Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Globecomm Systems Inc. (NASDAQ:GCOM)

F4Q08 Earnings Call

September 11, 2008 10:00 am ET

Executives

Matthew Byron – Investor Relations

David Hershberg - Founder, Chairman and Chief Executive Officer

Andrew Melfi - Chief Financial Officer, Principal Accounting Officer, Vice President and Treasurer

Analysts

[Unidentified Analyst] - Stephens Inc.

Irit Jacoby - Susquehanna

Richard Valera - Needham & Company

[Jim Mcilroy] - Collin Stewart

Richard Ryan - Doughtery & Company LLC

Operator

Welcome to today's Globecomm Systems Inc. fourth quarter 2008 earnings conference call. (Operator Instructions) For opening remarks and introductions, I would like to turn the call over to Matthew Byron, corporate Vice President.

Matthew Byron

Welcome to the Globecomm Systems fiscal 2008 fourth quarter conference call. Joining me today from the company are Chairman and CEO Dave Hershberg and our Chief Financial Officer, Andrew Melfi.

Last night after the closing bell, Globecomm issued its fiscal 2008 fourth quarter earnings press release, which included the company's fiscal 2009 full year financial projections. In the event you have not received or seen a copy of the release, it is posted on the Globecomm Systems website at www.GlobecommSystems.com or you can contact me at 6314571301 and I will send a copy to you.

Comments made during this conference 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 date thereof 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, its quarterly reports on Form 10Q, its current reports on Form 8-K, and the safe harbor language contained in the company's press releases. These documents contain and identify important factors that could cause the company's actual results to differ materially from those contained in its projections or forward-looking statements, which the company urges all investors to consider.

Globecomm undertakes no obligation to publicly release the revisions to such forward-looking statements that may be 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 Thursday, September 11, 2008. It contains time-sensitive information and will be available as a webcast replay for at least nine months on the Investor Relations section of the Globecomm Systems website and as a phone replay at 888-203-1112 for domestic callers or 7194570820 for international callers with an access code of 5657024.

At this point, I'd like to turn the call over to our CEO, David Hershberg.

David Hershberg

Several weeks ago, Ken Miller, our President, passed away following a long battle with cancer. Much of what we have accomplished in the past year and from our beginnings was due to Ken's leadership, hard work and vision. Ken will be sorely missed, both as a team member of management and a good friend.

Last night after the closing bell, Globecomm issued its fiscal 2008 fourth quarter and fiscal year financial earnings release. We included financial guidance for fiscal 2009.

Fiscal 2008 was yet another progressive year for Globecomm in terms of record revenues, record profits, technological development, and organizational structure. Globecomm also reversed a significant amount of the company's previously written down deferred tax asset. This was a result of major strides we have made over the past few years and a review of our future, including our sixth consecutive year of top line growth. I'm extremely proud of the accomplishments of the company in a very difficult environment.

Throughout the record financial year, Globecomm further combined the acquired GlobalSat operations with the existing Globecomm service operations. We reorganized our sales force. We internally launched a new subsidiary  Cachendo. We developed new X and K band products, and also made significant strides in the wireless and broadcast marketplaces.

I'd like to take a few minutes and discuss each of these areas and related investments the company will be making throughout 2009 as we set the stage for growth for future years to come.

Yesterday Globecomm announced a contract with Indigo Wireless to provide managed network services supporting a rural GSM mobile network, representing the company's largest SatCell contract to date. And in fact, it will be the first SatCell network operating on fiber without satellite. With this contract, the company now is operating six SatCell networks across the U.S., Canada, the Caribbean and Afghanistan.

Globecomm has invested significant resources over the past few years in GSM and CDMA switching and engineering and know-how, and we look forward to adding the SatCell suite of services the company offers as part of a turnkey platform. This service offering is in addition to a number of cellular infrastructure contracts, including a $30 million contract in Alaska with [GSE].

The broadcast team has made significant strides and are privileged to announce buildup of next generation major media processing centers. One of the centers we have built has capacity to provide content distribution direct to home, IPTV, mobile TV, and eventually could provide interactive and personal television service to the customer subscribers. In the first quarter of fiscal 2009, Globecomm achieved a major milestone for this buildout of this center.

These types of products are crucial to the future success of the company as the represent R&D-type projects. The company will continue to invest in this area throughout 2009 to position itself for the quadruple play initiatives that are coming, IPTV initiatives and next generation tape-to-file data center buildouts as content owners embrace a true digital world in attempting to monetize their content libraries.

Over the past few years Globecomm has assembled a world class team in both IPTV and cellular space and we're looking forward to growth in both of these areas.

I'd like to make a comment on what we consider to be a major achievement for the broadcast team in our service organization. Last year the company successfully completed a full year of operational services with SHOWTIME Networks Inc. Service began on July 1, 2007. Globecomm provides all technical operations supporting contact origination, scheduling, transmission and monitoring required for delivery of SHOWTIME Networks Inc. programming to viewers nationwide.

Additionally, Globecomm was awarded a multi-year contract to support the origination and broadcasting of the Smithsonian Channel, a new high-definition channel, as part of the SHOWTIME family of channels. Globecomm also upgraded SHOWTIME 2, one of the existing SHOWTIME standard definition channels, to high definition as SHOWTIME continues to evolve their content platforms. I think we did a wonderful job on this project, and I want to thank all the employees involved in it.

The launch of Cachendo is the first major business plan augmentation since the launch of the company's service subsidiary 11 years ago. We are very excited about the prospects of Cachendo as we see an opportunity to fill an increasing gap in the public sector IT work force that has been created by the sheer magnitude of government IT needs along with the aging and retiring work force.

The bulk of federal agency IT projects is typically overwhelming in scope as well as in design and implementation. The federal work force historically has not been able to attract for permanent hire the flourishing IT talent that the private sector holds for mostly financial and time sensitive reasons. In the private sector, there is a rapid convergence of telecom and IT creating an array of opportunities in the broadcast and wireless outsourcing and consulting areas which will be a major complement to the existing Globecomm business lines.

The company intends to invest in IT systems architecture, training, hardware, and additional marketing to support the Cachendo brand.

As discussed in our Q3 conference call, Globecomm has reorganized the existing sales force and fused together the marketing team under the same umbrella. The company is actively pursuing talented sales personnel to round out the team and take the numerous platforms Globecomm has developed over the past years to market.

The company is also undergoing a CRM platform deployment to complement the team and provide greater visibility over time.

As the government is shifting from commercial C and Ku lower frequency bands to the government X and K bands, Globecomm is actively developing small and large terminals based on these frequencies and will invest throughout 2009, positioning the company for the inevitable broad-based transition.

In general, I'd like to just highlight a couple of major awards that were issued in 2008 relating to the government marketplace which, while not included in the announced backlog, could play a critical role in the future financial success of the company.

Globecomm was awarded a blanket indefinite delivery/indefinite quantity contract from a global multilateral organization valued up to $117 million. The three-year contract, which includes a provision for two oneyear extensions, enables the customer to provide various fixed and transportable earth stations for worldwide deployment. Several options available under the contract include depot spares, field installation services, extended warranty and maintenance support.

The company was also awarded two contracts from the U.S. Army to provide the Joint IP Modem. The goal of the Joint IP Modem effort is to leverage commercial technology to the maximum extent possible while providing an open-standard based approach with can form the basis of interoperability for all military users. The two contracts have a base value of $15.4 million, with $71.6 million in contract options.

Globecomm is the prime contractor this modem and will provide program and contract management. Under subcontract to Globecomm, ViaSat Inc. is responsible for the network system and modem design, including the integration of DVB-S2 and DVBRCS open standard IP technology. Pursuant to the contract, the JIPM network-centric IP modem will be the Department of Defense standard network IP modem for use on military and commercial satellites to provide demand-based satellite communication transport services to the warfighter.

Globecomm continues to diversity the product and service offering in the government marketplace and looks forward to continued success in this area.

Globecomm sees the maritime industry as a major focal point in 2009 and is currently running a pilot program with multiple partners in an attempt to demonstrate broadband satellite technology in the open seas. This is [inaudible] we believe we would have to be and there are over 50,000 vessels that are candidates for broadband satellite connectivity and only recently space segment has become available to efficiently serve this market. Our company can provide both the equipment and the services that provide good value to prospective customers. We are in active discussions with our partners and we'll be investing in this area and hope to make strides in the coming year.

While 2009 will be a challenging year for Globecomm, the company anticipates yet another record year in terms of revenue, profits and EBITDA. Andrew Melfi, our CFO, will discuss this guidance and fiscal 2008 results in a few minutes.

While the company does not provide quarterly guidance, we do anticipate significant quarterly volatility beginning with the first quarter and include a major milestone related to the significant media, processing center, infrastructure, R&D and related contracts that carry lower margins, yet bring significant innovation to Globecomm.

The acquisition team is active and has an array of opportunities to consider. The company's goal is to make acquisitions that are not only accretive, but have a similar culture, excellent management and synergies. A large percentage of acquisitions do not work out and we are doing everything we can to make any acquisition that we make a success.

Globecomm entered the new fiscal year with over $50 million in cash and no debt. The company is stronger than ever and well positioned in many diverse markets.

At this point I'd like to turn the call over to our CFO, Andy Melfi.

Andrew Melfi

Revenues for the company's fiscal 2008 fourth quarter increased 14.8% to a record $56.4 million compared to $49.2 million in the same period last year. Revenues from Infrastructure Solutions increased 9.3% to $40.4 million compared to $37 million in the same period last year. Revenues from Services increased 31.2% to $60 million as compared to $12.2 million in the same period last year.

The increase in revenue from Infrastructure Solutions was primarily driven by an increase in systems design and integration services principally due to a contract with a leading provider of telecommunication services in Asia, the GlobalSat business acquired in May 2007, thus only contributing in fiscal 2007 for two months, and an increase in content delivery services in Globecomm network services primarily drove the increase in Service revenue.

I will talk in a few minutes to net income for the fiscal year June 30, 2008 rather than discuss the quarter because of the tax adjustments made in Q4. Revenues for the company's fiscal year ended 2008 increased 30.4% to a record $196.5 million compared to $150.7 million last year.

Infrastructure Solutions revenues increased 16.6% to $133.6 million, primarily driven by the increase of systems of design and integration services due to contracts with a leading provider of telecommunication services in Asia and an increase in the pre-engineering systems product line resulting from an increase in demand from the government marketplace.

Service revenues increased 74.1% to $62.9 million compared to $36.1 million due to the acquisition of GlobalSat, which contributed an additional $22.2 million in fiscal 2008 along with an increase in content distribution services from a large program with SHOWTIME Networks.

I would like to now try to clarify the tax adjustments made in June 2008. The company reversed approximately $12.5 million of non-cash deferred asset valuation allowance based on positive earning trends of the company. As of 6/30/2008, the company had approximately $46 million in federal NOLs to be applied against payments for future taxable income. Of the $46 million, approximately $17 million was not included in the valuation allowance reversal. This balance could not be reversed based on accounting rules. This balance, though, will be available to use to reduce taxes when realized and will be reversed to equity.

The company expects its effective tax rate to be approximately 36% for fiscal 2009. Included in this 36% tax rate there is a cash payment of approximately 2% to 3% for AMT and state tax payments in 2009.

Looking at the year income, net income for the company's fiscal year 2008 was $27 million or $1.34 per diluted share, which includes the positive effect of $0.62 relating to the reduction in deferred tax asset valuation compared to a net income of $8.3 million or $0.50 per diluted share in fiscal 2007 on a GAAP basis.

Excluding certain non-cash items, non-GAAP earnings were $0.80 for the fiscal year 2008, in line with our $0.78 projection and guidance compared to $0.53 in 2007. In addition to the positive effect of the reduction in the deferred tax asset valuation allowance, the increase in GAAP net income was primarily driven by an increase in revenues coupled with an increase in Infrastructure Solutions gross margin and the pre-engineered systems sold.

As Dave had mentioned earlier, we ended the fiscal year with a very strong balance sheet, with cash and cash equivalents of approximately $51 million. That gives us the ability to execute our business strategy going forward.

Looking ahead to fiscal 2009, Globecomm currently expects consolidated revenues to be between $225 and $235 million, GAAP earnings to be approximately $0.49 per diluted share, non-GAAP earnings to be approximately $0.84 per share, consolidated EBITDA to be approximately $21 million, a measurement we will continue to provide. These expectations reflect management's current view of results.

At this point I'd like to hand the call back to Dave.

David Hershberg

At this time we'd be happy to answer any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Unidentified Analyst] - Stephens Inc.

Unidentified Analyst - Stephens Inc.

Could you guys talk a little bit about the timing and size of some of these incremental investments you're planning on making? I mean, how should we expect the ramp in sales force, increasing investment in the Maryland Teleport facility, and any infrastructure investment in new IT services business to ramp up throughout FY '09?

David Hershberg

Well, we've already started making these investments last quarter, and we expect they'll increase over the first six months of the year. We are spending money in the maritime area in developing a product and also in the sales force, putting people on to understand that market and to go after it.

Cachendo requires an investment. As you probably know, one thing we had talked about, previously we had looked into buying an IT company in the $40 million range. When that didn't happen we understood that we could pretty much attack that marketplace and we already were in it to some extent, and so we decided to make an investment and start a company to go after that marketplace.

We feel we have a lot to offer. The company over the years has been building IT infrastructure for both telecommunications cellular and for our broadcast centers, so we felt we had a lot to offer in that area, and we had people that we could embed in the government and be able to grow that market.

We've already gotten to a point where we're about $4.5 million run rate in that business already even though we just started it, and we have a lot of hope for the future. But we do have to make some investment in some of the personnel, salespeople, there.

As far as infrastructure, we are investing R&D funds in expanding our product line to get into the K band and X band, and we expect most of that will be expended the first six months of this year also.

Dollar wise, it's probably going to be in the $0.15 to $0.20 range.

Unidentified Analyst - Stephens Inc.

And then I guess just to follow up on that, does the launch of Cachendo, does that kind of change the M&A strategy going forward? I know you guys are really targeting the government services business. Will you adjust your M&A strategy going forward because of that?

David Hershberg

No, we think that's going to add to it. As a matter of fact, we are looking at two potential acquisitions in that area. It's going to, I think, increase our horizon as far as the type of acquisitions we're going to look at.

Unidentified Analyst - Stephens Inc.

And then just one last question. Could you guys provide any color on the Services and the Infrastructure Solutions gross margin expectations embedded in the FY '09 guidance?

David Hershberg

We have a couple of projects in the Infrastructure business that we're making money on. We're not making as much as we'd like to because we have invested in R&D. Those sales will be in the first quarter this year in the IPTV area. We are making investments in the cellular business. Our pipeline there is very, very strong. And the offerings that we have, we're expanding those so that we feel we can go after different markets.

As far as other things that we're doing here, the gross margin in the Infrastructure business will be a little bit less because of these R&D type of projects, probably in the 17% to 18% region. We expect the products area to still be around what we were before, around 30, but we're still going to have the R&D issues there. And hopefully be around 35% to 40% in the Service area.

Operator

Your next question comes from Irit Jacoby - Susquehanna.

Irit Jacoby - Susquehanna

Your guidance for fiscal '09 contemplates a higher level of investment and lower margin. How should we think of that flowing through the year and when do you see yourselves getting back into a leveragable model?

David Hershberg

Well, we obviously hope we'll get back there by the end of this fiscal year. The first six months is going to include quite a bit of investment where we are, and we hope to start bearing the fruits of that towards the end of this year, maybe the third and fourth quarter.

We had a very good, we feel, a very good leverage model up to now, but we also feel that if we're going to keep growing we have to depend on growing generically within the company. We can't necessarily depend on acquisitions.

Something that would change the model quite a bit is if we do an acquisition this year and at a time where we can include that into our P&L for this year.

Going forward, we just felt that it was time to reorganize from the sales standpoint to try to increase our sales. We're well over a $200 million company this year, and we feel we really need to have the salespeople out in the street to do that and it takes awhile for them to start bringing business in.

So hopefully at the end of the year we hope to be there.

Irit Jacoby - Susquehanna

And then just a follow up question on the gross margin, the ground segment gross margin. I think you had also said last quarter that you anticipate a downtick because of the Infrastructure, you know, because of Infrastructure projects in communications. Has that project been expanded into Q1? Has some of it been delayed into Q1?

David Hershberg

Well, there's been, in general, in the Infrastructure side, there's been a delay in a number of projects. We're not immune at all from the credit crunch and there are people that we won contracts with or we feel we're going to win contracts with that are waiting to get financing. And a number of those contracts have moved out to the right. We haven't lost them, but we still have to depend on our customers getting, you know, getting credit and being able to do it.

We also last year had a very good September, where we sold a lot of product to the government. We're not seeing that kind of growth this year as far as input. We still have a couple more weeks to go in September and we're still hopeful to see some more business there, but we're not booking as much in the equipment or product area as we booked last year. It doesn't look that way, anyway. We still, like I say, we have a couple more weeks yet to go. Last September was a very big month for us in booking that kind of business.

Irit Jacoby - Susquehanna

I may have missed it but did you provide backlog numbers for the end of the year?

Andrew Melfi

We haven't. We will provide that. We're filing our 10K on Monday.

Operator

Your next question comes from Richard Valera - Needham & Company.

Richard Valera - Needham & Company

Your revenue guidance at the midpoint's just about 17% revenue growth. And since that doesn't include any acquisitions, I assume that's organic. And that's above your sort of organic revenue growth, it looks like, in fiscal '08, so I just wanted to get a sense, first, of your two businesses that you currently break out, what do you expect the relative growth rates to be in them? And are there any specific projects or opportunities you can talk about that you expect to drive this acceleration of your organic growth rate?

David Hershberg

We have a number of larger projects out there that we are hoping to book that are in the pipeline. Like I say, some of them are moving more to the right. We expect to have a Services growth in the 13% to 15% range and around a 20% growth in the Infrastructure. That being said, Infrastructure depends on timing of bookings and being able to turn them. The Service one is pretty solid because most of that stuff is in long-term contracts and backlog.

It's always, you know, a challenge each quarter when you ship equipment to get some new contracts [inaudible] to replace the old ones, and this is really based on what we think is in our pipeline. And we still have to book and turn quite a bit of business, but we do have a pretty good backlog going into this year.

Richard Valera - Needham & Company

And in response to a prior question you mentioned, I think, that you were thinking of the investments this year in the $0.15 to $0.20 range, and I guess I'm just trying to understand, how do you think of what would be normal and normal course of business investments versus sort of these incremental investments? Because I think we're sort of trying to get a handle on how much we should think of that as sort of temporary investment levels and, you know, maybe a reversion back to a more normalized level beyond, you know, the first two, three quarters of this year.

David Hershberg

Well, typically, basically you have two kinds of investments. One is capital investments, and that goes where you can write that off over a number of years. The other is items we have to expense as we go along, and that's usually people that we've put on and that's really an expense level. And in R&D what we do is we expense as we go.

I'd say, you know, with the new initiatives that we're working on that we're going to be expending a lot of that the first couple of quarters and I think it should get pretty steady after that.

Andrew Melfi

Yes, I think, Rich, what you see is - the trend in Q4 marketing, you'll continue to see that, where we started the hiring of new sales and marketing staff. But I think that trend will continue upward. Our prior history has been very low in that sales and marketing area so I think that's an expense area you'll see climb up in Q4 and continue to climb up a little bit.

Richard Valera - Needham & Company

So we should expect it sort of up sequentially in the first quarter and the second quarter and then.

Andrew Melfi

Yes, a little bit up from where it is in Q4.

Richard Valera - Needham & Company

And then stabilizing or going down in the back half?

Andrew Melfi

No, it won't go down. We're bringing in a new strategy with sales and marketing so that staff will stay onboard.

David Hershberg

Well, [inaudible] stay on board as long as you book some business. There's always a chance it could go down if they don't.

Richard Valera - Needham & Company

And then do you have an EBITDA number for fiscal '08?

Andrew Melfi

Yes, approximately. It was about $19 million.

Richard Valera - Needham & Company

And for the fiscal '09 guidance, I don't know how granular you're willing to get but do you have sort of an operating  either operating income number or op margin target that's baked into that as well as what you're expecting for D&A for the year and acquisition-related intangible amortization?

Andrew Melfi

Well, you know, basically - Dave went through the margin range on the Services, so it's sort of a blending margin of the Services of 35% to 40% and Infrastructure, 17% to 18%, which, you know, probably is around a 24%, 25% blended gross margin.

Richard Valera - Needham & Company

How about some of the other items, the D&A and acquisition-related intangibles? Should that be similar to fiscal '08, both of those numbers?

Andrew Melfi

Yes. Yes, with the stock amortization and the intangibles, it'll be a similar total level to what we had this year.

Richard Valera - Needham & Company

And likewise with the D&A?

Andrew Melfi

Yes.

Operator

Your next question comes from [Jim Mcilroy] - Collin Stewart.

Jim Mcilroy - Collin Stewart

I just wanted to clarify in this $0.15 to $0.20 that's for all of the new initiatives that you're taking, that's not just for the X and the Ka band development, correct?

David Hershberg

That's correct. It's about X and K is probably not our major investment that we're making.

Jim Mcilroy - Collin Stewart

And on Cachendo you said you did about $4.5 million or that's your run rate right now?

David Hershberg

That's our run rate we're running now. We hope to improve that as we go along every month.

Jim Mcilroy - Collin Stewart

And am I correct in assuming that that's a stable recurring revenue stream, these are generally long-term or longer-term contracts where, as long as the customer's doing well and as long as your performance is adequate, then there's a high re-up rate?

David Hershberg

That's been our experience. We've been in this business actually through our subsidiary in Laurel, our Globecomm Systems Maryland. They've been in this business. They've had up to 15 people doing IT kind of services for the government, and it has been pretty steady.

We don't put it in backlog. What we typically do is we put it in backlog when we take the revenue pretty much. We don't put any of that - if we have a contract, we don't normally put it in backlog. We just recognize the revenue every month.

But our experience has been if we've got good people and are embedded in there that we've not had any problem. It's another Service offering that we have, and our experience with the Service offerings have been pretty steady. We've been able to really - we really can tell you what it's going to be pretty much going forward for the year.

Jim Mcilroy - Collin Stewart

And so these would be Globecomm employees sitting in customers' facilities doing a variety of IT services or are you focusing on specific areas?

David Hershberg

I'm going to let Matt answer that because one of the reorganizations was we put Cachendo under Matt. Just another job for him. So Matt, maybe you want to answer that question.

Matthew Byron

Again, just to go back to the other question, it'll be a combination of dedicated Globecomm employees and a group of potential contractors. And right now the three areas, the primary areas, will be network storage, IT engineering and network security. And we could branch out over time into the broadcast area when we start figuring out ways to leverage the existing Globecomm engineering staff and stitch the two together.

Jim Mcilroy - Collin Stewart

And so the gross margins or the margins for that business would be greater than, less than or equal to the Services business overall?

Matthew Byron

Yes, it's going to depend. If it's dedicated employees in the profile that we have today, where we're prime, it'll be a similar profile to the existing Service margins. But we are going to have a lot partnerships involved in this, and I think if the partners go prime you could expect those margins to be slightly lower.

Jim Mcilroy - Collin Stewart

And so at least initially the markets that you're addressing right now are government markets, and I'm assuming that that will be the major focus in the short term but then the incremental people you're hiring and the incremental business you're going after would be a much broader scope. Is that correct?

Matthew Byron

Yes, that's correct. What we did, Jim, was we took approximately 20 people out of Globecomm Maryland when we did the combination of the Service companies. And so they were doing that already in the government market, a lot of network security, and so we clearly leveraged that out of the box. But we are looking at opportunities, in particular in the broadcast space. We see a lot of opportunity in data center work there and also leveraging all of our relationships around here to get involved in kind of C level strategy where we sit down with C level type employees of organizations and we understand their needs as this convergence is happening.

Jim Mcilroy - Collin Stewart

Dave, you said that revenue guidance for the year, you have to book some things on the Infrastructure side. So I'm assuming that the Infrastructure revenue is more backend loaded or more second half loaded this year?

David Hershberg

I think to a large extent that's true, but that's no different than every year. We usually have that problem. The only thing different from last year seems to be what we're booking in September. That's the one thing that we're concerned about.

One thing I want to mention about this Cachendo operation though, too, is it's not just providing bodies. We feel that if they're embedded in providing IT services, there's going to be requirements for hardware and building out data centers, too. That's something we think we're very good at. What's really happening for these broadcaster IPTV broadcast centers, they're basically data centers? Everything is digital. They're all on servers. They're probably a lot more complex in some respects than a normal data center. So one thing we're hoping to get out of Cachendo is not only the IT services but subcontracts to Globecomm to build it out and also subcontracts to our other service companies to do logistics support and maintenance and operations in the field for these customers.

So we think it's a win-win situation for the company as a whole, and we expect Cachendo to be throwing off other business other than just providing bodies for IT services.

Jim Mcilroy - Collin Stewart

And then alternatively, if a hardware win, hopefully you can bring Cachendo in for that, post-installation work also?

David Hershberg

Well, we're not really looking for them particularly to do that. We think we have that capability within Globecomm and we have the capability within the other Service organizations to do that. We're depending on these people to provide very high tech type of IT services and IT consulting.

Operator

Your next question comes from Richard Ryan - Doughtery & Company LLC.

Richard Ryan - Doughtery & Company LLC

David, can you talk or give us the bookings for Q4?

Andrew Melfi

It was a strong quarter, Dick, approximately $56 million.

Richard Ryan - Doughtery & Company LLC

Okay, roughly in parity. Dave, you talked about some things slipping a little bit. Can you give a little color as to kind of orders of magnitude of what you're seeing in the pipeline as far as slippage or maybe some of the larger bids that you're going after?

David Hershberg

Well, there is one to [inaudible] a $28 million project for NATO that's been kicking around now for about a year and a half. And we've extended the [bidding] maybe twice on that because what they've done is they've kept changing the requirements and we've got to keep bidding additional stuff and the project's going up. And we're hoping to finally have that thing at an end.

There's a couple of IPTV centers. There's a project which is a pretty good sized project in the Middle East that we won that we're waiting for financing for our customer to provide service directly to handhelds, streaming video to handhelds. Those TV opportunities or IPTV opportunities are in the $30 to $40 million range.

There's just a lot of stuff out there. Oh, then there's another one we're waiting for, a $13 million project that we've been waiting for with options up to $90 million. So these are things that we've won or we think we've won or are going to win that have just been delayed and delayed and delayed. They're very large contracts. Our experience is that they eventually happen, but they do depend on getting financing for some of our customers or getting money allocated from the government.

Richard Ryan - Doughtery & Company LLC

You indicated a healthy cash position. Receivables are also - I forgot what they were at, $52 million  a nice increase. Anything of concern in the receivables?

Andrew Melfi

No, they're just strong customers but slow-paying customers.

David Hershberg

In the Infrastructure business, I could tell you don't think we've ever had a problem with a receivable. I can also tell you that we've turned down some work as recently as today because we couldn't get good guarantees to get paid. And so I think we've been very conservative. And the only real time we had a problem was with one of our Service customers, which we eventually collected from.

So I don't know of any problem we've had. In all the years I've dealt with Andy, he's a pain in the ass. That's why we never seem to have any problems.

Operator

Your next question comes from Richard Valera - Needham & Company.

Richard Valera - Needham & Company

With respect to the first quarter volatility you referred to, Dave, it sounds like you were clearly expecting lower margins in the first quarter. Are you also expecting lower revenue? Could you just give a little more color around sort of what you're thinking for that first quarter?

David Hershberg

I think, you know, we typically don't give guidance for that, but I think the answer is yes and yes.

Richard Valera - Needham & Company

And then you would expect sort of presumably a sequential improvement in the second quarter?

David Hershberg

Yes. I think we have to do sequential improvements on all three quarters because we've given the guidance. And, just like last year when we had lumpiness within the quarters, we kept our guidance for the year. And I think the key thing is that we keep the guidance for the year.

Richard Valera - Needham & Company

And then with respect to our maritime initiative, I just want to understand the product side of that. The maritime area is going to require essentially a steerable, you know, stabilized, steerable antenna, which I don't think is something you guys have done before, so do you have a partner to do that or is that something you're looking to develop yourself?

David Hershberg

I'm really glad you asked that question because this is one area we're really excited about. Yes, we have provided shipboard terminals of a pretty high price and pretty sophisticated for government users. We have not done it in the commercial environment.

But we do have a partner. We have a couple of partners. One is a world leader in providing navigation-type systems to the fleet. I think they got something like 80% of the marketplace, plus they're in many ports where they do service. Another one is a company that we're developing with them. It's not just a steerable antenna. Let me explain what's happened.

Typically, commercial satellite systems do not provide coverage over the oceans. The only coverage they had was in global beams and they were very expensive to use because, since they weren't directive, the amount of power you'd have to pay for those things was very high. The other one was Inmarsat. Inmarsat can go as high as $10 a minute for a 64, 128 kilobit circuit.

The requirements from ships' owners for broadband has a lot to do with keeping their crews - they have a hard time getting crews to have broadband Internet providing so they can do, you know, videoconferencing with their families, providing up-to-date high-quality information to run the vessels. There's a real requirement out there for broadband.

With the advent of some more directive Ku band beams, we are working on a system which we're demonstrating right now. The ship's right now over in China, it's going through the North Atlantic, through the Indian Ocean up to China; it's sort of stuck in China right now, they've got some port problems. And what it does is it not only tracks a satellite but seamlessly switches between satellites and transponders so that, as you go from one area to the other, you can maintain broadband services.

Now what's been out there before has typically been broadband services along the coast, the Caribbean, where you had good coverage from Ku band or C band satellites, mostly Ku band, where they could provide entertainment, provide cellular service, provide Internet and all that. But the big shipping lanes, which are North Atlantic and North Pacific, there really has not been coverage. You can understand that people would not put a lot of coverage into the oceans because the populations weren't there. Now people are always looking for more business and they are and there's a lot of satellites up there, so now they're providing actually directed beam coverages into these areas.

So if we can successfully demonstrate a broadband service at a reasonable price by switching between this available space segment, we feel we have a very good opportunity to provide this service. And being able to be what we think is - we think we have a very good system engineering group and the capability in this area to be able to provide this service and the infrastructure under one roof we think gives us an advantage.

But we think we have to be in this business. We have to go into businesses that are not going to be served by terrestrial means. We're a satellite company, basically, so we have to go in areas like Satcom On The Move, field terminals, maritime, things that we know have to be served by satellite.

So I've got a lot of hope for this area and we're investing in this area, and we hope it's going to be a good business for us.

Richard Valera - Needham & Company

I'm assuming you're aware that KVH has partnered with ViaSat to develop a product in this area and is aggressively marketing it. Do you have any sense of how your plan and product differs from what KVH has on the market today?

David Hershberg

Yes. We know exactly what KVH has on the market, and we think this product that we have is - I don't want to disparage anybody's products, but we feel our system is going to be more efficient. That's a spread spectrum system. It utilizes more bandwidth. They also use a smaller antenna, which requires more power. The spectrum product that they have is a good product. I mean, their offering is a good product. We just think what we've got here to offer would be somewhat better.

There are actually about five companies looking into doing this business. I think there's maybe, out of the 50,000 potential vessels, there's probably well under 1,000 that are served this way right now.

Operator

There are no further questions.

David Hershberg

Well, thank you very much for coming to our conference call. I hope you got something out of it about where we're going for the future, and if you've got any other questions, you can call me or Matt at any time you like. Thank you again for attending.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Globecomm Systems Inc. F4Q08 (Qtr End 06/30/08) Earnings Call Transcript
This Transcript
All Transcripts