transceiver orders. Do you think that would you know, obviously help to bump up those margins?

Fred Kornberg

Yes. There is no question if we got a significant mobile satellite transceiver order that would ship in fiscal year 2010, you'll see a dramatic increase to that 15% target.

Rich Valera – Needham & Company

Okay, and you think you really need to see the fiscal 2010 budget solidify before you can sort of make some judgments on the likelihood of that?

Fred Kornberg

I think at this point there are a number of things that we are waiting for. You know, we are waiting for the budget in April to kind of give us some additional visibility. Certainly there is a lot of redeployment of troops going on right now that need to be stabilized. I'm sure the program office needs to assess their inventory levels, finalize fielding schedules, and once all of that sort of occurs, we expect them to share a fielding schedule with us, give us new delivery orders. The question for us is, you know, is that going to ship in late fiscal year 2010 or maybe even, you know, fiscal 2011. Maybe they apply it with a new BFT-HC transceiver stuff that we hope to get them start buying. You know, at this point we are just taking a very cautious approach and waiting until we see tangible order flow from the program office.

Rich Valera – Needham & Company

Okay, that's helpful. Thank you.

Operator

Our next question comes from Ryan Rackley at Raymond James.

Ryan Rackley – Raymond James

Hi good morning guys. Can you actually, now that you’ve launched next gen Blue Force Tracker, can you give us some more color on what the next step would be, and also if you’ve gotten any more visibility as to what the timing of the order will be coming from the DOD?

Fred Kornberg

Well, I think I can answer that in two parts. I think we said that we just recently responded to a statement of work for approximately 50 transceivers. Those 50 transceivers prototypes will be the next generation BFT-HC transceivers that we will be supplying. Now these 50 units are going to be used by the program office in various locations, and in various live situations and demonstrate the new requirements and the new system. Approximately, it is difficult to tell but we understand this testing phase could be somewhere in the order of, let’s say, 10 to 12 months. So that puts us on a timeline somewhere if we receive our order, which we expect in the near term, let’s say by middle of this year, let’s say as a worst case condition. The testing, the delivery would be towards the end of the calendar year ‘09 and testing will probably take us through calendar year ‘11, calendar year ’10, which will put production units starting into 2011. So that is roughly the time frame that we are looking at right now.

Ryan Rackley – Raymond James

Okay, great. And also just to be clear when you talked, you called it switch selectable technology. So, does that mean that these next gen transceivers are going to be able to communicate with the high-speed transceivers and the low speed transceivers at the same time or is it something you literally select between the two?

Fred Kornberg

It will be a smart selection process, and the transceiver will incorporate all speeds, so that any speed used by – in a remote site will be accommodated by the transceiver.

Ryan Rackley – Raymond James

Okay, great. Also, quickly just looking at the language in the Q, it looks like R&D and SG&A are going to both be higher, whereas last time you said it was going to be lower. Is that purely a function of sales being lower.

Michael Porcelain

Yes, absolutely. There are two main activities that obviously we're going to continue to move forward with, one impacts SG&A and one is the R&D. You know, we are actively going to continue to market our MTS and BFT next generation solutions to the US Army during the second half, you know, as Fred discussed in his script portion there is lots of promotional activities and lots of trade shows that we are going to move forward with including that live demo in the vehicles in Washington DC. You know, at the same time, you know, there is an infrastructure cost necessary to support the US Government and we're going to maintain that you know, in the second half.

Operator

Tim Quillin from Stephens Incorporated, your line is open.

Tim Quillin – Stephens Incorporated

Good morning.

Fred Kornberg

Good morning Tim.

Michael Porcelain

Hi, Tim.

Tim Quillin – Stephens Incorporated

I'm trying to figure out the guidance for fiscal ‘10 or the guidelines for fiscal ’10 so I understand the telecom transmission and the amplifier, but in terms of the $282 million computer shipment, you know, my understanding is you know you'll have a piece – $15 million dollar piece in fiscal ’09, but you know, vast majority of the rest will ship in fiscal ’10, which you know, gets you $260 million perhaps in revenue in mobile data. My further understanding is that there can be concurrent shipments of transceivers, and I understand there is a funding documents in place other than the $43 million that is left right now, but it would seem that all indications are that there is going to be continued shipments of transceivers. So, as well as you know, also you think about the service revenue on both Blue Force Tracking and MTS side. It just seems like you get to much higher mobile data revenue number.

Fred Kornberg

I think Tim you know to answer the question realistically, there are a number of factors here that makes us cautious. One is obviously the funding, which you mentioned. Two, which is another factor which many people don't realize is the actual fielding requirements that are proposed by the U.S. Army, and sometimes even though the funding is there, the fielding requirements aren’t maybe given out to be proper commands at the same time, and therefore the orders are not placed. It is pretty cloudy right now, especially as Mike mentioned what is happening in Iraq and Afghanistan, the redeployment of troops, redeployment of vehicles, and so forth. It's just a difficult situation to really understand where we are right now. So we're just being cautious.

Tim Quillin – Stephens Incorporated

In terms of the, you know, third-quarter guidance in the mobile data segment, you expect it to be significantly down. I mean the revenues that we are going to see in the current quarter is that kind of reflective of a pure service revenue line, are we going to see any transceiver shipments in the current quarter.

Michael Porcelain

Yes. I think this is a good way to look at it. Our mobile satellite segment for Q3, you know, it's going to really consist of two pieces. It will be the legacy mobile data, our MTS and Blue Force Tracking, as well as you know, some nominal revenue from our AeroAstro product line, but, you know, in Q3 we do not anticipate to ship any meaningful MTS or BFT transceiver products. There is some miscellaneous equipment and miscellaneous shipments, but certainly it's not a whole heck of a bunch and you know, certainly you will actually see, you know, on a directional basis with guidance, you know, your operating income for that segment will be, you know, more towards the breakeven point as well. I mean it's going to be a very, very low quarter as we continue to spend you know, our money on the marketing shows and our efforts to move forward the next generation product line.

Tim Quillin – Stephens Incorporated

And then the satellite earth station business. It looks like the implied bookings in the telecom transmission segment anyway were about $56 billion in 2Q. Pretty big drop off quarter-to-quarter in terms of bookings, but you're expecting a flat year on fiscal ’10. It almost seems like the bookings or the softening of the bookings that you saw would suggest that you could have a decline in telecom transmission in fiscal ‘10 versus fiscal ’09.

Michael Porcelain

Yes, I think you put a little bit more color on what Fred said. There was lots of moving parts as it relates to the segment. You know, certainly our mobile data com is going to be higher than fiscal year 2009, as we anticipate the $281 million shipment, mostly shipping in ’10. We expect, you know, lowering our amplifier segment because of the growth and I think telecom could either be flat or slightly lower, you know, in ‘10 and really at the end of the day when you add it all up, you know, we continue to target, you know, 15% consolidated revenue growth is the way we are looking at it. It's really tough at this point. We are trying to give a broad framework for fiscal year 2010. We're not getting too specific.

Operator

And we will go next to Jim McIlree at Collins Stewart.

Jim McIlree – Collins Stewart

Thank you, good morning.

Fred Kornberg

Good morning.

Michael Porcelain

Good morning.

Jim McIlree – Collins Stewart

Relative to the fiscal ‘10 numbers in mobile data, are you assuming any other mobile data business other than this big 282 shipment, and whatever residual AeroAstro you can get?

Michael Porcelain

It is a follow-up to Tim’s question, you know, yes. We do anticipate you know, incremental satellite airtime for BFT and MTS. You know, there's going to be ongoing professional field service support necessary to do the installation and there will be some you know, nominal MTS and Blue Force Tracking, you know, rollouts that we do expect to occur, but there certainly I would not use the phrase significant and I will not use the word material. I will use very modest, and you know what we're looking at it as if we get a tangible order it would be significant upside to our 15% growth, absolutely.

Jim McIlree – Collins Stewart

Understood, okay. I just want to make sure about that, and secondly on the telco side again for fiscal ‘10, are you assuming any Over-The-Horizon contracts that you are chasing now get booked and start shipping?

Fred Kornberg

I would say we are not assuming a material piece of our Over-The-Horizon contracts. It really depends again on timing, which you know continues to be difficult to predict if we got that order earlier in the year or even before the end of fiscal year 2009. You know that could make that number go higher, which again, you know, could be upside to that 15% growth target bur right now you know, timing is just ultimately difficult to predict. So again I would say it is nominal revenue we are assuming and anything material or significant would be upside.

Jim McIlree – Collins Stewart

And one more if I may, on the expense side, relative to the additional cost cutting measures that you are taking, can you just frame that in terms of how much you would expect to save. And then, you know, kind of where that would put you in terms of expense growth for fiscal ’10, just broad numbers if you could?

Michael Porcelain

Yes, it’s real difficult at this point, because the actions, you know, we’re certainly contemplating actions. Some of it is going to come out of our cost per sales line and some of it is going to come out of you know, various buckets and operating expenses, but, you know, you really ought to just focus on our operating income line and kind of come up through your own P&L at this point.

Operator

We will take our next question from Tyler Hojo of Sidoti & Company.

Tyler Hojo – Sidoti & Company

Hi good morning. I'm just hoping you can maybe update us with cash expectations either cash flow from ops or just cash balance for 2009 and maybe 2010 if you have it?

Fred Kornberg

I think for fiscal 2009, we anticipate to finish the year at around $250 million of cash and certainly fiscal year 2010, you know, assuming the 15% target, you know, we should be well north of $100 million worth of EBITDA.

Tyler Hojo – Sidoti & Company

Okay, and then I guess – I mean you spent a good deal of time just kind of talking about the Radyne integration and it seems like it is going pretty smoothly, but maybe you could just speak to, you know, how that company just in general is performing you know, relative to your projections when you actually purchased the company?

Fred Kornberg

I think overall with the exception of our video and encoding product lines, everything is all a sort of above our expectations. You know, our integration is complete in our Arizona facility. We have combined completely the satellite earth station product line with our existing product line. Everything is certainly above our expectations. Our TWT product line in California is doing tremendously well, and you know, AeroAstro, you know, we had very modest expectations for them and they are meeting our expectations.

Tyler Hojo – Sidoti & Company

So would it be fair to say that when you were reviewing the acquisition, kind of the forward-looking assumptions you are making were pretty conservative even in light of where we kind of sit under the kind of current economic environment?

Michael Porcelain

Well, you know, I would just have to go back in time and go back and reference you to our conference call in May when we announced the acquisition. I think we were targeting about $120 million to $140 million of annual run rate back then. Certainly it's fair to say that, you know, the economy has just significantly deteriorated since then, and if not in the last couple of months as well. So, you know we're factoring all that into our new guidance going forward into fiscal year 2010, and certainly those product lines would be impacted in the same way that we are talking about our legacy products, but outside of the economic conditions things are way above our expectations.

Tyler Hojo – Sidoti & Company

Thank you.

Operator

We'll take our next question from Peter Arment at Broadpoint.AmTech.

Peter Arment – Broadpoint.AmTech

Yes, good morning everyone. Just quickly a lot of questions have been answered, but I just may be following up on Tim’s comments about the ‘10 guidance. It seems like given that there is so much, you know, still questions to be answered regarding uncertainty around funding levels obviously. Can we take a look at this, you know, the EPS guidance as this is your initial cut, but obviously I think that you would view that there could be potential upside given the likelihood that you're going to see some follow-on orders. Could you provide a little more color on that, because I think you're seeing a quite a dramatic hit here this morning regarding your outlook.

Michael Porcelain

Yes, I mean you know, again you know the 15% revenue growth and 15% EPS you know, is a target. You know, we continue to view it as a very cautious number given the economy. You know if economic conditions, you know, stabilize better than what we expect, certainly there is upside to that, and I think most importantly you know we are really just waiting for tangible order flow from the MTS and BFT side, and any significant order is going to be very meaningfully upside to that 15% target.

Peter Arment – Broadpoint.AmTech

Okay, and Fred you gave us some color on sort of the timeline, 3 to 6 months of when you may see some activity regarding the future orders there. Could you just give us a little more how that actually works its way through, I mean is it something we should be, you know, with funding in place and details out by February or I mean by April, you know we should hear something by mid-summer or could you provide us a little more color on that?

Fred Kornberg

I think you know, giving it some sort of a range – I mean, we get our contracts let's say in the next couple of months and we deliver in – and I'm going to take the most optimistic, if we deliver our piece at some point, let's say in September of ’09. I believe the testing is probably going to take about one year for the program office to really test the systems out both ours and ViaSat’s. And so that puts us into the September, let's say ‘10 timeframe. At that point in time, I think the army would be in a comfortable position to write a statement of work, which will take a month or two months and so forth. So, I kind of called it the end of the year. So at the end of ‘10 they are in a position to do some production orders. That's the next generation of BFT. Now alongside of it is what we expect is our $600 million plus addition to our present contract, and that will extend the present contract to December 2013. So the Army really has almost a two-year window, where they can use the old contracts buy old stuff and new stuff, and then go into the new contract. So the Army is I think given themselves some latitude here, and I wouldn't be too surprised if it slips into instead of ’11 until ’12.

Peter Arment – Broadpoint.AmTech

That is for Blue Force Tracking – 2, am I correct.

Fred Kornberg

Yes.

Peter Arment – Broadpoint.AmTech

Okay, and then Blue Force Tracking -1, your guidance for ‘10 assumes no extension, correct.

Fred Kornberg

I assume there is no extension. Well, I shouldn't say that. The army has said that they will do this by December ’09. So again as Mike said in his presentation. If this order comes in early and depending upon what they need, we could see an upside in this area as well.

Operator

We'll take our next question from Michael Ciarmoli of Boenning & Scattergood.

Michael Ciarmoli – Boenning & Scattergood

Hi guys, thanks for the call. Your stock is down 42% right now. You're not going to have your fiscal ‘09 year-end call until September, at which point you’ll have much more clarity on the budget, the economic conditions. I don't understand why you're giving fiscal 2010 guidance at this point at all. Can you explain that? I mean, I don't think you've done anyone any service, even if it was going to be weak. It seems like a lot can change between now and then.

Michael Porcelain

I think you are absolutely right. A lot could change (inaudible) but on the other hand we felt that it was prudent on our part to make a statement of where we think we're at the moment even with the upside for ‘10 given that a lot of the investor – the analyst reports have said some very, very high numbers, and I think it would be less prudent for us to just continue letting those numbers right.

Fred Kornberg

But you can get orders, you know budgetary items can change. You can get these orders and those numbers might be you know, granted I think the consensus might be north of $900 million but the level of growth you are suggesting, you know, you're going to have $260 million card of mobile data com, call it 250 of Telco transmission and 150 of RF amplifiers. That put you close to 700,000,000 excluding North Africa, excluding any additional orders. We don't even know what the requirements for Afghanistan are going to be. It just seems almost irresponsible to talk about this guidance right now. A lot of companies are withdrawing guidance and you guys are talking about you know, fiscal 2010 when you don't even have to do that until September.

Michael Ciarmoli – Boenning & Scattergood

I think if we saw some of the analyst reports in the reasonable range, we probably wouldn't have done it, but I think it was incumbent on us to make sure that nobody is misled going forward. I mean at $20 a share, are you going to do a buyback now. I mean half of your market cap is going to be encashed based on your year-end numbers. It seems like the stock could be a bargain.

Fred Kornberg

I agree.

Michael Ciarmoli – Boenning & Scattergood

What is backed in. Can you elaborate on the AN/TRC-170 opportunity. You talked about upgrades in areas that big, and then to your fiscal 2010 numbers?

Michael Porcelain

No, not in terms of any kind of meaningful order on that.

Michael Ciarmoli – Boenning & Scattergood

Can you give us an order of magnitude as to what that opportunity can be. You talked about the additional components.

Michael Porcelain

Yes, it could be around $27 million of revenue assuming its ships in one fiscal year.

Michael Ciarmoli – Boenning & Scattergood

Okay and you know, I know North Africa is being dragged out here. You know, if you end the deal today, you know, how much revenue can be reasonably assumed if you book something today, if you book something say in July that finalize. How do you see that ramping.

Michael Porcelain

Those contracts are usually a three-year type of rollout and there's usually not a lot of revenue in that first year because a lot of it is design work. So in terms of timing, if we got an order today pick the number $40 million. You could see $10 million to $15 million revenue in the first year of that contract.

Michael Ciarmoli – Boenning & Scattergood

Okay.

Michael Porcelain

Two contracts you can do that, and you can see Mike quite honestly you know to come back to your comment that even if you take these opportunities that we are talking about, and you add them into the 15% growth. You just see that there's a wide disparity of what's out there in terms of what we realistically believe is achievable to the way that we're going to run the business. The other thing, you know, just you know, we thought that was important is that these tablet computers are you know, low gross margins, and you know when you look at the EPS impact to that, it's a big impact.

Michael Ciarmoli – Boenning & Scattergood

Right. What about the Brazilian subpoena with the inventory. How that – does that hit the inventory does is valued at a couple of million dollars.

Michael Porcelain

The inventory had a value of I think $1.2 million or something to that effect, and you know, as I mentioned we have resolved the issue. We paid a fine of $7500 just yesterday. The inventory has been released to us and we do expect to shift that hopefully this quarter if not next quarter.

Michael Ciarmoli – Boenning & Scattergood

Okay, fair enough, and then just one last question. On the crew 2.1 program, are you guys providing additional components due to the acquisition of Radyne or is it still – I think you still have about roughly 5 components on there that they were all primarily Comtech components.

Fred Kornberg

They are all Comtech components, yes.

Michael Ciarmoli – Boenning & Scattergood

Okay, great. Thanks guys.

Operator

Our next question is a follow-up from Mark Jordan at Noble Financial.

Mark Jordan – Noble Financial

Good morning again. I want to go back and revisit the mobile data. You know, again reverse engineering, it looks that you know you have the revenue assumption that you would have for mobile data for 2010 will be comprised primarily of the tablet order, and you know roughly $50 million which would be a sort of normal service revenue stream on an annualized basis. So if that is correct then the guidance you are giving today assumes no meaningful transceiver orders in the fiscal 2010. Is that correct?

Fred Kornberg

Yes.

Mark Jordan – Noble Financial

Okay. That seems to be definitely on the conservative side. Thank you.

Operator

And we'll take our next question from Tim Quillin of Stephens Incorporated.

Tim Quillin – Stephens Incorporated

Yes, I mean just two questions. One, is that a realistic assumption that you would have no transceiver shipments. Could that happen?

Fred Kornberg

Yes, I guess Tim in speaking to our customers and their inability to come up with a fielding schedule, it could be realistic, it could have and upside. It is really difficult for us to tell.

Tim Quillin – Stephens Incorporated

Okay, and then just in terms of – you generated a big picture long-term. How do you think about margins in this business. Is this inherently a 40% plus gross margin company, and if it is can you right size the company to get to a 15% to 20% operator margin despite your lower margin expectations for the next 6 quarters?

Michael Porcelain

I would tell you it is much better than that. I mean certainly from – this is a question of timing of orders and nothing more. Once we, you know, get back to a steady state business of you know, ongoing airtime to the army for both the MTS and the BFT side of business. You know, some nominal and significant MTS orders or sort of call it normal source of business orders that we're going to get. You know Comtech is a 20% operating margin company. There is no doubt about it. It's just, there's a question of timing of orders.

Operator

And our next question is a follow-up from Peter Arment at Broadpoint.AmTech.

Peter Arment – Broadpoint.AmTech

Yes, I just want to follow-up regarding, you know, given the impact on your stock prices this morning. You know your guidance assumes because you don't have the clarity around April. So should we assume that you know, post-April that we should see some update of this guidance. I don't know what your previous history is on speaking intra-quarter, but clearly you know, it seems to be an overreaction here this morning.

Fred Kornberg

Yes, I mean certainly I think it is an overreaction, you know, but as I said previously you know, we're going to really wait for some tangible sign, getting a detailed defense budget in April is very important to us because that will provide some you know, exposure to the funding level of what we hope the MTS and BFT programs will get, but at the same time there is a deployment issue going on between Iraq and Afghanistan. There are a lot of troops moving around on operational requirements that are being decided upon by the guys in the field. That's got to make its way back to the folks in DC and ultimately result in a tangible order flow and a fielding schedule, and really it's going to be the fielding schedule that is going to make us feel comfortable on giving some guidance on the revenue side of things.

Peter Arment – Broadpoint.AmTech

Sure. No I appreciate that. Thank you very much.

Operator

And our final question of the day comes from Michael Ciarmoli of Boenning & Scattergood.

Michael Ciarmoli – Boenning & Scattergood

Hi guys, one last question. I don't know if you said this. The total backlog $462.1 million. How much of that are shippable within the next year?

Michael Porcelain

You know, I would say you got to take out the $281 million backlog. You know, we gave you a $15 million number for Q4, and, you know, certainly some of that is going to ship Q3 and Q4 and then into the rest of fiscal year 2010. So that's is how I tell you to look at it.

Michael Ciarmoli – Boenning & Scattergood

So you could essentially have half of your 2010 revenues already in backlog.

Michael Porcelain

Well, we will certainly have the remaining portion of the $281 in backlog, absolutely. You know, some of our amplifier backlog as I mentioned to you, you know, the GMT order. Some of that will ship in fiscal year 2010. So, we'll go into fiscal year 2010 with, you know, with a pretty healthy backlog assuming things stay where they are today.

Michael Ciarmoli – Boenning & Scattergood

Okay, thanks a lot guys.

Operator

And there are no other questions in queue. So I'll turn the call back to our speakers for any closing remarks.

Fred Kornberg

Okay, well thank you – thank you all very much for joining us today, and we certainly hope to give you some clarity in the near term and in the future, and we hope to speak to you again at least three months from now. Bye.

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Source: Comtech Telecommunications Corp. F2Q09 (Qtr End 01/31/09) Earnings Call Transcript
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