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Comtech Telecommunications Corp. (NASDAQ:CMTL)

F4Q09 Earnings Call

September 24, 2009 8:30 am ET

Executives

Fred Kornberg – Chairman of the Board, President & Chief Executive Officer

Michael D. Porcelain – Chief Financial Officer & Senior Vice President

Jerome Kapelus – Senior Vice President Strategy & Business Development

Frank W. Otto – Senior Vice President Operations

Analysts

Rich Valera – Needham & Company, Inc.

Mark Jordan – Noble Financial

Tim Quillin – Stephens, Inc.

James McIlree – Collins Stewart, LLC.

Chris Quilty – Raymond James & Associates

Tyler Hojo – Sidoti & Company, LLC

Mark Balcer – Bluefin Investment

Michael Ciarmoli – Boenning & Scattergood, Inc.

Operator

Welcome to Comtech Telecommunications Corp.’s fourth quarter fiscal 2009 earnings conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded today, Thursday, September 24, 2009. I would now like to turn the conference over to Ms. [Maria Celerno] of Comtech Communications

[Maria Celerno]

Welcome to the Comtech Telecommunications Corp.’s conference call for the fourth quarter and fiscal year end 2009. With us on the call the call this morning are Fred Kornberg, President and Chief Executive Officer of Comtech; Michael Procelain, 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 will 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 objectives and business outlook, the plans objectives and business outlook of the company’s management and the company’s assumptions regarding such performance. Business outlook and plans are forward-looking in nature and involve certain significant risks and uncertainties.

Actual results could differ materially from such forward looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company’s securities and exchange commission filings. I am pleased now to introduce the President and Chief Executive Officer of Comtech Fred Kornberg.

Fred Kornberg

Yesterday afternoon we reported our fourth quarter and yearend fiscal 2009 report. Before our CFO Michael Porcelain presents our financial overview, I would like to provide a brief summary of the actions we took, the accomplishments we made during a very challenging fiscal 2009 to position us for a strong fiscal 2010. After Mike completes the financial overview, I will provide some color and insight for each of our three business segments and then I will provide specific fiscal 2010 guidance.

As you know, fiscal 2009 got off to a terrific start. On day one of our fiscal year we closed the Radyne acquisition. There’s no question that this acquisition has been an unequivocal success on all accounts. Our integration and related restructuring plan was almost flawlessly executed. We realized all of our synergy expectations and we set the stage for what we expected would be a record year on all fronts.

Heading in to fiscal 2009 we were concerned about the economy but despite our concern, during the first half of fiscal 2009 our commercial and government business and both our telecommunications transmissions and our RF microwave amplifier segments remained relatively healthy. While we may have avoided business slowdowns for far longer than many of our peers, we’ve began to face tough headwinds during the second half of fiscal 2009 as the recession and credit crisis began impacting our customer base. In addition, as we previously announced, the US Army requested that a significant portion of the orders we received from then in fiscal 2009 be delivered in fiscal 2010. The impact of these two issues adversely affected the remainder of our fiscal 2009 as both revenues and earnings were pushed in to fiscal 2010.

On the positive side, we recorded record full year bookings in fiscal 2009 and with the shift of US Army deliveries from fiscal 2009 to fiscal 2010, we believe we are in a very strong position as we look forward to fiscal 2010. Some of the important strategic bookings in fiscal 2009 included greater than $400 million in new MTS orders, a $8 million order from the US Army to build, test and deliver the next generation high capacity BFD HC transceiver, over $19 million of orders for satellite modems and amplifiers for the governments GMT or ground multiband satellite terminal program and approximately $36 million of crude 2.1 IED orders for our solid state jamming power amplifiers and solid state switches. We believe that these orders demonstrate the ongoing and important role we continue to play on these programs.

In addition to these strategic bookings we also completed a number of important corporate actions. We undertook cost reduction initiatives across the company to strengthen and intensify our focus for the future. In Q3 of 2009 all of our $105 million of our 2% convertible notes were converted in to common stock and shortly thereafter, in order to take advantage of a then attractive market condition, we successfully completed the issuance of $200 million of our 3% convertible notes. Finally, despite the tight availability of credit, we increased and closed a committed three year $100 million revolving credit facility.

With a combination of our strong backlog, continued investment in new technologies and recent corporate actions, we believe that we are extremely well positioned to grow and prosper as the markets eventually regain their strength. The growth strategy we have honed and that has served us well is essentially unchanged. First, we will continue to expand our leadership position in the markets we serve by introducing compelling new products. Secondly, we will continue to broaden our reach to new customers and new applications. Thirdly, we will continue to identify and pursue acquisitions of technology driven market leading companies to strengthen our existing business and expand our overall market reach.

We are also very mindful of the importance of deploying our cash and will look to do so as in the past with an aggressive yet disciplined and patient approach. Now, let me turn the presentation over to Michael who will provide some financial highlights.

Michael D. Porcelain

Yesterday evening we reported revenues for the fourth quarter of fiscal 2009 of $122 million and diluted EPS of $0.21. Revenue for fiscal 2009 were $586.4 million and diluted EPS was $1.73. Our diluted EPS for both Q4 and fiscal 2009 includes a $0.04 EPS charge for previously announced cost reductions. Hence, excluding this charge, our core business delivered $0.25 of diluted EPS in Q4 and $1.77 of diluted EPS for the full year.

Before I discuss Q4 results in detail, I’d like to address the full year’s results first because I think it provides helpful context to Q4 results as well as the 2010 guidance that Fred will provide later in this call. Revenues in fiscal 2009 were a record breaking $586.4 million, up 10.3% as compared to fiscal 2008. The year-over-year increase is primarily attributable to the revenue contribution from the Radyne acquisition and despite the difficult and challenging economic conditions that existed, we were able to achieve year-over-year growth in several of our key legacy product lines.

Accept for our mobile data communication segment which reported fiscal 2009 revenues of $177 million or 32.2% decline when compared to fiscal 2008, our two other business segments performed admirably well given the difficult economic conditions. Our telecommunications transmission segment revenues in fiscal 2009 were $254.3 million, an increase of 21.7%. We also more than doubled the size of our RF microwave amplifier segment which reported record sales of $155.1 million.

Our consolidated revenue growth would have been significantly higher than the 10.3% revenue growth we achieved had we not experienced the material shift of revenue in our mobile data communications segment from fiscal 2009 to fiscal 2010. For the year, we delivered GAAP diluted EPS for fiscal 2009 of $1.73 as compared to fiscal 2008 at $2.76, down 37.3%. When comparing these amounts, in addition to the other down changes in our business, our 2009 EPS was negatively impacted by several large items: a cost reduction charge of $0.04 which I previously mentioned; a $0.21 non-recurring charge related to in process R&D which we acquired as part of our Radyne acquisition; and finally, our fiscal year 2009 diluted EPS was impacted by $0.07 as a result of our decision to issue our 3% convertible notes.

The $0.07 reflects the full dilutive impact of the additional interest expense related to our 3% convertible notes and the incremental shares that were included in both our Q4 and fiscal 2009 diluted EPS calculations. As Fred stated, when you look at the year, the second half was clearly negatively impacted by adverse global economic conditions and by the shift of mobile data communications revenue to fiscal 2010.

With that in mind, let me give you some detailed color on the quarter. During Q4 we generated revenue of $122 million. Our telecom transmission segment reported $56 million of sales in Q4 which represents a decrease from Q4 of 8.9%. Although we recorded year-over-year incremental sales as a result of the Radyne acquisition, both our Q4 sales and orders in this segment were suppressed by ongoing difficult economic conditions. In addition, our Q4 sales reflect a nominal amount of over the horizon microwave system product sales. Operating margins in our telecom transmission segment in Q4 were approximately 16.8% of related sales.

We should point out that our Q4 operating income and to a lesser extent sales in this segment were impacted by our decision to sell our video encoder and decoder product lines. Quarterly sales of these products were the lowest they were all year. In addition, the telecom transmission segment bore the full brunt of our $2 million cost reduction charge. Although we originally had higher hopes for these products for fiscal 2010 we made a strategic shift choosing to redirect investment and effort to product lines where we have clear market leadership positions. As a result, in August 2009 we announced both the sale of our video encoder and decoder product lines and the shutdown of our commercial fiberglass antenna product line.

Putting all of this in some perspective, aggregate sales for these products were approximately $10 million for the full fiscal year of 2009 and back in March our original revenue expectations for these products for fiscal 2010 was about the same. Nevertheless, we believe our strategic actions will bring better long term profitable growth to the company. As we look to fiscal 2010, revenue for our telecommunications transmission segment remains difficult to predict. We see several bright areas in this segment which Fred will discuss in detail but certainly growth in this segment in fiscal 2010 is going to be dependent on what happens with the overall economy and the impact it has on our tangible order flow. In addition, we believe that 2010 will be the year that we finally begin to generate revenue again from sales of our over the horizon microwave system products to our Algerian end customer.

Turning to our RF microwave amplifier segment, we reported sales of $41.9 million, slightly below the record quarterly sales we achieved in Q3. In addition to the ongoing benefit associated with the acquisition of Radyne, our Q4 sales reflected strong demand for our amplifiers that are used in the CREW 2.1 program. In fact, sales in Q4 relating to CREW 2.1 were the highest they were all year. Operating margins in this segment in Q4 were approximately 12% of related sales.

As we look to fiscal 2010 in this segment, we do not expect that our RF microwave amplifier segment will repeat the record year of revenue that it achieved in fiscal 2009. We currently expect to record lower revenue in fiscal 2010 related to the CREW program. In addition, since economic conditions suppressed overall bookings in Q3 and Q4 of fiscal 2009 and since we currently expect such conditions to last through at least the first half of fiscal 2010, we currently believe that the net result will be that our RF microwave amplifier sales will be significantly lower in fiscal 2010 versus fiscal 2009. If economic conditions meaningfully improve, orders and related sales in our RF microwave amplifier segment should eventually begin to pick up.

In our mobile data communication segment, our Q4 sales were $24.1 million and were negatively impacted by the shift of revenue that we mentioned earlier. Operating margins in our mobile data communications segment in Q4 were approximately 6%. Despite the impact in the shift of revenues Q4 was actually a period of positive developments for our mobile communication data segment. Despite the negative impact to our operating margins, we continued our selling, marketing, research and development efforts relating to our next generation MTS and BFT product lines.

Additionally, in Q4 our MTS ruggedized computer supplier began making some very nominal shipments. Although configuration and production type issues remain, and as of today full scale production is delayed, we believe the supplier is generally on track to begin significant deliveries sometime during the first half of fiscal 2010. We currently have approximately $438.2 million of backlog in this segment of which the substantial portion is for the shipment of this new MTS ruggedized computers or MTS systems that include these computers.

Although difficult to predict, as of today, we still believe it possible that meaningful deliveries will be made in the last month of Q1 2010. If this happens, we believe deliveries will increase as the year progresses with the fourth quarter of fiscal 2010 anticipated to be the peak quarter for shipments and related sales. It’s important to note that Q1 still remains iffy. If the supplier is not able to meet our estimated Q1 deliveries, our Q1 expected sales and earnings will be materially impacted. However, any impact we expect would just roll over in to the following quarters and we don’t believe it will have any impact on our full year. Fred will provide you with additional details on how we are baking this in to our fiscal 2010 revenue and EPS guidance later in this call.

Now, let me give you some further color on the rest of the consolidate income statement for Q4. Of our fourth quarter sales of $122 million, 30.7% were to international end users, 56.5% were to the US government with the remaining 12.8% to domestic commercial customers. Our gross profit in Q4 as expected was significantly low. Gross profit as a percentage of sales decreased to 38.5% for the fourth quarter of fiscal 2009 as compared to 45.5% in the fourth quarter of fiscal 2008.

As we mentioned in our prior conference calls, although we achieved significant operating synergies as a result of the Radyne acquisition our gross margins have been significantly impacted with fiscal 2009 as a result of the lower level of production of mobile satellite transceivers and an overall change in product mix associated with the Radyne acquisition. In addition, during Q4 of 2009 we recorded the $2 million cost reduction charge of which $1.2 million was reflected in cost of sales. Looking forward, consolidated gross margins in fiscal 2010 will be significantly lower than fiscal 2009 due to the record amount of anticipated shipments of MTS computers which have a lower gross margin than our historical product mix.

On the expense side, SG&A expenses were $22.2 million in both the fourth quarter of fiscal 2009 and 2008. Our SG&A expenses for Q4 of fiscal 2009 when compared to last year include incremental spending associated with our acquired Radyne product lines. Also, it reflects incremental professional fees associated with the various legal and other matters described in our 10K. As a percentage of consolidated net sales, SG&A expenses were 18.2% in Q4 of fiscal 2009 as compared to 17.6% in Q4 of last year.

R&D expenses were $12 million in the fourth quarter of fiscal 2009 as compared to $10 million in the fourth quarter of fiscal 2008. R&D as a percentage of net sales was 9.8% in Q4 versus 7.9% last year. Despite the short term negative impact that it may have had on our consolidated operating margins, we believe that continued investment in research and development projects will continue to have long term payback. Thus, we will continue our efforts through fiscal 2010. As Fred will discuss later, we are seeing tangible benefits from our efforts related to the development of our next generation MTS and BTF products.

Amortization of intangibles with finite lives in the fourth quarter of fiscal 2009 was $2.2 million. This represents an increase of $1.7 and is primarily attributable to the Radyne acquisition. Operating income in the fourth quarter of fiscal 2009 was $10.6 million compared to $24.9 million for the fourth quarter of last year. As a percentage of net sales, operating income was 8.7% in the fourth quarter of fiscal 2009 versus 19.7% in the fourth quarter of fiscal 2008. As I mentioned earlier, our Q4 results were impacted by our cost reduction charge. Excluding this charge, our operating income in Q4 would have approximated 10.3% of consolidated revenue.

Pre-tax total stock based compensation expense which is recorded through our income statement was $2.5 million in the fourth quarter of fiscal 2009 compared to $2.8 million in the fourth quarter of fiscal 2008. Interest expense in the fourth quarter of fiscal 2009 was $1.7 million compared to $668,000 in the fourth quarter of last year. The increase in interest expense is primarily attributable to the Q4 2009 issuance of our 3% convertible senior notes. Interest income and other decreased from $2.4 million last year to $431,000 in the fourth quarter of fiscal 2009. The period-over-period decrease is primarily due to the significantly lower period-over-period interest rates as well as our previously announced change in our investment strategy.

Turning to taxes, our GAAP effective tax rate for the fourth quarter of fiscal 2009 was 33.6% compared to 36.3% for the same period last year. As we look to fiscal 2010, our GAAP effective tax rate is estimated to approximate 36%. This increase from our final 2009 rate of 35.2% is primarily related to our expected increase of pre-tax income in fiscal 2010 as well as the expiration of the federal research and experimentation credit on December 31, 2009.

In summary, on the bottom line, our diluted EPS again for the fourth quarter was $0.21. As I mentioned earlier, it includes a $0.04 EPS charge of the $2 million cost reduction charge and the full dilutive impact of our 3% convertible notes. Several years ago we began reporting non-GAAP EPS to help those that wanted to better understand the impact of the adoption of FAS 123R accounting for stock based compensation. In this regard, our non-GAAP EPS was $0.26 in Q4 2009 compared to $0.67 last year. Our non-GAAP EPS excludes stock based compensation but includes our cost reduction charge. Now that stock based compensation expense is included in our ongoing results and has been in our actual results for a number of years, we believe it is less meaningful to report a separate non-GAAP number going forward. Of course, we will continue to separately break out our amortization of stock based compensation for those that wish to calculate their own non-GAAP results.

EBITDA or earnings before interest, taxes, depreciation and amortization was $18.8 million for the fourth quarter of fiscal 2009 compared to $30.6 million for the fourth quarter of fiscal 2008. On a quarterly basis given the overall use of this non-GAAP measure throughout our industry, we still expect to report EBITDA. This quarter, we did what we believe to be a solid job as it relates to our balance sheet. Our working capital requirements significantly declined during the quarter and during Q4 we generated cash flows from operations of approximately $38.9 million. For the full year, we generated cash from operating activities of $88.5 million compared to $77.8 million for last year. Including the net proceeds of our 3% convertible notes as of July 31, 2009, we have approximately $485.5 million of cash and cash equivalents.

Finally, let’s turn to consolidated backlog. Despite the soft bookings we experienced in Q4, as of July 31, 2009 reported backlog was close to a record $549.8 million compared to $201.1 million last year. We expect that a substantial portion of the backlog as of July 31, 2009 will be recognized as sales during fiscal 2010.

Before turning it over to Fred, let me briefly discuss the impact of a new accounting principle and then I will provide an update on legal matters. On August 1, 2009 we adopted FSB APB 14-1 which changes the historical accounting and reporting related to our 2% convertible notes. Although these notes are no longer outstanding, sometime during Q1 we will file a form 8K with the SEC to reflect a required historical change to our financial statements for fiscal years 2005 through 2009. The adoption of this new standard has no impact on our historical diluted EPS rather it requires changes to our historical reporting of interest expense and the carrying value of the note.

Most importantly, the adoption of this new principle has absolutely no impact on our new 3% convertible notes because the holders of such notes can only receive stock upon conversion. As such, our income statement interest expense going forward will include the 3% stated interest expense and our reported interest expense number as well as the amortization of deferred financing costs. For those looking for additional details on this topic, you can see our investor presentation posted at www.ComtechTel.com and eventually in the form 8K to be filed with the SEC.

Finally, I am very pleased to report significant progress on a variety of legal matters that we have been working through. First, let me provide you with an update on the DOD subpoena matter. Since December 2008 we have responded to DOD subpoenas issued to us. In August 2009 we were informed by a representative of the DOD that the DOD had completed its investigation and had concluded that any allegations of defective switches were unfounded and that they would not be taking any action on this matter. As a result, we have concluded our internal investigation and we now consider this matter closed.

Second, let me provide you with an update on our ongoing State Department export compliance review. As many of you know, since October 2007 we have been performing an internal investigation and assessment in regard to internal controls as it relates to export related laws and regulations and laws governing record keeping with foreign representatives. Earlier this year, we hired a third party export compliance firm to perform an independent export compliance audit to see if the controls we put in place were appropriate and working.

I am pleased to report that our efforts here are continuing to pay off. The third party audit was in line with our expectations and no additional violations were found. As part of the its report, the third party compliance form did make various recommendations that we could make to improve our overall compliance program and we are working to continue to implement such procedures and steps. Although the timing of these kinds of matters is often difficult to predict, we are hopeful that the state department review process will be completed within our fiscal 2010.

Although we have expanded a great deal of effort and dollars responding to the state department on the export matter, we are pleased with our progress. We expect to continue to improve our export compliance process through fiscal 2010 as it is an essential component of conducting our business given the sensitive and critical types of products that we supply to our customers.

Now, let me turn it back to Fred who will provide additional color and insight in to our three business segments as well as provide some comments and specific financial guidance for fiscal 2010.

Fred Kornberg

I will begin with our telecommunications transmission segment which includes our satellite earth station and our over the horizon microwave product lines. In satellite earth station products, by far the largest product line within the segment, we remain the clear market leader. We believe that our market leading modems that incorporate both our forward error correction technology as well as our double talk carrier-on-carrier technology will continue to drive our long term growth when the global economy recovers.

In fact, to extend our leadership position, in fiscal 2009 we introduced a more advanced forward error correction feature in to our modems which we call versaFEC. It is specifically designed to support latency sensitive applications such as in cellular backhaul over satellite and when combined with our double talk carrier-on-carrier technology provides our customers with further satellite communications cost savings. We continue to believe the fundamental long term growth drivers in the satellite markets we serve remain convincing.

First, there remains a shortage of satellite transponder availability in high growth areas such as Africa and Asia causing hikes in space segment costs that can only be mitigated by more efficient modems. Secondly, the overall long term demand for satellite transmission continues to grow driven by several factors including the cellular subscriber growth in emerging markets, high definition video and the enormous bandwidth needs for the US government. Because of the book and ship nature of our satellite earth station product line, our satellite earth station revenues in the short term are subject to quarterly fluctuations.

For instance, despite the strengthening of satellite earth station bookings that occurred in our Q3 of 2009, bookings in Q4 were the lowest they were all year. However, given the encouraging recent macroeconomic signs, we believe bookings may now have bottomed out. As we look forward, we believe Comtech’s bookings and revenue growth will be a function of how quickly our customers’ end markets recover. For now, we’re taking a cautious approach as we enter fiscal 2010. If economic conditions significantly and sustainably improve, we would expect to return at some point to the growth levels that we are used to seeing in this product line.

In our over the horizon microwave or troposcatter product line, we continue to work with the US DOD to upgrade the TRC-170 troposcatter terminals. Given the successful work we performed on the TRC-170 modem upgrades, we’re confident of our position on this opportunity as well. Internationally, we have continued our aggressive pursuit of new opportunities and believe that our expertise and leading technologies in troposcatter communications remains a valuable advantage.

With Algeria, and North African end customer we continue to believe that at least one of the two contract opportunities will finally materialize and generate revenues by sometimes during the second half of fiscal 2010. We’re confident because we understand that one of the prime contractors has now signed their contract and we look forward to finally announcing this award of this contract sometime in fiscal 2010.

Now, to our mobile data communication segment, as of yearend our mobile data communications backlog was over $435 million. With this unprecedented record backlog, we believe that we will generate record revenues in this segment in fiscal 2010 will far exceed our fiscal 2009 revenues. Let me now provide a status on our MTS and BFT programs. I’ll begin with MTS, our $605.1 million MTS contract as of July 31, 2001 had only $58.8 million of ceiling availability and is currently set to expire on July 12, 2010. In preparing for a recompete, the MTS program office in February issued a public request for information or RFI in to which we responded in March.

Although subject to change, it is our current understanding that the next step is the issuance of an RFP by the end of the calendar year 2009 and an eventually contract award in the first half of calendar year 2010. We believe this to be a very aggressive timeline but based on this timeline and due to the limited ceiling, even modest delays may restrict MTS from meeting future fielding requirements. Based on these facts and the expected expansion of our war effort in Afghanistan, we would not be surprised if our present contract ceiling is increased and extended. As you may remember, in 2007 under similar circumstances, our previous MTS contract was increased and extended to enable a smooth transition to a new contract. We feel this has a good chance of happening again.

We believe the US Army remains fully committed to MTS and believe that funding data supports our view. For those that are interested, our investor presentation available on our website provides further funding details. All said, we are pleased with our position on MTS and are excited about our future prospects. Our backlog is at record levels, the program remains very well funded and our decade of experience providing this vital communication solution, we believe, puts us in a strong position to win the recompete.

Now, to BFT; hereto the funding data continues to suggest the strong commitment to this program. The FBCB2 budget of which BFT is a subset was increased by 36% to $515 million for fiscal 2010. While our five year $260 million current contract expires in December 2011 as of July 31, 2009 there was less than $5 million currently remaining under the contract ceiling. As you know in November 2008 the US Army released a market survey in which the Army proposed a two year contract extension to our contract to December 2013 and a $617 million increase in the value of the contract. But, because of the number of policy and personnel changes that have been made since November by our customer and our new administration, we’ve heard many different views on the status, size and details of that proposal.

At this time, we have not been officially informed on whether or when this proposal will be acted upon. We believe strongly that there will need to be some action related to our current contract sooner rather than later. As far as our next generation BFT initiative, if you remember, the US Army issued an RFI or request for information survey in April 2009 contemplating the issuance of multiple $477 million IDIQ contracts to fund the purchase of approximately 100,000 next generation high capacity BFT transceivers over a five year period starting in 2010.

Our role as a lead competitor and key vendor for this next generation network of satellite transceivers was we believe cemented when we won an $8 million contract in April to deliver our next generation high capacity network and our high capacity BFTHC satellite transceivers for the US Army. Our breakthrough high capacity transceiver and network products offer significantly enhanced function and features, many of which far exceed the initial requirements put forth by the BFT program. I’m pleased to say that the product capabilities and features we communication to the US Army many months ago are being fully validated in the build and test activities that are currently underway.

As far as the next steps, it is our understanding that the BFT program office will release an updated SOW or statement of work to be followed by a formal RFP or request for proposal by the end of this calendar year. It is our estimation that a new contract award could occur sometimes late in the first half of calendar year 2010. I’m highly confident that Comtech has developed the most advanced, most reliable next generation solution. I also believe that our competitor position is materially enhanced by our unique ability to provide backward compatibility to existing transceivers at current and newer transmission speeds thereby allowing methodical and non-disruptive roll out of new systems.

In summary, both MTS and BFT remain vital programs within the US Army communications infrastructure. As in the past, we believe there will be lumpiness and limited visibility but we continue to be very pleased with our performance under these programs. Finally, let me discuss our RF microwave amplifier segment. Here, we continue to design and deliver jamming amplifiers and solid state switches for the CREW 2.1 program, a high profile and critical US Army program whose goal is to protect our soldiers from IEDs or improvised explosive devices.

We’re also working on amplifier developments for CREW 3.2 and CREW 3.3 which are the next generation jammer programs. Additionally, we are working with the US prime to compete for a new Air Force airborne electronic attack program that requires a broad range of frequencies and are also teamed with the same prime in competition to win an advanced airborne radar signal jammer for the US Navy. We’re also working with another US prime on a large airborne jammer opportunity where the customer is seeking to replace traveling wave tubes with solid state amplifiers. Our expertise in gallium nitride devices provides an optimal solution for many jammer applications and is one of the reasons we’re being selected by many prime contractors.

The Radyne acquisition clearly benefited our RF microwave amplifier segment and we expect we will continue to see the benefits for many years to come. The traveling wave tube amplifier technology and products we acquired are critical in many US military high frequency programs and we believe this area of the business will continue to remain strong. Opportunities include the beginning of a low rate production on a new high power airborne satellite program where the government seeks to place satellite links on most US strategic assets. This application is to communicate with the AEHF satellite or advanced extremely high frequency which is a next generation government satellite program.

We also believe we will continue to see order activity from several government ground based legacy satellite programs that we have been on that operate in the tri band and KA band frequency bands such as GMT or ground multi terminal which is a major tri band and KA band ground based satellite program. Another area is the build out of the KA band frequency to supplement the existing tri band CX and KU frequency capacity with KA band using the government’s new WGS or wideband global sat com satellite.

The WGS satellite is expected to expand capacity in areas of the world where existing commercial and military challenges have reached their bandwidth limitations. On the commercial side however sales and bookings in this segment at least through the first half of fiscal 2010 are expected to remain suppressed by the continuing difficult economic conditions.

In summary our solid state and TWT amplifier product line both continue to broaden and improve. We are a known and respected supplier in the markets we address and we continue to expand our customer base and products based on innovative [inaudible] technology and a strong quality reputation.

Now, let me turn to guidance. As I have stated many times in the past, our guidance concerning future revenue and EPS is subject obviously to a number of factors many of which are, as you have seen, entirely beyond our control. These factors include but are not limited to: one, the timing of bookings and related revenues on large contracts such as MTS, BFT, CREW 2.1 as well as large opportunities in our over the horizon microwave and other commercial and government markets; two, the uncertainty particularly in today’s economic environment of potential US and foreign government budget constraints; and three, economic conditions in general particularly in the current and uncertain commercial economic environment in which we operate.

With that said, I’m pleased to provide our fiscal 2010 guidance as follows. Despite lingering difficult economic conditions, based on the strength of our backlog and our market leadership position we expect record fiscal 2010 revenues in the range $820 to $840 million. The midpoint of this guidance represents and increase of approximately 42% compared to our fiscal 2009. It also represents a significant increase as compared to our original 15% revenue growth target that we first provided in March 2009.

For diluted GAAP EPS we expect a range of $2.10 to $2.20 and the midpoint of this range implies an increase of approximately 24% over fiscal 2009. This too represents a significant increase as compared to our 15% growth target we provided in March 2009. As a reminder, our 15% EPS target that we provided in March did not include the dilutive impact of our May 2009 decision to issue our 3% convertible notes. Although we don’t normally provide quarterly EPS guidance, we can tell you that we expect our EPS to be significantly backend loaded based primarily on our estimated delivery schedule related to the MTS backlog. From a starting point, we expect our Q1 2010 revenue and diluted EPS to be similar to our GAAP Q4 results.

As mike stated, Q1 still remains iffy and this is based on our MTS computer supplier making deliver schedules including some in Q1 in accordance with our estimated timeline. But, we are highly confident that for the year almost all of our MTS backlog will be recorded as revenue. With that said, let me turn to the question and answer part of our conference call. Operator, we’ll take questions now.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Rich Valera – Needham & Company, Inc.

Rich Valera – Needham & Company, Inc.

A question on your implied guidance for your mobile data business, obviously you do have a very large backlog entering there but your overall guidance would seem to imply that you’d have some incremental sort of turns business in there as well. Can you talk about what you’re expecting in terms of any new MTS or BFT transceiver rewards in fiscal 2010 to make your overall guidance?

Michael D. Porcelain

I think we’re not expecting much more than the additional satellite airtime at this point that if you recall our BFT contract that we got, the airtime we have is only valid through March so clearly the government is going to be needing airtime in April, May, June and July to continue to run the system. Then, throughout the year at this point we’re really just sort of waiting for the outcome for the contract ceiling increase given the fact that they really can’t order anything including the satellite airtime. We expect that to happen during the year and we would expect them to place at least an order for the airtime so there’s lots of room for upside but at this point we just need that contract ceiling increase to occur and we just need to see tangible order flow.

Fred Kornberg

Simply Rich, just to kind of add the final punch line, we’re in a position right now where both the MTS and BFT contracts are topped out as I mentioned. So, really what we’re doing is on a conservative basis, as Mike mentioned, we’re just going with the satellite time which we believe the Army must increase and it should happen shortly. We’re really not counting on any additional orders until we see some action on the increases in the ceiling or extensions of our contract.

Rich Valera – Needham & Company, Inc.

Then in the past, specifically with respect to the next generation BFT, you’ve suggested that you thought it would be impractical to dual source that program due to what would ultimately be incompatible transceiver technologies. Just looking at the language in your 10K it seems to be suggesting strong preference by the DOD to in fact dual source both the BFT and the MTS. Has your positioned changed on what you think the likely outcome is there with respect to whether that will ultimately be a dual or single source contract?

Fred Kornberg

As you know, the original survey that was put out did state that at least the BFT was intending to put out dual $477 million contracts. We really believe that’s impractical, yes. We feel that in the end there will be one winner and one contract. We strongly feel that with our advantage we will be the eventually winner of that situation and there will only be one contract.

Rich Valera – Needham & Company, Inc.

Just one follow up on sort of that same related risk, you mentioned a risk of the DOD potentially unbundling some of the third party components as well as the airtime which you currently provide which is a significant component of the revenue obviously. Any incremental color on that, anything that’s caused you to put that risk in to your K or has anything changed there?

Fred Kornberg

Nothing has changed. This is something that the Army has been kind of talking about for a number of years now, unbundling specifically the MTS, unbundling in a similar fashion that BFT is done. As you know, in BFT we supply just the transceiver and the satellite time and the network which consists of our earth stations. MTS we supply the total system from end-to-end. Obviously, MTS could make a decision to do the same as the BFT guys and that is to buy their computers separately, even to buy some of the let’s say field service representation that we supply right now separately. So, this is what we mean, these are things that the Army has talked about but has certainly not implemented to date.

Operator

Your next question comes from Mark Jordan – Noble Financial.

Mark Jordan – Noble Financial

First of all, talking about your telecom transmission guidance you talked about being slightly down year-over-year. You also mentioned that you are assuming some tropo Algerian revenue, could you tell us the magnitude of that assumption? Is this nominal and how much upside could occur there relative from either Algeria and/or are you assuming anything from the US Army for any meaningful upgrade activity?

Michael D. Porcelain

Mark, the way I would tell you to think about it is right now we’re so early in the year and we don’t have the signed contract from our Algerian customer. At this point you could take it away from either side, the satellite earth station side of our product line, there’s upside there. If we get the contract on our over the horizon earlier in the year there’s going to be upside there. At this point we are taking a conservative approach kind of assuming that both of those events occur in the later part of our fiscal 2010. Without putting any specific dollars on it, if those things are kind of earlier the rebound of the economy and the order earlier in the year, that could be upside but they are kind of assumed in our assumption really in Q3 and most of it in Q4.

Mark Jordan – Noble Financial

In the Blue Force Tracking comments, you state that the originally market survey talked about the DOD owning the technology, etc. The implication there is that they could I guess potentially give that to other manufacturers. What is your understanding as to that potential technology transfer as part of this next generation contract.

Fred Kornberg

I think Mark the BFT program office has always wanted to own the technology and that was one of the main reasons we did not bid on the development contact because we didn’t want to put ourselves in that position. We are still trying to maintain that position and BFT is trying to maintain their position. We have not see obviously, the final RFP so we don’t know what exactly the Army will request. But, at this point I think our position is we would rather not sell our IP but if necessary we can work it out.

Mark Jordan – Noble Financial

Two quick questions, one you mentioned in the 10K that you’re seeing Qualcomm and Lockheed Martin as potential competitors in BFT. Have they meaningfully developed and shown product? Could you sort of scale their competitive threat? And then secondly, relative to the MTS, the old computers, you have $5.1 million on your books, you did significantly increase your obsolete inventory reserve up to a little over $11 million, do you feel that you’re fully reserved [inaudible] the eventually on that point?

Fred Kornberg

The first part of the question, could you repeat that one again Mark?

Michael D. Porcelain

How serious is the competition between Qualcomm and Lockheed Martin that you mentioned in your K in terms of having developed products in the BFT area?

Fred Kornberg

As you know, any time a program – both of these programs have grown to over $1 billion over the last few years of revenue for us. Obviously, going forward revenue is going to increase, they’re very well funded and so forth. The RFI’s elicited some real interest by some very large systems integrators such as you mentioned Lockheed and others and so forth. Yes, the interest is there obviously but product wise I think we’re all aware only of our and ViaSat’s ability to provide the transceiver. So, I think for MTS we’re probably the only one that can provide the present format of the transceiver and we’re being solicited by some of the primes that show interest in it and we have been for the past few months. So, I think we will be involved with our own bids as well as some of our competitors.

On the BFT side, I think truly for our part we’re only talking about the transceiver, the satellite and the network and I think that’s really just between two competitors. Now, there may be some competition I think that will start to generate with BFT on the system prime basis, Northrop Grumman is today’s prime contractor that BFT is using. I believe there will be many of the other, the Lockheed’s the GE’s and so forth that will be vying for that contract as well. I think that’s what you’re probably seeing. I think on our part it’s really just between us and ViaSat.

On the inventory that you mentioned, yes we had some residual inventory that we have remaining because of the switch by the Army to the new computer. But, we’ve already sold half that inventory to other customers and we believe that will be sold certainly within the next 12 months.

Operator

Your next question comes from Tim Quillin – Stephens, Inc.

Tim Quillin – Stephens, Inc.

You talked about the backlog in the mobile data segment in the 10K, could you provide the backlog for the other two segments?

Michael D. Porcelain

The backlog as of Q4, and I’ll give you the whole thing, our mobile datacom is $438.2 million, our RF amplifier segment is $63.9 million and our telecom transmission is $47.7 million.

Tim Quillin – Stephens, Inc.

As you mentioned in the comments, the telecom transmission bookings were light in the fourth quarter and presumably you’re looking for a pickup in that order flow to get you to your guidance for fiscal ’10. Are you starting to see any positive indicators in the current quarter in terms of bookings, especially in the international satellite earth station business?

Fred Kornberg

I think as I mentioned we feel that we’ve probably bottomed out in that area. We do see some pickup in the present time frame but I caution you and ourselves in terms of one month does not make a trend. So, we’re just being very conservative.

Tim Quillin – Stephens, Inc.

In terms of the MTS business, I understand the uncertainty on the timing of the computer shipments, how are you thinking about the timing of transceiver shipments that are already in backlog, or full systems that are already in backlog right now?

Fred Kornberg

Unfortunately, the transceiver shipments are part of a system that includes the new computer. So, they too suffer from the delays.

Michael D. Porcelain

Tim, it’s really going to be second half loaded, the year. The first batch of computers are not probably going to go with these systems, they’ll be starting the upgrade process. So, at this particular point in time it’s very tough for us to figure on exactly when but our time table here is that it really is going to be second half loaded.

Tim Quillin – Stephens, Inc.

Then the transceiver shipments could start shipping concurrently once you get the full production on the computer shipments?

Michael D. Porcelain

Yes.

Tim Quillin – Stephens, Inc.

Moving on to the amplifier business, can you define significantly lower?

Michael D. Porcelain

Not really. I think obviously if you look at the backlog as of Q4 that gives you a sense for what the starting point is for fiscal 2010. Our [TWTA and solid state business that we acquired from Radyne, there is a book to ship nature of that that occurs throughout the year. There’s a number of programs that we’re working on the military side but at this particular point, without really knowing where the economy is going to be it is difficult for us to place a precise number on this. I think when we look at it under a variety of ways, both with our telecom transmission and our RF amplifier segment, the ups and downs that could occur in both of those segments given the fact that we have such strong mobile datacom backlog, depending on what happens, we still feel comfortable with the $820 to $840 million of consolidated revenue.

But, at this point we really don’t have a precise number on really any of those two segments. In our numbers we have multiple different scenarios and I think the only thing we’re feeling comfortable to saying at this point is it’s going to be significantly down year-over-year at this point. As the year progresses we’ll get a sense of how far that down is or if the economy comes back it will be closer to the ’09 number. That’s the best we can do for you now.

Fred Kornberg

I think just to add something Tim, our RF amplifier segment just had a record, record year in ’09 both in the travelling wave tube amplifier area which we acquired from Radyne and our own power systems technology area. As typically happens in these types of situations, when you can or get an overshoot of business there is a digestion period and I think that’s what we’re really experiencing right now. It isn’t being helped by the economy the way it is right now either. So, between the economy and the overshoot on our business posture in ’09 I think there’s going to be a digestion period which will reduce our revenues for ’10. Hopefully, not significantly as Michael had said but a lot of it depends on the programs that we have in the pipeline.

Tim Quillin – Stephens, Inc.

I just have two other questions if I may, one is there any right sizing that you need to do in your Phoenix operations just given the uncertain level I think especially in the satellite earth station business? The second question is if you could talk about the acquisition pipeline and what you’re seeing out there?

Fred Kornberg

As far as the right sizing I think our comment is we do that as a normal course of business. Obviously, with the economic conditions the way they are we have and I believe we’ve stated we’ve done some cost cutting and reductions of personnel and so forth. So yes, the answer is we react pretty quickly to the condition that we’re in. In terms of acquisitions I think we really don’t have too much to report. We have a list of targets, we’re studying them, we’re talking to a number of people. Obviously, we’re very, very interested and we certainly hope to pull the trigger during fiscal 2010.

Operator

Your next question comes from James McIlree – Collins Stewart, LLC.

James McIlree – Collins Stewart, LLC.

Can you frame what you think the operating margins as a percent of revenues for the mobile data business will be in fiscal ’10 either as a range or kind of generally speaking how it compares to fiscal ’09?

Michael D. Porcelain

I think it’s probably best for us to kind of think about the whole company at this point given the different aspects of the business and the impact on timing of shipments. Certainly any particular quarter if we don’t ship a lot of these computers it will impact what we could absorb in overhead. If you remember, some of our telecom transmission is impacted by what goes through our mobile data facility. I think if you look at Q4 as a starting point for operating margins in total, we did about 8.7% including the $2 million charge as a company. As these computers start to ship out, those computers have significantly lower gross margins than our historical product mix so overall margins are going to be down.

That being said, we do expect a rebound in sales later in the year. So, when we look at the year I think it’s fair for you guys to assume that our operating margins for fiscal 2010 as compared to our GAAP fiscal 2009 operating margin is pretty similar, if not slightly above, what we did for fiscal 2009. You can kind of bake in what you assume for the quarter but given the amount of low margin computers relative to ’09 that are going to hit our P&L, we’re not going to see an improvement in our operating margins in consolidation.

James McIlree – Collins Stewart, LLC.

That [ruggedized computer shipment schedule I think you said hopefully starts in the last month of this quarter. Would that have most of them shipped in the January quarter or the April quarter or is that kind of linear throughout the fiscal year?

Michael D. Porcelain

It will have sort of a staircase affect throughout the year and at this point given the lateness of the ramp up, we’re kind of being a little conservative in terms of the ultimate ramp up and so we do expect sort of our Q4 to be the peak quarter of sales at this point both for the computers as well as our transceivers. But, as the year progresses we’ll see what happens and we’ll update accordingly.

James McIlree – Collins Stewart, LLC.

Then I just wanted to make sure that I understood you correctly, even though the ceilings for the MTS and the Blue Force Tracking contracts are in sight you’re not assuming that the Army takes action on either one of those in your guidance? In your commentary you made it sound like it’s likely that they will but in your guidance you’re not going to do that until you see the whites of their eyes?

Michael D. Porcelain

That would not be correct as it relates to our BFT contract. We are assuming the ceiling increase because we are assuming the incremental revenue certainly related to the satellite airtime, which if you look at the contract I think it’s less than $5 million or something like that they could place so we are assuming that contract ceiling certainly on the BFT get’s increased.

James McIlree – Collins Stewart, LLC.

But only to the extent of that airtime or are you also assuming some transceivers in that?

Michael D. Porcelain

We’re not assuming much other equipment. We don’t have a specific assumption on what the contract ceiling would be increased but we just know it has to be at least the amount of the satellite airtime that they need.

James McIlree – Collins Stewart, LLC.

Then just finally on the CREW revenues, I just want to make sure I understand that also. What are you assuming on CREW, that there’s nothing in fiscal ’10 or that it’s positive but lower than fiscal ’09?

Michael D. Porcelain

It’s the later one. We certainly have a good amount of revenue in our 2010 guidance but it is significantly lower. As Fred mentioned, just ’09 was a record breaking year in fact, Q4 was the highest sales for CREW as they were all year so we just see a drop off of that. Could we get surprised with additional order flow related to the current CREW or even the next generation CREW? Yes, but certainly that would be upside to our numbers and it would have to be significant.

Operator

Your next question comes from Chris Quilty – Raymond James & Associates.

Chris Quilty – Raymond James & Associates

Believe it or not I have three more questions for you on the BFT program. First on the airtime, I know your last airtime contract was about $26 million for nine months I think so is it fair to assume sort of a $30 to $35 million annualized contract is what you would expect on airtime?

Michael D. Porcelain

At the top of my head Chris I don’t recall that number. I think our press release talked about a $40 million some odd number back a couple of months ago and that ran out through March of ’10. So, I think it’s a little bit higher than that.

Chris Quilty – Raymond James & Associates

Second question, on the sort of timing of when you expect the final contract award for BFT I had thought previously you might expect this in the early part of 2010. ViaSat has been talking more about a late 2009 and now I think you said in the call late 2010. Where do we get some sort of confidence of where that actual award date might be?

Fred Kornberg

Unfortunately Chris we’re all in the dark ourselves, ViaSat and everybody else. Because of the recompete nature of it the program office is pretty well shut down in terms of providing information to anybody. As best as we estimate, and with some unofficial words we don’t think that the RFP will come out before the end of the calendar year. As you can see how late and how difficult it is for the Army to even grant our extension and increase in the ceiling price so that hasn’t happened and that was November of ’08 which is almost a year ago, 10 months ago. So things don’t flow as quickly as the Army wishes.

Having said that, our best guess is I think what we mentioned that I think there will be an RFP in the end of the calendar year and they could turn it around. We feel that program can turn it around, especially with all the testing that’s been going on, on our transceivers and so forth, they could turn this around certainly in the first half of the year. Now, it could even slip.

Chris Quilty – Raymond James & Associates

The final question here on BFT, the issue of the government now mandating technology rights again, we’ll see where that goes but end of the day were you forced to surrender manufacturing rights to a third party manufacturer I guess there really is now way for them to dictate what sort of technology licensing you might require from that third party correct? I mean, you’ve spent $26 million how much ever on bid proposal, G&A developing the technology, you could I presume charge that company some amount per terminal?

Fred Kornberg

Yes, I think there are a number of ways I think we can attack that situation. Right now, our position is we don’t want to give up our IP and the Army’s position in the past is they want the IP. But, we have not seen the RFP so we don’t know exactly what the Army will ask for number one. We don’t know what our competition will go for either so I think as I tried to kind of be cute about it and I’ll mention it again, we feel we have a number of ways that we can work it out.

Chris Quilty – Raymond James & Associates

On the telecom weakness or the order weakness that you saw in the fourth quarter was that specific to the commercial or the military side?

Fred Kornberg

It’s really both. It’s really both but probably heavier on the commercial side.

Chris Quilty – Raymond James & Associates

Regarding the $282 million MTS order two questions, can you give us a general sense, I mean you talk about significant amount of that order shipping in 2010 does that mean half of it, 75%, potentially 100% of the order shipping?

Fred Kornberg

We would like to see all of it shipped in fiscal 2010. As you know, our contract today expires on July 12th so all those shipments should occur before July 12th. Now, having said that, we are at the mercy of our supplier and things can change but right now we’re anticipating most of that shipment by July 12th.

Michael D. Porcelain

That’s all in our guidance.

Chris Quilty – Raymond James & Associates

But, you used a lawyerly word and I was looking for a number.

Michael D. Porcelain

On a good note, we did ship some in fiscal 2009 during Q4 and I think just as Fred said, you know the contract ends July 12th. So, if our contract is extended and there’s another month lag over going to fiscal 2010 I don’t think that would materially change the way we would view the year but I think from a guidance perspective, we’re certainly expecting the $281 to be fully complete by 7/31 ’10. If there is a delay, like Fred said, could something slip in to fiscal 2011? Absolutely. At this point we don’t see that based on the desires of the customer and where we think the supplier is going to be in terms of ramping up full production.

Chris Quilty – Raymond James & Associates

Just for some clarity, as that unit ships you’ve clearly stated that there are significantly lower margins than the traditional business but could you perhaps narrow us down to a range from traditional sort of mid sometimes up to high 20% EBIT margins you were seeing with the old product you’re now in the last couple of quarters seeing margins down mid single digit. Is it fair to assume that as that ships in volume it’s sort of a more mid single or high single digit?

Michael D. Porcelain

I think given the competitive nature of the MTS and BFT recompetes we’re going to stay away from providing specific numbers. Obviously, when we report our actual you’ll kind of get a sense for what happened in terms of what shipped but I still would tell you if you go and you think about our three segments and you think about the GAAP ’09 operating margin in aggregate you’ll come up with a number that in aggregate will make some sense to you. But, at this point we don’t want to provide any specific numbers.

Chris Quilty – Raymond James & Associates

Final question here, I think last year or in the prior couple of years you saw some benefit as [MRAPs were aggressively shipped out to Iraq and all or a good portion of them had a BFT solution attached. Is it reasonable to assume as they are now ramping up production of about 5,000 of these MATVs out to Afghanistan that you might likewise pick up some incremental unit orders or do you think instead they’re going to just swap units off existing vehicles?

Fred Kornberg

I think our present view right now Chris is that we will benefit both in the CREW program and the BFT program with new units.

Operator

Your next question comes from Tyler Hojo – Sidoti & Company, LLC.

Tyler Hojo – Sidoti & Company, LLC

A quick question just on cash flow expectations for fiscal 2010, maybe if you have an expectation for cash from ops and cap ex?

Michael D. Porcelain

Given that everything is backend loaded in terms of our revenue and so forth like that it’s really going to be dependent on if the revenue comes in early. I think from a very safe perspective I think we’d be looking at least around $550 millionish of cash. Certainly, if things get better earlier in the year that number would increase I think significantly but the way we’re modeling at this point I think we assume to have a pretty heavy balance sheet at the end of the year sort of a lot of that cash will come in ’11. So conservatively $540 to $550 is probably a good target but I think that number would go up if things come in earlier and a little bit better than what we expect.

Tyler Hojo – Sidoti & Company, LLC

How about on the cap ex front?

Michael D. Porcelain

The cap expenses, we’ve done the Radyne integration, we’re significantly completed with our current build out of our Arizona facility so at this point we are actually expecting a significant drop in our cap expense and I think we’re about $14 to $15 million for 2010. There’s an exact number in the 10K that we put but that’s sort of where we see in terms of the business needs for fiscal 2010.

Tyler Hojo – Sidoti & Company, LLC

I just wanted to dig in a little bit more, someone asked a question about acquisition pipelines and so on and so forth but maybe if you could help us think of what your anticipation is with call it $550 million in cash by the end of the year. I mean, are you looking at bigger deals or should we be thinking of kind of the strategy four or five years ago where you looked to pick off kind of smaller product lines and kind of build out the business that way?

Fred Kornberg

I think the answer is both. We certainly are always interested in good technology product lines or small companies that can provide some technology and growth especially in our sphere and we’re certainly looking size wise at companies Radyne style or higher.

Tyler Hojo – Sidoti & Company, LLC

Just lastly on telco I think there’s been some dialog here just in regards to new business wins and I guess there’s a little bit of a mix between economic pickup and something happening on the over the horizon front. I mean historically what has your lead time been from winning business with say Algeria and actually delivering on those orders?

Fred Kornberg

Two answers there, on our large programs it’s extremely difficult to really pin down the customer and when he places that contract. We specifically are also at the mercy of prime contractors in those areas. So, we have kind of a double jeopardy situation where we depend upon not only our prime contractor but also the end user. As you know, certainly in Algeria I mean we’ve been wrong for a number of years on the timing of it. Our confidence today really is that at least we know that one of the contracts, our prime contractor has signed and we’re actually beginning negotiations with them. That gives us confidence that in a number of months we should be able to kind of say something about that contract.

Tyler Hojo – Sidoti & Company, LLC

Would you be able to maybe talk about the magnitude of the contract that you’re currently negotiating or over what kind of time frame it’s covering?

Fred Kornberg

I think the time frame we can probably easily tell you and that’s usually about a three year time frame. Magnitude wise it really varies, it could be $20 million it could be $70 million it’s a difficult area to predict depending upon what our prime finally negotiates.

Operator

Your next question comes from Mark Balcer – Bluefin Investment.

Mark Balcer – Bluefin Investment

You mentioned Blue Force Tracking and right now the next generation is mostly about transceivers for you. Do you have capabilities to prime that program theoretically or would you have to have something else if you were interested in bidding on the entire program?

Fred Kornberg

Which program are we talking about?

Mark Balcer – Bluefin Investment

The program that currently Northrop has.

Fred Kornberg

Oh, the BFT. No, let’s put it this way, I think depending upon what the RFP will turn out to be, I think the answer could be yes, we could compete for that. We certainly do have the capability because we’re providing similar service to the MTS program. So yes, we could actually compete with Northrop Grumman on that area.

Operator

Your next question comes from Michael Ciarmoli – Boenning & Scattergood, Inc.

Michael Ciarmoli – Boenning & Scattergood, Inc.

Just a follow up on the RF amplifiers and specifically the CREW 2.1, could you give us a breakdown of how much CREW account for total revenues in fiscal ’09?

Michael D. Porcelain

Not really except I can refer you to a couple of comments we made in the past where if you remove the impact of the Radyne acquisition, the year-over-year growth that occurred in our legacy business was mostly CREW so it certainly was probably north of $20 million or so would be the number. But, we don’t have a precise number here but it certainly is of magnitude that when we look at ’09 we’re going to see a big drop off in that number.

Michael Ciarmoli – Boenning & Scattergood, Inc.

I’m just trying to understand that drop off. Have you already started receiving the orders and fulfilling the demand for the MRAP ATV vehicles? I guess there are firm orders out there so far for 4,000 it looks like there’s going to be a 5,000 number and looking at the government furnished equipment list of what goes on those vehicles everyone is going to have a CREW 2.1 jammer. So, I’m just trying to reconcile that ramp and why you think there’s going to be a fall off.

Michael D. Porcelain

We just don’t have visibility as to where the trucks and the units actually go. We ship them to the prime where they tell us to go and it goes on which vehicle. Unfortunately, being the sub on both the CREW contract and others we just don’t have visibility to really answer your question.

Michael Ciarmoli – Boenning & Scattergood, Inc.

So is it fair to say you just haven’t received a lot of the orders to support what looks like is going to be 5,000 vehicles?

Fred Kornberg

I think depending upon what our customer decides, whether it’s the CREW 2.1 which we have been supplying and as I mentioned there are developments going on with CREW 3.1 and 3.2. The customer I think could decide to go forward with the new developments or go with the present systems. That has not yet been decided.

Michael Ciarmoli – Boenning & Scattergood, Inc.

Then just on the competitive front [Aradiam] which I think actually started trading today, they’ve been talking in their presentations about trying to get a piece of Blue Force Tracking, are you guys seeing them out there in the space at all as a competitive threat vying for any of this business whether it’s network operations or satellite airtime?

Fred Kornberg

I think [Aradiam] and others, I think everybody recognizes that the BFT program is a very successful and ongoing and well funded program. So, I think you’re going to see [Aradiam], you’re going to see Globalstar, you’re going to see other satellite competitors coming in to the fold.

Michael Ciarmoli – Boenning & Scattergood, Inc.

Then just the last question as it relates to telecommunication transmission revenues, the segment obviously has struggled especially more on the satellite air station, if I look at Applied Signal they’re royalty payments have continued to go up. Can you help me understand the relationship as to why they’re seeing increased royalties and yet you guys are seeing a fall off in revenues? If you could help me understand that relationship?

Fred Kornberg

I think it’s simply this, more and more of our modems have the carrier-on-carrier capability installed in it. So, even though our sales may have declined in the quarter, their royalties may have actually increased.

Operator

It appears we have no further questions at this time.

Fred Kornberg

Thank you very much for joining us today. We look forward to speaking with you again in a few months. Thanks very much.

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