Radyne Q4 2007 Earnings Call Transcript

Mar.18.08 | About: Radyne Corp. (RADN)

Radyne Corporation (RADN) Q4 2007 Earnings Call March 18, 2008 4:30 PM ET

Executives

Malcolm C. Persen – Chief Financial Officer & Vice President

Myron Wagner – Chief Executive Officer & Director

Chad [Furham] – Corporate Controller

Analysts

Mark Smith – [Inaudible]

Rich Valera – Needham & Company, LLC

Debra Fiakas – Crystal Equity Research

Bill Dezellem - Titan Capital Management

Kevin Wink -Polymous Capital Management

Jeff Gilbert – Peak

Operator

Good day and welcome to the Radyne Corporation fourth quarter 2007 earnings conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to Malcolm Persen. Please go ahead.

Malcolm C. Persen

Good afternoon everyone. Thank you for joining us for Radyne’s 2007 yearend earnings conference call. I’m Malcolm Persen the CFO. Also present today are CEO Myron Wagner and Chad [Furham] the Corporate Controller. I plan to present a brief overview of the company and the financial results for the quarter. Then Myron will provide further comment about the year’s performance and will conduct the question and answer session.

Before we go any further let me remind you that this conference call could contain statements that which may constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements typically characterized by the words such as, expects, believe and anticipate and the like and with this call will include references to future sales and/or profitability are subject to risk and uncertainties that can cause actual results to differ materially from the forward looking statements. Factors which could cause or contribute to such differences include but are not limited to factors detailed in the company’s SEC filings and include risks associated with the highly competitive nature of the industry in which it competes, the potential for downturns in economic or market conditions, the rapidly changing technology environment in which it competes, the effect that acts of terrorism may have on its ability to ship products abroad and the company’s ability to successfully develop and market products and services on an ongoing basis.

Let me describe the company very briefly. Radyne Corporation is a supplier of capital equipment for the satellite communications industry as well as capital equipment for the HDTV and digital broadcast industry. In addition, Radyne recently acquired AeroAstro, Inc. a firm that designs and builds small micro satellites and related technologies. As many of you know Radyne announced on February 4, 2008 that it has engaged an investment banker to assist in an evaluation of strategic alternatives. During this call we do not attend to comment further on that evaluation and consistent with the February 4th announcement do not expect any further comment until there is a conclusion to that process.

Now, for our financial results. For the recently completed year the company set a new sales record at $142.1 million. Margins were $56.2 million or 40% of sales and total expenses were $41.9 million resulting in earnings from operations of $14.3 million. Net earnings were $10.2 million. For the fourth quarter sales were $39.7 million, margins were $15.1 million or 38% of sales and total expenses were $11.9 million resulting in earnings from operations of $3.2 million. Net earnings were $2.1 million. As a result, for the year and quarter respectively the company earned $0.54 and $0.11 per diluted share. Earnings during the year and the quarter included equity compensation expense which had the effect of reducing earnings per share by $0.07 per the year and $0.02 for the quarter per diluted share. Also during the year and quarter the company recorded $3.7 million and $927,000 dollars respectively in depreciation and amortization expense.

Sales and profitability for the quarter and the year were adversely impacted by the deferral of $1.2 million in revenues due to the terms of the sale of a large modem order to an Asian customer. Even though we received 80% of the cash for that order under generally accepted accounting principles we cannot recognize revenue at the time of the transaction. In addition, as previously disclosed the company reserved a $548,000 balance due from a customer in the United Kingdom and I’m happy to report that today we received the first $100,000 payment on that and that will be reflected in our first quarter 08 results. While we remain optimistic that part or all of this debt, and obviously we’ve got part, that all of this debt will be recovered and believe that the deferred revenue may be recognized as early as within the next two years. The net effect of these accounting entries was to reduce earnings per share by $0.05 for the year and quarter per diluted share.

Fourth quarter bookings were $41.4 million and our backlog stood at $40.5 million at the end of the quarter. The Xicom business booked $23 million during the quarter while our satellite electronic segment encompassing the Radyne and Tiernan brands booked $17.9 million in new orders. During 2007 the company received a total of $150.7 million in new orders or a book-to-bill ratio of 1.1.

On the balance sheet our cash balance grew to $24.8 million and the company has no debt. All in all, after the acquisition of AeroAstro the company ended the year with over $15 million in additional cash. During the quarter receivables declined to $24.0 million while inventories dropped to $23.2 million.

Additional details of the company’s 2007 year end results are available in the Form 10K which we filed yesterday with the SEC and that’s available at the company’s website investors.Radn.com or at the SEC websitewww.SEC.gov/edgar.

Now, let me turn to Myron for his comments.

Myron Wagner

Malcolm has covered our financials for 2007. I will add some business highlights as well as provide some early perspectives on 2008 and will conclude today’s call by providing 2008 guidance. Our Xicom business had another great year in 2007 with sales growth and improvements in market share. Q4 bookings remained at record levels and we entered 2008 at a new record backlog level. Our 2007 [inaudible] level reflects a 35% increase over 2006 and included both military and commercial orders. Xicom continues to successfully capture business in the growing millimeter wave area and is benefitting from the migration of Klystron power amplifiers to traveling wave tube amplifiers.

Q1 is shaping up to be another strong bookings quarter for Xicom. With the deployment of the WGS or wideband global system providing opportunities for X and KA band amplifiers as customers begin to build out uplink infrastructure. Additionally, the ground multiband terminal or GMT program should provide us with orders comparable to, if not in excess of last year. In fact, we expect to have some announcements for you on this shortly. The Xicom team is continuing 2007’s pace of new product development emphasizing increased offerings in our solid state amplifier line and continuing to increase the capability and performance of our traveling wave tube amplifiers.

Within our Radyne satellite electronics business we successfully began shipping our powerful new shared bandwidth product SkyWire in December. With 14 networks shipped to date and additional orders in hand. The rate of adoption gives us confidence that SkyWire addresses a strong customer need with all units shipped to date fully meeting customer expectations, repeat orders in hand and additional prospects in the pipeline for increased sized deployments. Our Radyne business has also secured a new strategic account to provide ground segment equipment in support of [Yasats] new satellite. We will receive more than $1 million in orders in Q1 with potential of an additional $2 million in orders in 2008. Radyne is also maintaining the pace of new product development with enhancement to our SkyWire product underway which will enable us to address new market segments.

Our Tiernan division is now shipping orders of our ABC4000 line of standard definition and high definition advanced video coding or MPEG-4 products worldwide for use in content distribution and digital satellite news gathering applications. While sales or our MPEG-2 standard definition and high definition products remain solid. We also continue to see steady shipments of our audio and digital receiver products. Finally, within our news business AeroAstro we’re seeing early indications that all three segments: space systems, components and technology systems and communications and signals have significant growth potential in 2008. Our flagship standard interface vehicle or SIV program is progressing well and is on schedule to deliver the first vehicle to our customer in fourth quarter of this year. Our pipeline tool for tracking biddable opportunities has increased in dollar value by 50% since we completed the acquisition of AeroAstro in August of 2007 and we are gearing up to compete for the modular multi mission space vehicle request for proposal from the operationally responsive space office this month.

We continue to see opportunities for our space components typified by our miniature star tracker and I am pleased to announce that we have received a $1.2 million order from Globalstar to purchase additional SENS or sensor enabled notification system appliqués. Globalstar will use these appliqués to expand its simplex data network.

Let me turn now to the subject of guidance. As you know, we are always reluctant to forecast on a quarterly basis because our business is lumpy, it is subject to seasonality and because we ship within 30 days of receipt of orders. We have had a record 2007 and expect to continue on this trend. We expect sales for 2008 to be in the range of $159 to $165 million and earnings per share to be between $0.62 and $0.67.

Operator, I think it’s time for the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll pause for just a moment to assemble our queue. We’ll go first to Mark Smith with [Inaudible].

Mark Smith – [Inaudible]

A couple of questions, first can you give us anymore insight on SkyWire on how it’s gaining traction? Also, any other new products that you’re looking forward to as we look further out into 08?

Myron Wagner

I think the best way to characterize the SkyWire take up is it’s a product that we’ve now shipped for about a little more than three months and at this point it is tracking what our projections were for the year. We clearly expect to ship more and more of the product throughout the year but certainly the first few months in production and the first few sets of customer operational trials and now deployments is going very well. So, we’re fairly early in the take up curve but I’m very encouraged with what we’re seeing in the market and I think we’ve hit the thing right in the dead center where we wanted to be.

Mark Smith – [Inaudible]

Any other new products or anything else that is worth commenting as we look further out into 08?

Myron Wagner

Well, I alluded that we are continuing product development actually in all of our businesses but at this point what you really probably can expect to see nearest term will be additional enhancements to SkyWire. But, we do also have other products in the pipeline. I normally won’t talk about those until they are near imminent for obvious reasons.

Mark Smith – [Inaudible]

Okay. Second, kind of housekeeping, can you talk about SG&A expense as it pertains to AeroAstro? Where that came in and are you running kind of at an optimal rate now or is there an opportunity for leverage there?

Malcolm C. Persen

We are obviously going to be looking for opportunities for leverage and that is something that we think as we continue to encourage AeroAstro to take on more discipline in the way they manage their business we think there are opportunities for that. Having said that, it is important to point out AeroAstro, about two thirds of their revenues are government contracts which call for reimbursement of all their expenses including the vast majority of SG&A. So, it’s important to keep in mind that although their operating margins tend to be a little bit leaner than we’re use to in the rest of our business, since that SG&A is recoverable the risk associated with it is much lower.

Mark Smith – [Inaudible]

Last housekeeping comment, you said that you received today $100,000 of the $548 that you had reserved for bad debt. Did you give a timeframe on when you may hope or expect to see another payment or more of that come in?

Malcolm C. Persen

I didn’t give that information. I think that we are still working with the customer in this instance and we obviously – I believe in what I said, I believe that they have operated in good faith, they have been very forthcoming and obviously I’d like to see us recover it as quickly as possible. On the other hand they’re trying to work themselves through a difficult period. I don’t have any more information to give except to tell you we are in pretty continuous contact with them and we expect to recover it all.

Operator

We’ll go next to Rich Valera with Needham & Company.

Rich Valera – Needham & Company, LLC

A couple of questions, first on GMP, are you willing to talk about how much that contributed in 07?

Malcolm C. Persen

GMT to the top line for 07 was a little shy of $18 million.

Rich Valera – Needham & Company, LLC

And per Myron’s prepared remarks you expect that to be flat to possibly up in 08?

Malcolm C. Persen

I think that’s a pretty good characterization, yes.

Rich Valera – Needham & Company, LLC

Okay. Myron, you talked about WGS as a source of strength for Xicom in the first quarter, can you give a little more color on one, who you’re providing those amps to and how you see the potential for WGS over maybe this year or longer term and whatever type of granularity you could.

Myron Wagner

Actually Rich, I’m not going to have much granularity for you at this point. But, I have some color and that color is that that satellite which there will be six of them, the first one is up and successfully operating has tremendous capacity compared to what military satellites have had in the past. And, one of the visions for it is that the government will be able to either offload some of its commercial satellite usage or if that continues at the rate that it has, at least provide a dramatic improvement in dedicated military communications links. Now, the reason that’s important is because it is KA band and what has to happen is this means any terminal that’s going to operate with that new satellite or satellites is going to need to have a KA band uplink and that puts us in a very nice position because Xicom has been very strong in that technology. So, I’m not going to be able to give you an exact estimate of what we expect to book in that but suffice it to say if there’s a satellite there ground stations are going to need to be upgraded to KA band and everyone of those ground stations is going to give us a chance to sell.

Rich Valera – Needham & Company, LLC

Do you know how competitive it is for providing KA band PA uplink systems? Is there multiple competitors? Or, is it a fairly small number? Or, just one.

Myron Wagner

Well, we’ll certainly have competitors but I think as we indicated Xicom is very strong right now in millimeter wave, we’re certainly winning more than our share which means we’re competitive technically as well as price wise. I believe we’ll be able to parlay that into more than our share of wins. So, there are several competitors.

Operator

We’ll go next to Debra Fiakas with Crystal Equity Research.

Debra Fiakas – Crystal Equity Research

I wondered if you could go back to your comments during your opening remarks about the ABC4000 and how you’re seeing some early success for that. Is there the potential for maybe encroaching on some of the MPEG-3 products or MPEG-2 products, I should say?

Myron Wagner

I think there’s a potential, let me just try and give you a little color for it because we actually have some internal granularity and I’ll try to share a little bit of that with you. But, last year we really expected the ABC products to take off in a lot bigger way than they did and we believe that it’s just a situation where our customers worldwide have just not taken the technology and used it but we’re starting to see that loosen up particularly in Asia, actually internationally Asia, Africa and India have all had sales as well as Indonesia. Now, where it’s going is it is certainly going into uplink trucks and it gives them the capability to provide a lot more efficient bandwidth utilization for those uplinks and also for distribution. We haven’t seen too many sales or actually, I don’t think we’ve seen any in Europe yet, like I said it’s been mainly in other parts of the world. And, we’re now starting to see requirements for ABC come out in the US that we think we’re well positioned for. So, I’m still optimistic that we that we shift forward a year to 2008 and we’ll see what we had hoped to see last year. Now your question about whether it’s cannibalizing MPEG-2 interestingly enough I recently looked at all the statistics on that and I did say MPEG-2 equipment is still tending to be very strong compared to what we predicted as little as three months ago. In fact it’s exceeding our expectations. So I don’t think either of them will go away, I think they’re more complementary although I think in the long run the new technology may overcome for distribution and for satellite uplinks the MPEG-2 that’s currently installed.

Debra Fiakas – Crystal Equity Research

And also could you give us an update on the TM20, the triple scatter modem?

Myron Wagner

As we announced in the last earnings call we had made several sales of it, we actually have not seen significant new orders in the last quarter, so we didn’t see a lot of new activity in the fourth quarter. I would characterize it as being still very interesting, still a lot of inquiries but it’s kind of calmed down here for the last three months. So I think we’ll see it as kind of lumpy sales where there’ll be a burst of sales for it and then it’ll calm down again.

Debra Fiakas – Crystal Equity Research

And then the final question is in regard to SkyWire, can you give us some idea of what portion of the satellite segment backlog is related to SkyWire?

Myron Wagner

At this point, Debra, it’s not that much, we’re very early in the cycle. We book and ship them pretty quickly. I think I’d focus more on not the backlog as much as I would the uptake of them. We’ve written 60 or 70 proposals and actually for SkyWire it’s a little bit different for us, but it’s been traditionally because we don’t really sell them on a data sheet as we do sell them as a partial system solution to our customers so we have two full time senior network people that are basically writing proposals day and night and we seem to be hitting on a large percentage of them. So I don’t think you can get anything out of the backlog numbers, I think you want to look more at the size of the pipeline and just the market acceptance.

Debra Fiakas – Crystal Equity Research

You had mentioned that there had been fourteen networks that had been shipped so far, are those customers spread around the world, mostly US, where we would find them geographically?

Myron Wagner

They’re actually everywhere except the US, although we have one in a part of the US now. So the uptake tends to be where satellite is more which is not in the US except for distribution. A lot of interest in Asia, in the Middle East and so on and certainly an awful lot of interest as we initially expected in the oil and gas industry, they seem to be early adopters. I guess to put a plug in though, I think one of the most exciting things of that endeavor is that we ship these systems out of the factory, they plug them in and they’ve worked in every case, so we’re not having significant teething problems which would be kind of expected when you move into more of a system solution especially a unique one like this one. So at this point I think all the indicators are very positive. I think next quarter when we talk to you we’ll have a little more track record, but at this point there’s no bad news, it’s all good news.

Operator

We’ll go next to Bill Dezellem with Titan Capital Management.

Bill Dezellem - Titan Capital Management

Couple of questions, first of all just a housekeeping item, we have not seen a press release yet. Were you going to be issuing a release in addition to the 10-K?

Myron Wagner

No, we’re not planning to do that. The 10-K in the end has far more information than we could squeeze into a press release. The only thing that we didn’t disclose in the press release that we’ve talked about today was that deferral of revenue in the case of that Asian customer and there’s a wealth of information particularly the management discussion analysis that I would suggest is probably more encompassing than what we would fit in a press release at this point.

Bill Dezellem - Titan Capital Management

And that was a $1.2 million of deferred revenue?

Myron Wagner

That’s correct.

Bill Dezellem - Titan Capital Management

And then secondarily when you look at the roughly 15% plus or minus revenue growth that you were targeting for 2008 relative to 2007 how much of that is organic growth and I ask the question because if we remember correctly AeroAstro took place mid-year last year.

Myron Wagner

That’s correct. We’re not going to disclose specific forecasts for specific segments of our business but suffice to say that of the uptick certainly a portion of that is going to be the result of the inclusion of the full year of AeroAstro.

Bill Dezellem - Titan Capital Management

And then speaking of AeroAstro, I apologize for the basicness of this question, given the size of the micro-satellites being so small would you please walk us through the applications where those satellites actually are used and essentially the applications of them please?

Myron Wagner

Yeah, I’ll give you a thumbnail and I’ll tell you what, Bill, it’s a good topic so some day give me a call and I’ll give a lot more, but to give you a little flavor for it most of AeroAstro’s work and what I certainly see in the pipeline is typically, and typical is kind of a difficult number, but let’s say between 50 kilograms satellites and 200 kilograms and at the top end of that a couple of hundred watts of power and the reason those numbers are significant is they kind of help you understand what kind of capabilities. Now I specifically called out operation a responsive space because that was one of the areas that we thought had very strong potential and was starting to be heavily funded a year ago when we started looking at this acquisition and we will be writing a proposal for that hopefully before the end of the month, we’ve seen the draft but we haven’t the final RFP. But we believe we’re very well positioned for it. And I think the kinds of applications that you’re going to think about here is, don’t think about major com sat communication satellites that the rest of our equipment operates with, that’s not really what these will be used for. Typically these would be used for specialized communications by the government, there’s a lot of interest in kind of medium capability imaging because they’re a low earth orbiting satellite so they’re fairly close to the earth and they take a fairly small snapshot, move fairly quickly but specialized imaging payloads and conceptually I think maybe the best way to think about it is we will host any payload that anybody either commercially or in the government comes up with that’s a 200 watt sort of payload that can operate in a low earth orbit environment. So there’s actually a large number anything from imaging to weather to communications to – we’re pursuing one now that we think I hope to have announced pretty soon that has to do with star mapping that helps with GPS navigation. So it’s a wide variety of what I would call medium to low cost applications that provide a high payoff in terms of capability versus the time to develop them.

Bill Dezellem - Titan Capital Management

And then one additional follow on to that, is do you foresee at some point in the future and whether that’s five years or 10 years, maybe less that some of the more traditional applications of satellite whether it would be GPS or direct TV, dish TV’s, I guess I should say satellite TV the sort of larger satellites that those applications could get down to the point where they would fit within the micro-satellite?

Myron Wagner

No, I don’t think so, Bill. I think we’re looking at a different class of capability and the reason I say that so quickly is there’s always going to be geostationary satellites and they work extremely well as we all know from this industry for providing high capacity communications and staying basically fixed over a point on earth due to their orbit. I think what you’re going to see is a lot more applications where and fairly anywhere from lower orbit actually out to the geostationary band small satellites that can do anything from like I said missions that I talked about to even repair of larger satellites by remote control, there’s actually some NASA work in that area which isn’t anything I’m bidding now but we hear about it. So I would see them more as an adjunct in filing a different space than the big TS stationary com sats.

Operator

We’ll go next to Kevin Wink with Polymous Capital Management.

Kevin Wink -Polymous Capital Management

Couple of small financial questions, the first is fourth quarter gross margins, maybe you could give us some additional comments on those because with the guidance you gave, Myron, it would appear you need better gross margins for the full year of 08 than what you saw in the fourth quarter.

Malcolm C. Persen

Yeah, there’s no question that the last statement you made is correct, in order to achieve the guidance that we’ve given that the margins need to improve. There were a few anomalies in the fourth quarter and actually some of those are going to reverse themselves in the first couple of quarters of this year which had to do with some accounting entries and what not pertaining in part to some [inaudible] contract work that was done in Xicom and some adjustments that were made in the satellite segment particularly with regard to the Tiernan operation. I’d call the mass majority of those one time in nature as we look at the margins for the quarter we’re in right now we expect that number to recover somewhat, they’re looking pretty good right at the moment. We aren’t there yet, we’ve still got two more weeks to go. So don’t hold me too accountable for that but I do believe that you’re going to see that situation reverse shortly.

Kevin Wink -Polymous Capital Management

And then SG&A in Q4, if you take out the $548,000 it increased about $1.1 million from Q3, not much of a sales increase. I was wonder the impression that you had AeroAstro already in Q3 for at least two months, is that correct?

Malcolm C. Persen

Yes.

Kevin Wink -Polymous Capital Management

And so where did the $1.1 million come from Q3 to Q4?

Malcolm C. Persen

Well as you said part of that came in from the bad debt loss which is –

Kevin Wink -Polymous Capital Management

Well this excludes the bad debt loss. Q4 SG&A with the bad debt loss was about $9 million. You take that out and it’s let’s say almost $8.5 million, Q3 SG&A was $7.4 million, so you’ve got, aside from the bad debt loss, you’ve got a $1.1 million increase from Q3 to Q4, I would guess at most $150,000 to $200,000 of that is from AeroAstro.

Malcolm C. Persen

Not about half of that’s from AeroAstro. AeroAstro SG&A during the quarter ran about $500,000 a month. We had two months in the previous quarter and we had three months obviously in the last quarter because we owned them for the entire period, so that’s a part of it. I don’t think there’s any overall trend, there was no spike in hiring. In fact our headcount remained fairly flat throughout. I don’t have any answer to the last $500,000.

Kevin Wink -Polymous Capital Management

Your bonus?

Malcolm C. Persen

No, actually we didn’t pay much in the way of bonuses this year. Nobody in corporate got bonuses and only in a few of the divisions got bonuses. So I don’t think that’s it. If the rest of these guys got bonuses who are sitting in the room with me, they have some explaining to do to me personally.

Kevin Wink -Polymous Capital Management

On to one more general question, aside from you understandably not wanting to comment on what might be going on in terms of people looking at Radyne as a potential purchase, how has that process affected your own potential acquisition and business development activities? Is that on hold at this point, is the company is conceivably up for sale itself? Because as you know the company generates quite a bit of cash relative to its size. I have projected you ending 08 with above $30 million in cash which you could make some reasonable acquisitions for that. So what’s the current status of the company’s own acquisition/business development process and has that been affected by the potential sale of the company?

Myron Wagner

Let me take a little bit of a shot at that and then I’ll probably back away from it and be consistent with what we said but the first thing is one of the concerns that I always had if you do something like we’ve done is how is does your existing customers respond to you? The first thing is one of the concerns that I always had if you do something like we’ve done is how is your existing customers respond to you and I’m happy to say that we really haven’t had much fallout from that. I think our customers recognize that the company provides value and regardless of what the outcome of any particular strategic initiative might be I think we’d be in pretty good position to service them. So, we aren’t seeing a lot of beating on us in the market. In fact, it’s quite the contrary as you can tell from the bookings. Things have continued in the normal course of business quite well.

As far as what we’re looking at I would [inaudible] because you know that we have a pretty thin corporate structure to say that it hasn’t consumed some time but, on the other hand we are continuing to look at the possible acquisitions because we don’t know what the outcome of this whole process will be. At this point I don’t have anything that I would say is teed up or immediate but we certainly are continuing to discuss where we would like to go, what would be an enabler for our business to go forward in most everything. I’m going to give you a very nebulous answer but, I think the walk away, certainly we have a lot on our plate but we have not stopped looking at the business as an organic business or what we could possibly or would possibly want to do to enhance it.

Kevin Wink -Polymous Capital Management

If you find something that you think is a great fit strategically, makes sense financially, you go to the board with it, does the board respond the same way that they might have six months to a year ago? Or, do they hem and haw because, “Well, we’ve got to think about where we are with our strategic evaluation of the company.” And so forth?

Myron Wagner

I don’t know, I think that’s an impossible question to answer. I’ll tell you what, when I try it I’ll let you know what the answer is.

Malcolm C. Persen

Kevin, before you get off I just ran some quick numbers while you were talking to Myron just now and of the $1.1 million in uptick in SG&A $764,000 would be the difference in SG&A between the two periods at AeroAstro. And again, I’d emphasis that although that number looks scary, remember that the vast majority of that is going to be reimbursed from the government. So, if those numbers increase it is typically because there is activity for which we’re being paid and AeroAstro as you may have noted in our 10K turned in a nice contribution during the fourth quarter so we’re not terribly worried about that.

Operator

We’ll go next to Jeff Gilbert with Peak.

Jeff Gilbert – Peak

Just a question on your 10K, you kind of outlined the general trend of foreign sales and they appear to be decreasing at least annually and I was wondering if you could comment on this trend in a quarterly basis and perhaps give some reasoning or where you’re focusing?

Malcolm C. Persen

Well, I think it’s hard to do on a quarterly basis because our business tends to be, as we’ve said repeatedly, a little lumpy. What goes on in any quarter is often not reflective of even the annual trends. With regard to the disclosure of the foreign sales, that’s as much of a reflection I think of the trends we’ve enjoyed in the past year with some of our military programs as anything.

Jeff Gilbert – Peak

Sounds good. Are you at a point where you can comment on any advantages you might have from the weak dollar?

Malcolm C. Persen

Well, obviously the weak dollar works in our favor. Having said that and Myron may want to add a few things to this but having said that, a lot of our competitors are also US based and so they have that same advantage. Unfortunately, satellite modems and high powered amplifiers are not what I call, I don’t mean to be facetious but this is I think the best way to describe it, are not really discretionary items. It’s not as though people are building satellite networks and then deciding to buy extra modems because they’re nice things to have. They’re typically planned as purchases as part of their network design and construction and typically will then buy accordingly. So, yes we like to think it’s had an advantage but it’s hard when you think of our customers’ buying habits to really pin that down to anything concrete.

Operator

I’ll go next to Bill Dezellem with Titan Capital Management.

Bill Dezellem - Titan Capital Management

We have a couple of follow up questions, relative to the strategic alternatives process, the money that you are spending is that capitalized until the process is completed? Or, are you expensing that as it goes?

Myron Wagner

We capitalize as very little as the auditors will let us.

Malcolm C. Persen

To answer your question it’s expensed.

Bill Dezellem - Titan Capital Management

So, in response to a prior question about SG&A, the dollar spent on the strategic alternatives process could partially account for that difference also?

Malcolm C. Persen

I don’t think – if you got with $350,000 of the questioners amount there and I’m sure some of that is that and it could be in some cases just period differences, all sorts of things could enter into it.

Bill Dezellem - Titan Capital Management

Bookings, in the first quarter would you please share with us on a year-to-date basis since we’re nearly completed with the first quarter where bookings are falling out at this point? Or, if you prefer just the first couple months percentage change?

Malcolm C. Persen

How about we just give you January?

Bill Dezellem - Titan Capital Management

We’ll take whatever we can get.

Malcolm C. Persen

$13.85 million.

Bill Dezellem - Titan Capital Management

And how does that compare to a year ago?

Malcolm C. Persen

About a $1 million higher.

Operator

That concludes our question and answer session. I’d like to turn the conference back to our speakers for any closing remarks.

Myron Wagner

Okay. Well, that winds up our earnings call for today. We thank you all very much for your participation and goodbye.

Operator

Thank you everyone. That does conclude today’s conference. You may now disconnect.

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