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Executives

Matthew Byron – Investor Relations

David Hershberg - Founder, Chairman and Chief Exec.

Kenneth Miller - President

Andrew Melfi - Chief Financial Officer, Principal Accounting Officer, VP and Treasurer

Analysts

Rich Valera - Needham & Company

Steve Ferranti - Stevens Incorporated

Irit Jacoby - Susquehanna

Jim Mcilree - Collins Stewart

Sasha Kostadinov - Shaker Investments

Globecomm Systems Inc. (GCOM) F2Q08 Earnings Call February 8, 2008 10:00 AM ET

Operator

Welcome to today’s Globecomm Systems Incorporated Second Quarter 2008 Earnings Conference Call.

For opening remarks and introductions, I would like to turn the call over to Matthew Byron Corporate Vice President, please go ahead Mr. Byron.

Matthew Byron

Welcome to the Globecomm Systems Fiscal 2008 Second Quarter Earnings Conference Call. Joining me today from the company is our Chairman and CEO, David Hershberg, President, Ken Miller and our CFO, Andrew Melfi. Last night, after the closing bell, Globecomm issued its Fiscal 2008 Second Quarter Earnings press release which included the company’s fiscal 2008 full year financial projection. In the event you have not received or seen a copy of the release, it is posted on the Globecomm Systems website at www.globecommmsystems.com or you can contact me at 631-457-1301 and I will give a copy to you.

Comments made during this call may contain projections or other forward-looking statements regarding future events or the future financial performance of Globecomm Systems. These statements are only projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. With that said, it is routine for internal projections and expectations to change as quarters progress. All forward-looking statements are based on information available to the company on the behavior of, and the company assumes no obligation to update such statements. Please refer to the documents the company files from time to time with the SEC, specifically the company’s annual report on Form 10-K, quarterly reports on Form 10-Q, its current reports on Form 8-K and the Safe Harbor language contained in the company’s press release.

These documents contain and identify important factors that could cause the company’s actual results to differ materially from those contained in these projections or forward-looking statements which the company urges all investors to consider. Globecomm undertakes no obligation to publicly release the revisions for such forward-looking statements that maybe made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Please note that this call is being recorded on Friday, February 8, 2008 contains time sensitive information and will be available as a webcast replay for at least nine months on the Investor Relations of the Globecomm Systems website and as a phone replay at 188-203-1112 for domestic callers or 719-457-0820 for international callers with an access code of 3420709.

At this point I would like to turn the call over to our Chief Executive Officer, David Hershberg.

David Hershberg

Last night, after the closing bell we issued the Second Quarter Financial Earnings Press Release. I want to take a few moments to discuss some of the key highlights. We are still maintaining our guidance of $190 million to $200 million revenue; we have raised our pro forma earnings by $0.03 to approximately $0.78 with GAAP earnings continuing to be to be approximately $0.70. Due to a recently large-sized shipment which was scheduled to be released at the end of this quarter which we have just moved in to Q4 we expect Q3 to be a little bit lighter than Q2 and we expect Q4 to be both at top and bottom line record.

This year looks very good and we are excited about where we are at this time. Our balance sheet remains strong with $49 million of cash, no debt, $128 million stockholder equity. The company recently also announced the new $50 million line of credit which included $25 million earmarked as an acquisition line. This line, coupled with a highly liquid balance sheet provides the company with sufficient liquidity to enable potential acquisitions that we are currently pursuing. The company announced record revenues and net income for the quarter with pro forma earnings increasing 75% and fully diluted GAAP earnings increasing 65% as compared to the same period last year. Andy is going to go through some more financial details in a minute.

I want to cover a few significant events and opportunities; on October 11, the first of six satellites to comprise the DoD’s Wideband Global SATCOM system was launched, with the second to be launched later this year. The Wideband Global SATCOM satellites are the key element of a high capacity system that will provide a large leap in communications capabilities for the war fighter. This system once completed will supply up to 10 times more capacity than the existing DoD system and will operate in X and K band frequencies. Since these frequencies are not presently being used to a large extent with the military, we believe this will provide the company with a significant opportunity for years to come as a major upgrade in ground infrastructure will now be required.

We are optimistic for our future in the cellular IPTV markets, we have a large number of portfolios outstanding to both areas and are working on a $20 million cellular contract to bring cellular service up to 190 locations in Alaska, and that we are also working on a $19 million IP media center in India. Both of these previous announced contracts we believe will establish us as a major player in these growing markets. During the quarter, we announced the major service booking for our Globecomm, Maryland operation, including a service contract renewal from our major US government contractor valued up to $42.4 million over four years. The contract is to provide satellite data voice microwave services to several locations in the Middle East, Africa and Asia, as well as certain Pacific and Caribbean islands.

The scope of work specified that Globecomm Maryland operation will provide fully managed engineering support, teleport services and equipment complete with installation and maintenance. The Maryland operation also received a $3.3 million service contract renewal from Computer Science Corporation; pursuant to this contract the company will provide engineering expertise for teleport and VSAT support, satellite capacity and communications services, network maintenance, equipment installation and logistics support of a US government agency. The total scope for service encompass various locations globally, these contracts demonstrate a strategic value of our acquisition of GlobalSat, our Maryland operation continues to execute our plan and needless to say, we are every pleased with the way the companies are working together.

Our Globecomm Long Island Service Company received the contract worth up to $10 million from a global customer to sell and service computers. The three-year deal can be extended for an additional year. Among the services Globecomm will provide a subterranean data transfer capacity of the customer’s computers; the company also announced the contract from Showtime Networks and an additional high definition channel and converting the existing analog channel to high definition. This is an important contract as the company sees the broadcast space as a significant opportunity. Our service business in general continues to exceed our plan and we are every happy with our progress.

Last quarter, we also won a major contract on WWSS basic ordering agreement. This contract is valued at $9.9 million and includes mobile options that are fully executed over the next three years with the value of the contract at about $87 million. Globecomm systems will lead this effort for the US government for the supply of the new joint IP modem by providing program management and other services. ViaSat Incorporated will work with Globecomm Systems as our major sub-contractor responsible for the chip development and production. Pursuant to the contract, the JIPM network-centric IP modem will be the DoD Standard Network IP modem for use on military and commercial satellites. The goal of the chip is to leverage commercial technology to the maximum extent possible by providing an open standard-based approach which can be conformed to the basis of interoperability for military users.

We are very pleased of our progress this year especially the giants and looking forward to booking additional businesses in our proposal pipeline. At this time I would like to turn over the call to Kenny.

Kenny Miller

First, I would like to congratulate Dave on his nomination as one of the finalists of the Via Satellite Executive of the Year award; this is a true recognition of his contribution to our industry over the past 48 years, so congratulations.

This morning I would like to talk about some of the new products and services we have developed or in the process of developing over the past year that will position us for growth in major markets we are pursuing. As you know, the government market is a major market for Globecomm and one of the major developments is our AxxSys Orion Network Management System which was really designed with a lot of the needs of the government customers in mind. We are now installing this new product in a number of government terminals and networks and expect the features of this network management systems product would attract other government customers as well as commercial customers. Also, we are developing additional pre-engineered systems for the government market including new expanded terminals that will allow ease of use of the new Wide Band Global Satellite Capacity that Dave spoke about as well as use of multi-band auto-explorer commercial exponent capacity.

In the broadcast market, another of our major markets we have developed and are implementing as Dave mentioned, the state of the art multimedia center in Asia for major broadcaster. The technology being employed is based on internet protocol with its core and allows content-based IP transport to be delivered end-users the multiplicity of transport networks including satellite, cable, mobile phones, fiber to the home, et cetera. We believe this is one of the first of its kind and represents the leading edge revolution in content delivery.

In the service provider market, we have developed and commissioned a new CDMA-hosted switch service to compliment our GSM host switch service offerings. Both of these unique service offerings were developed by Globecomm to provide mobile services in rural areas which were cost prohibitive to provide traditional mobile switching centers with terrestrial connections between the switching centers and base stations that communicate with mobile phones.

Our hosted switch offering allows us to meet the needs of rural operators without a large capital where operating investment on their part. These offerings provide potential for growth in related products and network services we can sell to these service providers particularly opportunities in IPTV and next generation IP services, so it is a good lead in with the hosted switch service.

In summary, we are making good progress in developing new products and services to better position Globecomm in the major markets we are pursuing and look forward to continued success in these markets in the years to come. With that I now turn the call over to Andy.

Andrew Melfi

Revenues for the company’s Fiscal 2008 Second Quarter increased 48% to a record $54.4 million compared to $36.7 million in the same period last year. Revenues from infrastructure solutions increased 37% to $38.9 million compared to $28.4 million in the same period last year. Revenues from the service increased 85% to $15.5 million as compared to $8.4 million in the same period last year. This service increase includes $7.6 million generated from the GlobalSat business acquired in May of 2007.

Net income for the company’s 2008 second quarter increased to a record $3.7 million or $0.18 per diluted share, compared to net income of $1.8 million or $0.11 per diluted share in the same quarter last year on a GAAP basis. Looking at our six-month results, revenues for the company’s fiscal 2008 results and the December 31 increased 55% to a record of $96.8 million compared to $62.4 million in the same period last year. Revenues from infrastructure solutions increased 44% to $65.7 million compared to $45.8 million in the same period last year. Revenues with services also increased 86.8% to $31 million compared to $16.6 million in the same period last year. This service increase also includes $14 million generated from GlobalSat acquired in May 2007.

The overall increase in revenues was primarily driven by the continued growth in the government marketplace for both infrastructure solutions and services. Net income for the company’s six months increased to a record $6.7 million with $0.34 per diluted share compared to net income of $2.7 million with $0.17 per diluted share in the same period last year on a GAAP basis. Excluding non-cash items, pro forma earnings per diluted share were a record $0.40 for the first six months of 2008 compared to $0.18 in the same period last year. The increase in net income continues to be primarily driven by the operating leverage the company is currently experiencing resulting in a greater mix of service and pre-engineered revenues as a percentage of total revenues as compared to the same period last year.

As Dave stated earlier Globecomm continues to expect consolidated revenues for fiscal 2008 to be between $190 million and $200 million. GAAP earnings per diluted share are expected to be approximately $0.70 per share which include $0.08 of shares of non-cash items or approximately $0.78 per diluted share including non-cash charges. At this time I would like to turn the call back to Dave.

David Hershberg

Thank you Andy, now I would like to answer any questions you might have.

Question and Answer Session

Operator

(Operator Instructions)

Our first question comes from Rich Valera from Needham & Company.

Rich Valera - Needham & Company

It sounds like you got some good renewals with you Maryland divisions. I know you had several of them up for renewal, did you get basically all the ones you expected or is there, can you just kind of give color on the overall renewal activity over the last quarter?

Andrew Melfi

As far as I know we have gotten all the renewals we have been counting on so far.

Kenny Miller

The one thing Rich, is we have a renewal for one month and we expect shortly to get the additional 11-month renewal which is substantial, which is not a backlog as of December 31.

Rich Valera - Needham & Company

Great and so you are guiding for a sequential decline and then a nice rebound in the Fourth Quarter; is there any color you can give on sort of magnitude with expected sequential revenue decline you expect, would you still expect it to be say above the first quarter?

Andrew Melfi

That is correct, I think some of the challenges in Q3 is we have some shipments moving out, we also have a mix on the infrastructure with some margin, some margin mix being down somewhat, that combination is the real reason we are down in Q3.

Kenny Miller

This is one contract where we are pretty far along and we are pretty much done with it but we are waiting for a software upgrade, which we are trying to get in for this quarter which is the only thing that we are waiting for, so we would be able to ship it, but it is going to be March and whether we are going to get that upgrade this quarter or not.

Rich Valera - Needham & Company

Okay that is a helpful color. And, then on the M&A pipeline just wondering where you stand on that, I know you have been active there can you give us any incremental color on any of the opportunities which you had referred to that you were kind of engaged with?

Andrew Melfi

Yes hold on one second Matt has been dealing most of the works so I am going to let him talk about it.

Matthew Byron

Obviously we cannot say too much. This stuff is finicky, but we are active and we also are looking at other types of opportunities to expand the company’s overall capabilities as well, which is adding to the pipeline.

David Hershberg

There had been a lot of activities that has kept us all very busy.

Rich Valera - Needham & Company

So last comment Matt, are you suggesting that it should have, as opposed to the things that are largely similar to what you do you are looking at areas beyond what you do to sort of complimentary technologies or areas?

Matthew Byron

That is correct.

Rich Valera - Needham & Company.

Great.

Matthew Byron

In areas that traditionally maybe we would outsource as part of an overall project, but if the opportunity presents itself we are looking at bringing those in-house.

Rich Valera - Needham & Company

Okay, that is helpful, just bookkeeping perspective, I do not know if you mentioned cash flow from ops and capex for the quarter?

Andrew Melfi

I think for the quarter it was minimal, it was about $1.4 for us and that is sort of on target for our plan for the year; $1.4 million in capex and cash flow although collections were good, we ended with a strong cash balance, we still build up receivables which creates a negative working capital scenario.

Operator

Our next question comes from Steve Forenti from Stephens Incorporated.

Steve Ferranti - Stevens Incorporated

What if you can give us a little more granularity in terms of the strength you saw on the systems integration side any particular contracts or maybe end markets that you saw really contributing to the strength there?

Andrew Melfi

In think it is a lot more the same with some of the same customers that we have been dealing with mainly with the government. This project that we are doing in India, there has been a lot works there and I am not sure we have any revenue. Do we have any revenue for that quarter?

Kenny Miller

Minimal revenue this quarter; I think as Dave, said it is a continuous strength in these pre-engineered solutions that continue to be strong.

David Hershberg

Which gives us little higher margins also and I think as far as the backlog, a lot more of what we are doing in the infrastructure areas using these products that we are developing and a number of our proposals that we have outstanding use a combination of these products into a network design. So we are hoping that it will also help our gross margin.

Steve Ferranti - Stevens Incorporated

I guess, if I kind of drill one level deeper, you have a number of product lines under your pre-engineered systems, anything from the transportable dishes to the trailers, I wonder if you can sort of, was there any one particular segment within pre-engineered that is showing strength there?

Andrew Melfi

Well we shipped a number of these auto explorers this quarter, I am not sure exactly how many, but it was in excess of 50 I believe.

Steve Ferranti - Stevens Incorporated

If I look at sort of the midpoint, your guidance implies run rate of about $100 million in business in the back half of the year; can you give us a sense for kind of what your comfort level is there and given your backlog and the opportunity pipeline you see today, I guess potential for numbers of above and beyond that?

Andrew Melfi

I do not think we can comment above or beyond that, I think right now, we have a minimal amount of book in turns, we need to finish to share at those numbers. We are pretty far along in our backlog and we feel very comfortable with the numbers we have. I think there is a chance we might do a little better, but I think from what I remember of all the years we have been here, to meet our numbers we have less to book and turn this year than any previous year, so I feel pretty good about it. There is very little more we have to go as far as having to book in turn this year.

For next year, we are certainly looking at it, and I think we feel pretty good about the service side of the business, we can predict that pretty well. On the infrastructure, there is always a challenge in booking new business. We have two or three really good-sized projects out there that we feel pretty good about booking. Some were farther along than others, but when we book them, I think we will be okay for the next year to be able to show some growth.

Steve Ferranti - Stevens Incorporated

That is very encouraging; and then, it seems like you guys had a fairly conservative policy for how you record business into your backlog, can you kind of refresh us on what your guidelines are there?

Matthew Byron

Well we have a very, very conservative, I will let Andy because Andy is the one who makes it so conservative; so I will let him talk about it.

Andrew Melfi

Basically we book firm fixed orders with the customer’s ability to pay and specifically in the government arena, sometimes you get this arrangements where it is a five year arrangement, but we only book the year that is funded, so it is conservative and that is the approach we take, it has got to be firm.

David Hershberg

And on the services business, in many cases, we only book one month at a time.

Andrew Melfi

Yes, it is a book and turn type of business, there is a lot of that.

David Hershberg

So even though a lot of times we may have a pretty large size contract over multiple months or multiple years, in or backlog we are only putting one month.

Steve Ferranti - Stevens Incorporated

That is great, and then it sounds like from you commentary that the book to bill was north of one in the quarter and you actually agree your backlog, is that accurate?

Andrew Melfi

It is north or one for the six months, it is not north of one for the quarter, some of the things stretched into this quarter we expect pretty good bookings this quarter.

Steve Ferranti - Stevens Incorporated

Okay fair enough, I guess one last one for me, for the JIPM project, can you remind us sort of a timeline in that program and how you feel at this point in the game about potential for follow on options there?

Andrew Melfi

I think we have to get the first working model on next November, I think is the timeframe, probably November, first prototype? I think we will have, I guess some beta thing working. I think we have to get some testing, you are right I think we have to get some testing started in November, December and have the first finished thing in next year at this time.

There are all kinds of stories about that, there are thousands of modems, it really depends on our customer and their customers embracing this standard modem and buying. I think from what we know, there are quite a few, there is one major order in the horizon, in the thousands, other than that I am not sure. I think it is a little premature to really come up with something but if this becomes the standard of all the government and military operations I think that $87 million will be realized. That will be over a three year period.

Steve Ferranti - Stevens Incorporated

And I guess where I was going with that was as the developer on the initial, as you guys would sort of lean the development, there I mean it would seem to me you are fairly well positioned to see that follow on business, is that fair?

Andrew Melfi

I think it is, but again it depends on our customer, I do want to point out that it is ViaSat the heavy lifting here on the development, what we are doing is program management and in the future installation logistics and support, so we have a major role to play as you probably know in these government programs, there is a lot of program management activities that we are involved in, but I do want to tell you that ViaSat is the major, they are doing the development of this product and they are really a fast-pass organization, they have done the first stage, this was JIPM modem which was an SEPC version of this one and that has gotten a lot of good play and I think they have gotten a lot of big orders on that and I think having them as a partner here has been great for us; and I just want to make sure you understand it that they are the ones doing the heavy lifting here.

Operator

Our next question comes from Irit Jacoby from Susquehanna.

Irit Jacoby - Susquehanna

Can you talk a little bit about in the broadcast base, what incremental opportunities seen with Showtime and then with other potential customers there as well?

Matthew Byron

We are getting some good incremental business for both IP prime and CS America and we have been booking business all along the area for the expansion of the system. For this one we are doing in India, we do expect a major add on. I think right now we are at 150 channels, there is a potential to go to 400 channels there, so we do expect a major head on there. We do have initial funding on another major broadcast center in the Far East, and we are bidding a number of these right now, actually the opportunities are coming in very quickly and we are trying to gear up a little bit in the sales and marketing to even be able to address them.

Another area that we are looking to grow in the IPTV area is the regional head ends that the telephone companies are going to need. We are trying to break in to that market because there is potentially 1200 telephone companies out here that if they are going to go ahead and provide video service, they are going to need this regional head ends, but we keep working in the development side of the house and we are certainly working in the sales and marketing side of the house and we expect that we will continue to grow and we do expect that there is going to be a major growth area for us.

Irit Jacoby - Susquehanna

And then if you can discuss though in the broadcast area under the managed service side with Showtime, is there incremental revenue opportunity still?

Matthew Byron

We have been getting continuing add-ons there too by adding more channels and converting some of the standard definition to high definition channels.

Irit Jacoby - Susquehanna

In terms of similar managed services for other providers like a Showtime on maybe on a smaller scale.

Andrew Melfi

We have a couple of other ones in here right now, I do not know if we have announced them. They are relatively small, but they are the same kind of service, hosted video services and we are talking to one other potential customer to locate his service out of our facility also. So I think there are other opportunities, we have I think three of these other customers in here right now, they are much smaller scale of one or two channels kind of thing, but we do think that that is going to be a major business. When we bring people around and show them the facility we built here for Showtime and that operation and they get a chance to talk to the customer about the reliability and robustness of what we built here, with our power system and our facility, I think, it is a great selling point. So our goal is to get as many potential customers in here as possible and show them what we have here.

Irit Jacoby - Susquehanna

Right, but the facility that you have inside your facility for Showtime that is dedicated to Showtime, so does this mean that if you get other large scale managed service, broadcast projects you would have to invest in further other facilities in the extension of your internal facility?

Andrew Melfi

We have made enough space here, we did lease another building here in May, we think we have enough space to keep growing; you are right that facility is dedicated to Showtime and possibly CBS because Showtime is owned by CBS, so it is a dedicated facility for them. We have done this a number of different ways, the Showtime facility for instance is advertised over a five-year period and we get paid on a monthly basis, other customers potentially, we would ask them to pay upfront for it so we would not have a lot of capex so that they would pay for the actual facilities, so there are a couple of ways we could do it.

Our major expansion we did in the building, for the power, which conserve us lot more than what we are doing now that has all been paid for now in capex. So we have enough facility and we have enough space to grow it and it is something we really want to do. We feel that is a very good business and it is something we do very well.

Operator

(Operator Instructions)

Our next question comes from Jim Mcilree from Collins Stewart

Jim Mcilree - Collins Stewart

First of all, it looks like the Long Islands teleport was flat to down in revenues year-over-year, is that correct and what was responsible for that?

Andrew Melfi

Talk about GNSC, our service business in general you are talking about?

Jim Mcilree - Collins Stewart

No, you gave how much the Maryland operations contributed in the quarter, you backed that out, it looks like the Long Island business what is about $8 million last year and $8 million this year.

Andrew Melfi

Are you talking about for the quarter?

Jim Mcilree - Collins Stewart

Yes.

Andrew Melfi

Actually it is slightly down a couple of hundred thousand from between last year and this year. Our first quarter, they were up quite a bit, by this quarter we are down a little bit, a lot of times in depends on the nature of the contract that they booked, if they shipped equipment they get a one time bump in the revenue and if they do not ship equipments sometimes it stays the same, but they have been running this year about $8.7 million a quarter, there were up over $9 million in the first quarter. They were down around $8.1 this quarter. But it is a spotty business depending on what we ship each quarter.

Looking at last year, they were down in March and June from some of the previous quarters and we do expect though that they will be doing more business this year than last year and they will be up this year.

Jim Mcilree - Collins Stewart

The gross margin on the services business this quarter versus the prior quarter was down a lot, what was responsible for that?

Matthew Byron

For the first quarter, we had the what I would call the one-time program, we had a major program that affected the gross margin that was very positive and that was not a re-occurring revenue. Like Dave said, it depends on what occurs in the mix and in Q1 we had a very good program which was more of a hardware type program with very, very good margins, so that was the effect of that.

Jim Mcilree - Collins Stewart

Lastly, the pro forma guidance is up by $0.03, the GAAP is the same, so that implies that you are expecting lower SFAS 123 charges or lower amortization of intangibles or some of those or something else?

Matthew Byron

It is a combination of both, a little higher amortization cost and a little lower base.

Operator

(Operator Instructions)

Our next question comes from Sasha Kostadinov from Shaker Investments.

Sasha Kostadinov - Shaker Investments

I was encouraged by your comments about orders that you guys are working on, what can you tell us about the current government budget process that is going on, obviously there is a bit of uncertainty as to which the future of the political structure, so how do you go about looking forward and talking to the people that you talk to in the government that sign your contracts?

Andrew Melfi

I tell you, first of all, I think a lot of what we do is with agencies not DoD, probably 80% of our government business more with a season, which we do not see any reason that should slow down, we think intelligence and comms is very important and it is going to continue. You have to understands something also, we are a pretty small player here even though we are doing in India $100 million in government business it is compared to these big guys, we are pretty small, so we do not have a lot of market share, so we think we can keep increasing our market share and even somewhat slow down increase with what our sale is going to be.

Obviously, it is hard to predict what is going to happen, but we feel that we have got enough out there and we are diversified enough in what we sell to the government between the services and the hardware that we sell that we are going to be okay. I wish I could give you a better answer. I think we are doing our planning cycle for next year now. I probably would be able to give you a little better. The latest I have in here is that the sales guys are predicting bigger numbers than they did last year. It is a really big question if they know what the hell they are talking about, but at least that is what they are doing right now.

I do not see anything right now where I see a slow down with the government business.

Sasha Kostadinov - Shaker Investments

Okay fair enough, more mundane question, how much of your sales and marketing expense is tied to the absolute sales level?

Andrew Melfi

You mean what set of our salesmen that we are actually salesmen? First of all, we do not pay a commission on sales people. We give them a bonus based on them meeting their goals and we have three major elements that go into our sales and marketing; the biggest cost is really writing proposals. Our proposal budget is pretty high because a lot of these proposals are pretty complex and they take a lot of effort. Second one is obviously the sales force we have out there which is not huge; we do not have a huge sales force. Our biggest sales force now that we have is in the government area where we have Globecomm from Long Island, we have four people in Washington now integrated with our Maryland operation where I think they have three. And then we have got offices in Dubai and Hong Kong where we have a couple of people and UK with a couple of people, and then we have a few people here, so if you add up all of our sales people. they are probably 15 to 17 people as our total sales force, which is pretty small for a company our size.

So, if you called direct sales, that is their second biggest and of course you have got the marketing expense which is a lot of shows and the people here that support the sales and marketing which is pretty much everybody. We look at general management around here, obviously if you do not book business, you do not have a company, so the general manager here does a lot of sales and marketing too and a lot of that business that they get captured as a sales and marketing expense so, I do not know, it is hard to say what exactly goes against it, I cannot give you additional number.

Sasha Kostadinov - Shaker Investments

Let me ask it this way, you are talking about obviously at a very good solutions quarter and second quarter and next quarter, you are expecting to be a little bit lower, and is there any given the sales and marketing line or does it just continue to kind of ramp up a little steadily?

Andrew Melfi

I would like it to ramp up. To tell you the truth, it is a question of finding the right people to get the message out because I really believe we have got really a lot to sell here, a lot of capability, but I will give you an example, this and last quarter we did put on another IP line to go after the IP video market and we actually are not looking for people there because we get a lot of request for quote, a lot of opportunities that are very difficult to address, especially when you have got your engineers working on major projects that were seized to build it and make it all work; and then you have write these proposals and they are all different. They are scalable to some extent, but there is a lot of work involved in them. We are actually looking for people in the IPTV area. We did hire another person, again it is a little money between sales and marketing and engineering but we did hire two more cellular type people to help in the cellular area and that includes both making things work around here and writing proposals.

As I said earlier, those are the two areas we are looking for, for a lot of growth, so we did put some more people there. If we can find the right people, it will increase.

Kenny Miller

Over the past few years, we have been evolving our external sales officers, as Dave mentioned Hong Kong, Dubai, we have a wireless government sales office, we have been involving them to take a larger role in the sales and marketing process because in the beginning of the company, we depended mainly on our account management philosophy where relationships were sort of harvested by account managers, project managers and the management, but over the years we have developed an external sales office capability to be proactive and open new doors and bring our new offerings to the market, and recently we have promoted one of our internal executives to a vice presidential position to focus on these external sales offices to improve the sales, funding the management of those ops, so we are doing things to further evolve the company and be able to get the message out as Dave said; so incrementally we do expect to overtime, as we grow we will be investing some more in sales and marketing. It is a natural consequence of the growth and the expectations. We have the growth and also because we have many more things now to offer, so there is training and some additional people.

So you will see some incremental growth in that area. We think that is necessary to continue the growth of the company.

Operator

We have a follow up question from Jim Mcilree from Collins Stewart.

Jim Mcilree - Collins Stewart

Dave, you mentioned X band and I think Ka band and pre-engineered systems being available, what is the timeline on that?

David Hershberg

Well, we are working on right now. We have contracts and we have upgraded some of our existing commercial band to military band and we are hoping that has been very fortuitous for us because we were going to go spend our own money and now we have contracts to do that, so we are working on getting some of the stuff together and we should have something working by June here.

Jim Mcilree - Collins Stewart

And then you would expect shipments in fiscal 2009?

David Hersherg

Yes, I would say fiscal 2009, we are hoping, because I think there really is going to be a need for X and Ka out there, they are going to get all these capacity with these new satellites, there is very little X band out there right now.

As you know, the DoD system is old and now banned and there is the X-star system. It is up there and people are using that, but I think in general, with these newer satellites, there needs to be a lot more capacity; a lot more on the ground, a lot more upgrades required, either upgrades or new equipments, so we are going to be ready for it.

Jim Mcilree - Collins Stewart

Would that be sold through the existing IDIQs that you have or would you need to get another contract making this and to sell those?

David Hershberg

I would think they are going to be sold through the existing ones. Certainly, the WWSS, I am sure there are going to be requirements there. I think there was one already that came out which was basically sole source because it was upgraded. It was an upgrade of existing systems by another manufacturer and pretty much it was the only one that could beat it, that was for Ka upgrade on KU bin terminals, that already came out, but we could not bid it because basically, no one else can bid it because it had to do with having all the drawings and knowing all the details of that terminal.

Operator

And at this point we have no further questions.

David Hershberg

Thank you very much and if some questions arise Matt, myself, Andy and Kenneth we are always available, you can call us anytime, thank you very much for attending.

Operator

And this concludes today’s teleconference. We thank you for your participation. Have a great day.

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Source: Globecomm Systems Inc. F2Q08 (Qtr End 12/31/07) Earnings Call Transcript
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