Maria Salerno Fred Kornberg - Executive Chairman, Chief Executive Officer, President and Member of Executive Committee Michael D. Porcelain - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Robert G. Rouse - Senior Vice President Strategy and M&A.

Mark C. Jordan - Noble Financial Group, Inc., Research Division Tyler Hojo - Sidoti & Company, LLC.

Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp.'s First Quarter Fiscal 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, December 10, 2013. I would now like to turn the conference over to Ms. Maria Salerno of Comtech Telecommunications.

Please go ahead, ma'am..

Thank you, and good morning. Welcome to the Comtech Telecommunications Corp. conference call for the first quarter of fiscal year 2014.

With us on the call this morning are Fred Kornberg, President and Chief Executive Officer of Comtech; Michael Porcelain, Senior Vice President and Chief Financial Officer; and Rob Rouse, Senior Vice President, Strategy and M&A. Before we proceed, I need to remind you of the company's Safe Harbor language.

Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company; the company's plans, objectives and business outlook; the plans, objectives and business outlook of the company's management.

The company's assumptions regarding such performance, business outlook and plans are forward-looking in nature and involve certain significant risks and uncertainties. Actual results could differ materially from such forward-looking information.

Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company's Securities and Exchange Commission filings. I am pleased now to introduce the President and Chief Executive Officer of Comtech, Fred Kornberg.

Fred?.

Thanks, Maria. Good morning, everyone, and thank you for joining us on this call. As we announced yesterday afternoon, we reported the first quarter fiscal 2014 results of $83.4 million in revenues, a GAAP diluted EPS of $0.28 and adjusted EBITDA for the first quarter of $14.3 million.

The signs of stabilization that we observed in certain of our end markets during the last quarter of fiscal 2013 continued throughout the first quarter of fiscal 2014. We're very pleased with our first quarter results, and we believe that certain of our end markets may be actually improving.

At this point, although we're still navigating through a challenging global economy with strong headwinds from the U.S. government funding pressures, the signs of stabilization and improvement are encouraging. With this in mind, we have updated our and increased our fiscal 2014 guidance.

We now believe that revenues in fiscal 2014 will be in the range of $325 million to $345 million. GAAP diluted EPS will be in the range of $1.12 to $1.25, and our adjusted EBITDA is expected to be in the range of $55 million to $59 million.

In light of both our short- and long-term growth expectations, our Board of Directors yesterday increased our annual target dividend from $1.10 per common share to $1.20 per common share, and also approved a dividend for the second quarter of fiscal 2014 of $0.30 per common share.

This dividend, which will be our 14th consecutive quarterly dividend, is expected to be paid on February 19, 2014 to stockholders of record on January 17, 2014.

To date and since the inception of our dividend program, we have paid out approximately $71 million of dividends and continue to believe our dividend program is an excellent way to return capital to our stockholders.

During the first quarter of fiscal 2014, we also repurchased approximately 125,000 shares of our common stock at an aggregate cost of $3.6 million pursuant to our board authorized $50 million stock repurchase program. From inception to date, we have repurchased approximately $380 million under our stock repurchase program.

And, yesterday, our board authorized another increase to our current stock repurchase program from $50 million to $100 million. We currently have approximately $71 million available for repurchases pursuant to this increased authorization.

At this point, let me turn it over to Mike Porcelain to provide a brief overview of our first quarter financial results, and then I will return and talk more specifically about each of our 3 business segments.

Mike?.

Thanks, Fred, and good morning, everyone. I'll walk you through the Q1 results and provide some commentary on our updated fiscal 2014 business outlook. During Q1, we generated revenues of $83.4 million, of which 25.6% were for U.S.

government end users, 57% were for international end users, with the remainder being for domestic commercial end customers. Excluding sales on our Mobile Data Communications segment, Q1 2014 sales to the U.S. government comprised only 20.6% of the combined Telecommunications Transmission and RF Microwave Amplifier segment sales.

Net sales in our Telecom Transmission segment were $54.4 million in Q1 of fiscal 2014 as compared to $53.3 million we achieved in Q1 of last year, representing an increase of 2.1%.

This increase reflects higher sales in our over-the-horizon microwave system product line, which were partially offset by slightly lower sales of our Satellite Earth Station products. During Q1 of fiscal 2014, sales of our Satellite Earth Station products were slightly lower primarily due to lower sales to U.S. government customers.

Despite the impact of the partial U.S. government shutdown that occurred during the first quarter of fiscal 2014, our book-to-bill ratio for the quarter in this product line was slightly over 1.0.

Based on our assessment that end market conditions for this product line have stabilized and may be improving, we expect bookings in sales on this product line in fiscal 2014 to be slightly higher than the level we achieved in fiscal 2013.

Sales of our over-the-horizon microwave systems in Q1 include sales related to our performance on both our 3-year $58.6 million contract and our 4-year $57.4 million contract to design and supply over-the-horizon microwave systems and equipment for use in a North African government's communications network.

Based on our expected performance on both of these contracts and other contracts currently in our backlog, as well as other contracts that we anticipate receiving, we expect net sales for this product line to be significantly higher than the level we achieved in fiscal 2013 with higher sales in the second half of fiscal 2014 as compared to the first half of fiscal 2014.

Net sales in our RF Microwave Amplifier segment were $20.2 million in Q1 of fiscal 2014 as compared to $25.3 million in Q1 of fiscal 2013, a decrease of 20.2%. Although sales in this segment during Q1 of fiscal 2014 were impacted by challenging market conditions and the timing of orders received and shipped, we had a good quarter of bookings.

Our book-to-bill ratio for the first quarter of fiscal 2014 was approximately 1.0. Based on discussions with our customers, we believe that end markets for our RF Microwave Amplifier products have stabilized and may also be improving.

Although overall market conditions remain difficult based on the level of our current backlog and the anticipated timing of orders we expect to receive, we expect sales in this segment in fiscal 2014 to be slightly higher than the level we achieved in fiscal 2013. Turning to our Mobile Data Communications segment.

Sales in Q1 of fiscal 2014 were $8.8 million as compared to $12.3 million in Q1 of fiscal 2013, a decrease of 28.5% from Q1 of last year. This anticipated decrease is primarily attributable to a decline in BFT-1 hardware sales to the U.S. Army that occurred last year.

Sales for both periods include $2.5 million of revenue related to our annual $10 million BFT-1 intellectual property license fee.

Based on the current level of our backlog and the anticipated receipt of a new contract and related funding for BFT-1 sustainment services including our annual intellectual property licensing fee, we expect net sales on our Mobile Data Communications segment to be significantly lower in fiscal 2014 as compared to fiscal 2013.

Now let me walk you through our gross margin and operating expense line items. Our gross profit in Q1 of fiscal 2014 as a percentage of consolidated net sales was 43.6% as compared to 46% in Q1 of last year. Our gross profit percentage this quarter was impacted by changes in overall sales mix.

Gross margins in Q1 of fiscal 2013 significantly benefited from the shipment of our Modular Transportable Troposcatter Systems or MTTS systems. Gross margins in Q1 2014 include low margin sales associated with the U.S. Navy's ATIP development for which we recover our cost plus a nominal fee.

Looking forward and despite all the various expected mix changes that are more thoroughly described in our 10-Q, we believe gross profit as a percentage of consolidated net sales in fiscal 2014 will be comparable to the percentage we achieved in fiscal 2013.

On the expense side, SG&A expenses were $16.2 million or 19.4% of Q1 fiscal 2014 net sales as compared to the $16.8 million or 18.5% we achieved in Q1 of last year. The $600,000 decrease in SG&A expenses was primarily due to overall lower spending associated with a lower level of sales in our most recent quarter.

The decrease in SG&A expenses also reflects the impact of our overall cost reduction actions that we previously took in all of our operating segments.

As a reminder, during Q1 of fiscal 2013, we also recorded a benefit of $2.4 million associated with a change in the fair value of a contingent earn-out liability associated with Stampede Technologies and also recorded approximately $822,000 of net pre-tax restructuring charges associated with the wind down of our microsatellite product line.

In Q1 2014, we recorded a final benefit of $239,000 related to Stampede. Excluding all of these amounts in both periods, the decline in SG&A expenses would have been $2 million. In light of expected modest consolidated sales growth in 2014, SG&A expenses are expected to slightly increase versus the level we achieved in fiscal 2013.

SG&A expenses as a percentage of consolidated net sales in fiscal 2014 is expected to be comparable to what we achieved last year. Research and development expenses were $8.5 million or 10.2% of consolidated net sales in Q1 of fiscal 2014 versus $10 million or 11% in Q1 of fiscal 2013.

We expect that R&D expenses in dollars for fiscal 2014 will be slightly lower than the amount we reported during fiscal 2013. As a reminder, both periods do not reflect customer-funded R&D projects, which approximated $3.1 million in Q1 2014 as compared to $1.3 million in Q1 2013.

The increase in customer-funded R&D projects period-over-period is largely driven by our ATIP development work for the U.S. Navy. Total stock-based compensation, which is recorded in our unallocated segment, was $900,000 for the first quarter of fiscal 2014 as compared to $700,000 for the first quarter of fiscal 2013.

Amortization of intangibles with finite lives was $1.6 million for the first quarter of both fiscal 2014 and fiscal 2013 Q1 periods. Consolidated operating income in Q1 of fiscal 2014 was $10.1 million or 12.1% of consolidated net sales as compared to $13.4 million or 14.7% in the first quarter of last year.

Based on the level and composition of sales that we expect to achieve in fiscal 2014, consolidated operating income as a percentage of consolidated net sales is anticipated to slightly increase in fiscal 2014 from the 10.8% we achieved in fiscal 2013.

Interest expense was $2 million in the first quarter of fiscal 2014 as compared to $2.1 million in the first quarter of fiscal 2013. Interest income and other was $273,000 in the first quarter of fiscal 2014 compared to $276,000 in the first quarter of fiscal 2013. Turning to income taxes.

Our GAAP effective tax rate for the first quarter of fiscal 2014 was 36.5% and is expected to remain the same for fiscal 2014 and assumes that the federal research and experimentation credit will be -- will not be extended past December 31, 2013. Adding it all up on the bottom line as Fred mentioned, we delivered GAAP diluted EPS of $0.28.

Now let me provide some financial metrics to help add additional color to our results. Adjusted EBITDA, as defined at the end of our press release that we issued yesterday, was $14.3 million in Q1. On October 31, 2013, our backlog was $182.8 million compared to $189.7 million at July 31, 2013, and $133.3 million on October 31, 2012.

Now let me turn to our balance sheet, which remains strong. As of October 31, 2013, we had $346.6 million of cash and cash equivalents. During the first 3 months of fiscal 2014, we had an operating cash outflow of $1.2 million, which is primarily attributable to the timing of shipments and payments that we received from customers.

We expect to generate positive net cash from operating activities for fiscal 2014, although the exact amount will be impacted by the timing of working capital requirements associated with the overall sales efforts, including our efforts related to our 2 large over-the-horizon microwave system contracts.

In Q1 of fiscal 2014, we repurchased 3.6 million of common stock and we currently have approximately $71 million left for repurchases that we can make pursuant to the current authorization of $100 million, which Fred mentioned earlier.

Also I want to remind you that as we stated in our last conference call and as discussed in our 10-Q, we expect that the second half of fiscal 2014 will be stronger than the first half.

Given the expected timing of orders currently in our backlog and expected new orders, Q2 and Q3 results are expected to approximate what we achieved in Q1 with Q4, by far, being the strongest.

Finally, before turning it back to Fred, I just want to remind you that our fiscal 2014 guidance provided yesterday does not reflect any additional stock repurchases that we may make pursuant to our share repurchase plan or any other one-time items. Now let me turn it back to Fred, who will discuss our business and outlook in further detail.

Fred?.

Thanks, Mike. Thank you very much. At this point, I'd like to discuss some of the recent developments in each of our 3 business segments, which should add some color as to why we continue to be optimistic about fiscal 2014 and beyond. Our largest segment remains our Telecommunications Transmission segment.

Within this segment, the majority of our revenues have been and are expected to continue to be from our Satellite Earth Station product line. Our strong leadership position and market share in the Satellite Earth Station area is driven by our proven ability to deliver the most bandwidth-efficient modems to our end customers.

As you know, we have a long track record of being the innovation leader in this space. A few years ago, we introduced our patented Carrier-in-Carrier technology, which allows our modems to use the same bandwidth both to transmit and receive satellite channels simultaneously thereby, essentially doubling bandwidth efficiency.

Unfortunately the introduction of this groundbreaking technology coincided with the onset of the economic downturn and therefore, muted the potential sales that we believe could have been realized in a much more favorable economic environment.

We believe although this technology has been in the marketplace for a few years, that this technology has a long way to go as the economy rebounds and government spending returns to normal. In 2012, we also introduced the new line of products called advanced VSAT.

These products combine a variety of technologies within our IP portfolio, among others, which include advanced Forward Error Correction, advanced coding modulation and our managed bandwidth technology to provide integrated solutions.

By listening closely to our end customers, we have been able to offer our advanced VSAT solutions into markets that have traditionally been served primarily by TDMA solutions.

The good news is that, recently, we have seen certain TDMA users moved away from that technology, demand a more dedicated and reliable bandwidth, as well as being unwilling to tolerate the latency issues associated with TDMA.

The contract we received from Harris Corporation to replace Royal Caribbean Cruise line's TDMA systems with our advanced VSAT product systems is a good example of this. We've also believe that other industry users may follow in this direction, when they realize the limitations of TDMA and the advantages of using our advanced VSAT products. On the U.S.

government side, procurement and -- procurement of products practically came to a dead stop in the middle of 2013. A return to normalcy in the U.S. government communications equipment procurement process should serve as an additional catalyst for growth.

Despite the overall downward pressure on government spending during the past year, we did receive a very significant contract from the U.S. Navy with a potential value of $29 million. We will be developing and then manufacturing the Advanced Time Division Multiple Access Interface Processor or ATIP for the Space and Naval Warfare Systems Command.

This contract is strategically important to us as it enters us into the protected MILSATCOM market. Although we undoubtedly continue to operate in a challenging environment, we have experienced some stabilization in the Satellite Earth Station area as evidenced by another quarter of solid bookings in the first quarter of fiscal 2014.

So in the Satellite Station area, we believe we have weathered some market-specific headwinds for the past few years. We have adjusted our operating expense levels accordingly, while actually continuing to invest heavily in R&D.

As a result, we believe that we are nicely positioned to capitalize on market opportunities as conditions further stabilize and eventually improve. The other product line in the Telecommunications Transmission segment is our over-the-horizon microwave or troposcatter product line.

We expect that fiscal 2014 will be a strong year for our tropo business. Anchored by very strong backlog, we see a marked increase in revenues over fiscal 2013. Just last week, we announced a $6.3 million add-on to the $51 million North African end customer contract award that we received in fiscal 2013.

There are also additional large opportunities with this end customer that we believe will materialize in the years ahead. And more importantly, we hope to duplicate this type of relationship with other countries in the next few years. As our technology and data throughput has advanced, so has the number of potential users for tropo.

In recent years, we have strengthened our marketing presence in many new international markets and we are beginning to see these efforts pay off as evidenced by contracts that we have received in Saudi Arabia and Sweden.

We're also addressing, in some cases, have already bid on other large opportunities in the Middle East, Asia, South America and Africa. On the U.S. environment side of the tropo area, bookings of our SNAP and MTS terminals have been very soft for the past year or so. However, once the U.S.

government works through its budget issues, we believe that our expanded tropo product lines will fit nicely into the DoD's future plans. We now expect to receive tropo orders for additional SNAP and MTPS terminals during fiscal 2014, with the related revenues most likely moving into 2015. We also believe the U.S.

Military spending for our transit case tropo will expand significantly in the coming years as it is the only tropo system that has been qualified by all U.S.

Military services, is backward-compatible with the Army inventory of AN/TRC-170 tropo systems, the price of these systems is significantly less than refurbishing and maintaining equipment currently in service and the systems high mobility aligns with the new U.S. Military doctrine.

On the commercial front, we continue to receive orders from industry-leading oil companies for tropo systems that are used on their drilling and exploration platforms such as the $2.4 million order we announced just last month.

To repeat, our optimism about our tropo business in fiscal 2014 is based on the large amount of backlog we have relating to our North African country and customer, the number of quality international proposals that we have in a pipeline and our U.S. government business having nowhere to go but up.

All in all, we see fiscal 2014 as the year that our Telecommunications segment will return to growth. Turning to our RF Microwave Amplifier segment. It's important to remember that fiscal 2013 was also a challenging year.

However, we received certain important orders in the latter half of the last year, a large majority of which will ship in fiscal 2014. In our traveling wave tube amplifier or TWTA product line, we've experienced delays on large military programs, such as FAB-T and WIN-T. We do see these programs finally being resolved in the coming months.

Both of these programs are expected to provide us with a nice revenue stream over the next few years. In fact, as you can see by our recent press release, we just received an additional -- an initial award for approximately $7 million for the WIN-T program.

On the commercial side of the TWTA product line, we see the broadband high throughput satellite market most notably the Ka-band area and the direct-to-home satellite TV market as very exciting growth opportunities for Comtech.

On the high throughput satellite market, we have already sold our products into most of the larger North American and European Ka-band platforms and are bidding not only on the next generation platforms with the same customers, but also a new opportunities with new customers in new geographies.

On the direct-to-home or DTH market, we believe the market is poised for dramatic growth in the next few years as broadcasters are looking to replace the aged bandwidth-deficient klystron amplifiers with high-power, more efficient, more cost-effective and broadband TWTAs, which will support high-definition and ultrahigh-definition program offerings.

In addition, these broadcasters, as well as other new entrants to the DTH market are looking to emerging markets as significant growth drivers as these same services are rolled out to a brand new group of potential end-users. We believe that our product offerings are and will be uniquely positioned to serve the dynamic markets opportunity.

On the solid-state power amplifier side, our SSPA product line, our business has also been dramatically impacted by the weak U.S. government spending environment. In fact, for over a year, bookings relating to IED-jamming, which has been the largest single end use for our SSPA products in recent years have been virtually 0.

When in this -- When and if this area, most notably the CREW 3.3 program will get back on track is not known at this time. We've also experienced delays in the recent -- and have received a certain SSPA orders as a result of our end customers, being areas in their world that are experiencing volatile political conditions.

The good news is that during the first quarter of fiscal 2014, we have seen signs that activity is heating up again in certain of our end markets and we are becoming more optimistic that we will receive some sizable international bookings in the second half of fiscal 2014.

Although a smaller part of our SSA -- SSPA business, our domestic commercial product lines serving the aviation and medical communities have continued to do well. And more than 50% of our projected RF Microwave Amplifier sales for the remainder of fiscal 2014 are already in backlog.

And similar to our Telecommunications segment, we have reduced operating expenses, while at the same time maintaining our R&D investments. As such, we believe we are well-positioned to benefit as conditions continue to improve.

In our third market segment, Mobile Data Communications, our largest revenue contributor remains the sustainment work we're performing for the U.S. Army under the BFT-1 contract. These activities continue to be funded, which is continuing evidence of the important role our fielded technology plays within the U.S. Army.

We're providing these sustainment services pursuant to a 2-year contract, which expires on March 31, 2014. Under this contract, we receive a $10 million annual fee for the Army's ongoing use of our intellectual property, as well as just north of $10 million of engineering and other support services per year, which are billed on a cost-plus basis.

We expect to receive a new contract in our third quarter that will extend our sustainment services for at least a couple of years. We're also continuing to pursue certain specific end markets for our technology that are closely aligned with our existing product offerings.

But do not -- we do not expect the related revenues to be of significance until 2015. Our primary goal in the Mobile Data Communications segment continues to be to provide the U.S. Army with outstanding support doing so should position us to participate in the next generation BFT platform, if and when the U.S. Army pursues that path.

Finally before turning it over to the operator, I would like to wish our senior management, our Board of Directors, all our employees and all other stockholders, those listening to this call a happy and safe holiday season. With that, I would like to proceed to the question-and-answer part of our conference call.

Operator?.

[Operator Instructions] We'll take our first question from Mark Jordan with Noble Financial..

First question for Mike.

Could you comment as to how you think the spring will play out with regards to your converts? And what strategies do you think you might deploy with regards to, I assume taking them off the street one way or the other?.

Sure. I think a couple of things are outside of our control. The stock price is going to move in the direction that we all hope will be positive for the shareholders. And given the current trend, it's likely that the bondholders would exercise their conversion option.

So thus sitting here today that scenario is certainly much more plausible than it was, 6, 7 or 8 months ago. The board did authorized a contingent stock buyback program doubling our current authorization to $100 million, which is something that we're not kind of progress along and we kind of take a wait-and-see.

But really, it's outside of our control given the stock price and if the stock prices where it is today, they will likely convert and then with the kind of we take a look at what we're going to do with that cash in May..

Okay. Second question, look back a few years ago when there was a competition for rebuilding some of the TRC-170s, other people tried to compete with you in the tropo marketplace.

Have you seen any competitive efforts out in the marketplace by some of the other people who had at least historically played in the tropo sector? What seems to be an emerging market here with both DoD going to small form factor tropo hardware and also seemingly building a pipeline in the international marketplace..

Yes, Mark, I think the answer to your question really is, as far as the competition is concerned, we see that periodically, there are some thrusts into this area. I think we're well-positioned as I tried to mention in the speech that the army has really has settled on our design because it is backwards compatible with the TRC-170 systems.

Now the TRC-170 systems are the only systems out there in use by the Army for the last few years. Very recently, we have -- we've provided, with a partner, the snap terminal tropo as we call it, which is equivalent to the snap satellite terminal.

I think the Army is beginning to settle on that particular system as the highly mobile type of system as compared with the TRC-170 system. So I think we're well-positioned in both areas and both the snap terminals and the TRC-170s, which we've modified without modems talk to each other and are backward compatible.

So I think our position, I think is pretty strong. The competition is not going to go away. They will continue trying and we hope to capture most of the business..

Okay. Final question relative to the operating margins on mobile data.

Do you see that as a sustainable level or what we know it just very high at 40-plus -- 46% is there -- were there any one-time events in there that inflated that margin?.

We did, during our Q1 quarter, we had announced it in our 10-K. We did have a one-time sort of a high-margin sale of some of our SENS products and our technology to one of our customers. But it is fair to assume that right now that our operating margins will be a little bit over 40% operating margin in that segment.

But it will not be at the level that it was in Q1..

[Operator Instructions] We'll go next to Tyler Hojo with Sidoti & Company..

Just firstly, Mike, if you could just provide the backlog by segment?.

Sure, Todd. In our Telecom Transmission, we had $132.5 million in backlog. Our RF Amplifiers backlog at $40.6 million, which did not include that $7 million WIN-T order that we just announced. And $9.7 million in our Mobile Data Communications segment for a total of $182.8 million in backlog..

Okay.

And, I'm sorry if I missed it, but I don't have it for Q4 or the fiscal '13, would you be able to provide the backlog by segment for that as well?.

Sure. In our Telecom Transmission segment, we did -- we had $133.4 million; RF Amplifiers, we had $40.7 million; and our Mobile Data had $15.6 million, which should add up to $189.7 million..

Okay. Wonderful. And just maybe moving onto the Satellite Earth Station product line, I'm just curious if maybe you could anecdotally speak about how far that business is off from the peak? And I guess, in the script you mentioned that additional R&D investments were likely.

I'm just curious, if you can get back to those peak levels just based on the current product line that's out there today?.

Sure. From a comparative basis, it's fair to say on a quarterly basis from our peak, we're probably lower in quarterly revenue by about 35% from where our peak was and that was sort of around 2008 right after we had purchased Radyne. So do we think we can get back there? At some point, I think we do.

We've historically looked at this market size being a growth of excess -- of 10% a year, when we bought Radyne as talked about that it was difficult to figure out what was taking away market share versus what was the growth of the market. But we do think that this market has a long-term growth rate of, say 10%.

Are we going to get back there right now given the economy? Probably not this year. So we would be very happy with the market just growing a couple of points and that's sort of way we're looking at. How fast we can get back to a higher growth rate is going to be dependent upon the macro and the global economy.

And in particular, we're still being sort of suppressed by the budget issues in the U.S. government and that needs to open up and we do think eventually that, that will..

I also think, Tyler, that if you look at the market broadly, 4, 5 years ago, TDMA market was kind of nipping at our ankles and that tables have kind of turned there.

We felt the impact of that, but now the tide is turning, as Fred mentioned in his comments, where we believe there are opportunities in markets traditionally served by TDMA where we think we have better technology.

So in addition to Mike's comment about the overall market growth, that's a market that where we're kind of entering for the first time that also has good growth dynamics..

Okay, great. And maybe just lastly, this ATIP contract certainly seems like an exciting kind of new start for you all.

Just curious what the timeframe is in terms of develop and -- development and when we might see the program move into production?.

We're anticipating, Tyler, before the end of this fiscal year to be done with the development part. We believe that it should move fairly quickly into the production part given the fact that the customer really needs the product.

But I think the right way to think about that is by the end of this fiscal year we'll be done with development and hopefully receive some type of production contract before the end of the year or beginning of next year..

So the $29 million is predominantly development, is that the right way to think about it?.

No, most of the $29 million is going to be production. I believe, it might be it's around $9 million or so that's the development..

Tyler, we'll probably do somewhere between $8 million and $9 million of developmental work this year, with the remaining $20 million just from the U.S. Navy will be hardware orders. And so how that flows out in '15 versus '14, even if you just assume it's another -- '15 is $8 million of hardware, we don't know.

It could be the $20 million we get in '15. But really where that's going to benefit that at the same revenue is on the margin line because the hardware will be in a much higher profitable margin than the cost-plus the development work that we're doing today.

So that's where we're excited about as we look forward, we feel very confident on our production capabilities and development capabilities. So we see a big margin change looking -- going forward once we receive hardware orders..

[Operator Instructions] And it appears they have no further questions at this time. I'd like to turn it back over to the company for any closing remarks..

Okay. Thank you very much. I guess, thanks for everybody for joining us today and we look forward to speaking with you again in March. Thank you very much..

This does conclude today's conference. You may now disconnect and have a wonderful day..