Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunication Corp First Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session [Operator Instructions] As a reminder, this conference is being recorded Thursday, December 10, 2015. I would now like to turn the conference over to Ms. Nancy Stallone of Comtech Telecommunications. Please go ahead, ma’am..

Thank you and good morning. Welcome to the Telecommunications Corp conference call for the first quarter of fiscal year 2016. With us on the call this morning are Dr. Stanton D. Sloane, President and Chief Executive Officer of Comtech and Michael D. Porcelain, Senior Vice President and Chief Financial Officer.

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 and 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 including among others the risks that the acquisition of Telecommunication Systems Inc.

may not be consummated and the risks that Comtech’s and TCS’s businesses will not be integrated successfully. 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, Dr. Stanton Sloane. Stan..

Thank you Nancy and good morning, everyone, thank you for joining us on the call. As announced yesterday afternoon, we reported our first quarter results of $64.1 million in revenue, GAAP diluted earnings per share of $0.09 and adjusted EBITDA $7.5 million.

Although market conditions remain challenging, we continue to execute on our business strategies. As we stated in our year-end conference call in September 29, 2015 first quarter of fiscal 2016 is still expected to be our lowest quarter of financial results for 2016.

We have many exciting things in the order pipeline and I anticipate that our operating results will slowly improve throughout year as theses orders coming.

As such and as we announced yesterday, excluding the impact of Telecommunication Systems Inc or TCS’s post combination results, we are maintaining our fiscal 2016 revenue guidance of $300 million to $310 million and our fiscal 2016 adjusted EBITDA guidance of $50 million to $54 million.

In addition, including the $1.4 million of pre-tax expenses we incurred in the first quarter, primarily related to depending acquisition of TCS, GAAP diluted EPS for fiscal 2016 is now expected to be between the $1.28 and $1.44.

Once we close the acquisition of TCS, our company will look markedly different and I believe we have put ourselves in position to achieve meaningful sustainable growth. In simple terms, we expect to more than double our annual revenue based, double our employee based and our adjusted EBITDA is expected to increase significantly.

I also believe that the acquisition of TCS is a turning point of Comtech and I have decided about the growth opportunities that are ahead of us. With a combination of experience, careful planning and preparation, we are well on our way to bring these two great companies together.

I look forward to working with all stakeholders to make this acquisition a success. I'll talk more about the state of the business in TCS later in the call, but first let me turn it over Mike Porcelain, who will talk about Comtech and provide some comments on the TCS acquisition from a financial perspective. Mike..

Thanks Stan and good morning everyone. During Q1, we generated revenues of $64.1 million of which 41.4% were for U.S. government end users, 44% were for international end users, with the remainder being for domestic commercial end customers.

Net sales in our telecom transmission segment were $35.2 million in Q1 of fiscal 2016 as compared to the $51.4 million we achieved in Q1 of last year, representing a significant decrease of 31.5%. This decrease is attributable to lower net sales in both our satellite earth station and our over-the-horizon microwave system product lines.

This decrease although admittedly large was expected given what is happening in the segments to product lines. In our satellite earth station product line, our international customers continued to be impacted by significant economic challenges.

Although, we do not expect market conditions to meaningfully improve in the short-term, we do believe there are some pent up demand in our Heights product which has been well received in the marketplace.

Given market conditions and our pipeline, we are still expecting annual satellite earth station product line sale to nominally increase in fiscal 2016 as compared to fiscal 2015, which sales heavily weighted toward the fourth quarter of fiscal 2016.

In our over-the-horizon microwave system product line, sales in Q1 of fiscal 2016 were significantly lower as compared to the level we achieved in Q1 of last year. As most of you know, sales on this product line are lumpy and uneven and in this quarter and this year will be no different.

The current quarter decrease is largely attributable to the fact that both of our North African countries are nearing completion. Although, we expect sales in fiscal 2016 for this product line to be significantly lower than fiscal 2015 and heavily weighted towards the second half of the year. We are expecting a banner year of bookings.

Fiscal 2016 bookings are expected to include large orders from one or more new international customers who have expressed strong interest in purchasing from us, additional orders from the U.S. military for MTTS terminals and additional orders from our North African end customer for additional products for their communications network.

Based on our expectations associated with the timing of recite of these orders, we are expecting to generate some revenue from these orders in the fourth quarter of fiscal 2016 with most of the revenue expected to be recognized in fiscal 2017 and beyond.

Net sales in our RF microwave amplifier segment were $22.7 million in Q1 of fiscal 2016 as compared to $18.7 million in Q1 of fiscal 2015, an increase of 21.4%. Customer reaction to our new SuperPower TWTAs has been positive.

We received our first order for our new SuperPower TWTAs in fiscal 2015, received additional orders for this product during the first quarter and we are expecting significant additional orders throughout the year.

Separately we continue to expand our presence in the in-flight connectivity market and are expecting significant additional orders in sales in fiscal 2016 for these products too.

To-date, the adverse global business conditions have not significantly impacted our RF microwave amplifier segment, and we believe that fiscal 2016 will be another year of revenue and bookings growth for this product line.

Turning to our mobile data communication segment, sales in Q1 of fiscal 2016 were $6.2 million as compared to $6.3 million in Q1 of fiscal 2015, a slight decrease of 1.6%. Sales in both periods include $2.5 million of revenue related to our annual $10 million BFT-1 intellectual property licensing fee.

We expect that sales for the remaining three quarters of fiscal 2016 in the mobile data communication segment will approximate the same level we achieved in the first quarter as we continue to focus most of our efforts on providing BFT-1 sustainment support for the U.S. Army.

Now let me walk you through our gross margin and operating expense line items and provide some operating metrics as it relates to the Comtech's current business, again excluding the impact of the TCS acquisition. Our gross profit in Q1 of fiscal 2016 as a percentage of consolidated net sales was 44% versus the 46.2% we achieved in Q1 of last year.

This decline in gross margins is largely attributable to the lower level of sales in our telecom transmission segment as well as overall product mix changes.

Looking forward and despite the various mix changes that are described in our Form 10-Q filed with the SEC yesterday afternoon and excluding the impact of TCS, we believe that our consolidated gross profit in fiscal 2016 as a percentage of consolidated net sales will be comparable to the level we achieved in fiscal 2015.

On the expense side, SG&A expenses were $16.7 million or 26.1% of Q1 fiscal 2000 net sales as compared to the $15.5 million or 20.3% we achieved in Q1 of last year.

SG&A expenses this quarter reflects $1.4 million of expenses related to our focus acquisition plan, the large majority of which related to our activities which resulted in the signing of the definitive merger agreement to acquire TCS.

Excluding the $1.4 million of expenses and any other potential future costs associated with our CEO's ongoing business assessment, we believe that SG&A expenses in fiscal 2016 in dollars will be slightly higher than the amount reported in fiscal 2015.

R&D expenses were $7.9 million or 12.3% of consolidated net sales in Q1 of fiscal 2016 versus $10 million 13.1% in Q1 of fiscal 2015. The decrease was driven by the cost reduction activities in the completion of several R&D projects that we initiated in prior years.

As such, we expect company funded R&D expenses for fiscal 2016 in dollars to be lower than the amount we invested during fiscal 2015. Total stock-based compensation, which is recorded in our unallocated segment, was $1.1 million for the first quarter of fiscal 2016 as compared to $1.3 million for the first quarter of fiscal 2015.

Amortization of intangibles with finite lives was $1.4 million for the first quarter of fiscal 2016 and $1.6 million in the same period last year. Consolidated operating income in Q1 of fiscal 2016 was $2.2 million or 3.4% of consolidated net sales as compared to $8.2 million or 10.7% in the first quarter of last year.

Given our expectations of sales growth during the next three sequential quarters as well as our assumptions on product mix, we are targeting operating income as a percentage of consolidated net sales in fiscal 2016 to still be approximately 11%.

As we stated in our year-end conference all, this sales growth and operating income is expected to be heavily weighted towards the second half of fiscal 2016 with the fourth quarter expected to be our peak quarter of financial performance.

Interest expense was $75,000 in the first quarter of fiscal 2016 and $265,000 in the first quarter of fiscal 2015. Interest income and other was $112,000 in the first quarter of fiscal 2016, compared to $84,000 last year in the first quarter. Turning to income taxes, our GAAP effective tax rate for the first quarter of fiscal 2016 was 34.75%.

We expect that our GAAP tax rate in fiscal 2016 excluding the impact of potential discrete tax items and the acquisition of TCS will still approximate 34.75%. Adding it all up, on the bottom line as Stan mentioned, we delivered GAAP diluted EPS of $0.09 in Q1 of fiscal 2016.

Now let me provide some financial metrics to help add color to Comtech results. Adjusted EBITDA as defined at the end of our press release that we issued yesterday, was $7.5 million in Q1 of fiscal 2016. At October 31, our backlog was $107.9 million compared to $149.3 million at October 31, 2014.

We generated $5.1 million of positive cash flows from operations during the first three months of fiscal 2016. Looking to the rest of fiscal 2016 and excluding the impact of TCS, we do expect reductions in our working capital requirements primarily due to the fact that both of our large over-the-horizon microwave contracts are nearing completion.

As such, although fiscal 2016 revenue and operating income are expected to be similar to the levels we achieved in fiscal 2015, we do expect that cash flows from operations to be higher this year as compared to last year. At October 31, 2015 we had $150.7 million of cash and cash equivalents.

This cash balance does not reflect our Q1 dividend that was paid in 2015, which approximated $4.8 million. Yesterday, our Board of Directors approved a dividend for the first quarter of fiscal 2016 of $0.30 per common share. This dividend is expected to be paid on February 17, 2016 to stockholders of record on January 15, 2016.

To-date and over the past 21 consecutive quarters, we have paid out over $109.4 million of dividends.

Let me now provide some comments on the pending acquisition of TCS from a financial perspective, but before I do, let me first just say thanks to the many Comtech and TCS folks as well as to our financial accounting and tax advisors and our legal team who helped pull this all together.

And I would be remised not to say a special thanks to the finance and accounting staff of both Comtech and TCS who worked tirelessly and were critical to us being able to announce this acquisition. No doubt like Stan, I'm excited about this transaction.

The financial and strategic benefits are strong and we look forward to working together with our colleagues at TCS. Under the terms of the merger agreement, Comtech just this past Monday initiated a first step cash tender offer of $5 per TCS share, once the first step cash tender offer is completed it will be followed by merger at the same price.

All TCS stat with a booked value of approximately $143.6 million is anticipated to be repaid upon the closing of the transaction.

Comtech will fund the acquisition by redeploying approximately $149.9 million of the pro forma combined cash balances and as received committed funding in the form of $400 million credit facility from a major financial institution for the remainder of the purchase price.

The exact terms of the credit facility have not yet been finalized yet, but we are looking at what is commonly referred to as a term loan A structure, variable interest rate based on pricing grid and typical banking covenants. The basic terms of such have been filed with the SEC.

Once the transaction closes and although the financial amount will be dependent on the timing of the close as well as the timing of merger and integration expenses, Comtech is expected to have approximately $52.7 million of cash and cash equivalents.

The acquisition has a transaction equity value of approximately $339.7 million and enterprise value of approximately $430.8 million.

The purchase price of $430.8 million represents an implied transaction multiple of approximately 8.9 times the last trailing 12 months of reported TCS, adjusted EBITDA, plus approximately $8 million of first year identified synergies.

The transaction is subject to customary closing conditions including the tender of least the majority of outstanding shares of TCS common stock and an expiration of the applicable waiting period under Hart-Scott Rodino. The transaction is expected to close no later than March 2016.

Maurice Tose, Chairman, CEO and President of TCS and Jon Cutler, Director of TCS each a significant stockholder have entered into support agreements pursuant to which they have agreed to tender their shares subject to terms and conditions to demonstrate their strong support of the proposed transaction.

From a financial modeling perspective going forward, almost 90% of TCS sales will derive from the United States, if you look at TCS for the trailing 12 months number. This includes sales for the U.S. government and U.S. based Wireless and Voice-Over-IP providers.

As such, we believe this will reduce Comtech’s exposure to volatile and challenging international markets on a pro forma of combined basis. Additionally, we believe that TCS brings repeat type revenue from hosted systems, such as next generation 911 solutions.

As Stan will discuss, we believe many of TCS markets are at growth inflection points, we expect growth will happen and are looking forward to seeing this play out. We are thinking about grouping and reporting the combined companies based on the type of solution being offered to the end customer.

In this regard, we are envisioning reporting sales via two segments, commercial solutions, which may include our satellite earth station products, RF microwave amplifier products and TCS’s commercial business. The second segment maybe called government solutions and may include TCS’s U.S. government business.

Our mobile data communications business, which today largely consists of providing BFT-1 sustainment services to the U.S. Army and over-the-horizon microwave product line, which is largely sold to U.S. and international government and customers.

It is important to say that we have not yet made any final operating segment disclosure decisions and continue to study and assess the best way to report as well as manage to combined companies on a go forward basis. On the synergy front, we are taking and we believe to be conservative, but realistic view of the synergies that we can achieve.

In this regard, we are anticipating total annual synergies of $12 million with $8 million expected to occur in the first 12 months after close. TCS is a large acquisition and we obviously want to do it right.

Our goals in year one are to achieve the reduction of duplicative public company costs, reduce spending or maintaining multiple information technology systems and obtain increased operating efficiencies throughout the combined companies.

On the financial side, I encourage you to read TCS’ is recent SEC filings, which I believe provide a good description of their results and an excellent basis for understanding their business. Obviously, TCS’ SEC filings are written from their perspective based on a standalone independent basis.

In their last earnings conference call, which was held on October 31, 2015, TCS provided revenue guidance of $380 million to $400 million of revenue and adjusted EBITDA guidance for their fiscal year ending December 31, 2015 of $42 million to $44 million. These numbers excluded certain items that TCS management considered to be non-recurring.

TCS is only one more month to go in their fiscal 2015 and given the distraction is that normally come with an acquisition process and the fact that their guidance did not contemplate subsequent events such as the recent terrorism that has occurred in the U.S., we have to see how their full year numbers will play out.

However, once TCS is combined with Comtech and without the noise and distractions of an acquisition, we believe it is realistic that their annual revenue run rate will approximate $364.1 million and they should be able to achieve and annual run rate of adjusted EBITDA somewhere around $40.4 million, which is what TCS actually achieved for the past 12 months ended September 30, 2015.

This $40.4 million adjusted EBITDA number does not include our estimate of year synergies. How these revenue and adjusted EBITDA figures plug into Comtech’s fiscal year and financial model is a bit more complex and is dependent on timing. Once the transaction closes, we will have a better sense of it.

Evenly and going forward we do believe that the revenue and adjusted EBITDA metrics will increased in the years ahead.

As is typical of a transaction of this type and size, we expect to incur substantial merger and integration related expenses that are pursuant to purchase accounting rules may longer to be capitalized as part of the cost for the acquisition.

In aggregate, merger and integration related expenses are currently estimated to be approximately $27.5 million. Post acquisition, we expect our GAAP EPS will reflect substantial recurring, non-cash charges related to the amortization of TCS’ identifiable intangible assets that we acquired in the transaction.

We have not yet completed and analysis of the purchasing accounting treatment associated with these assets. Additionally, there are maybe certain estimate changes and or accounting policy changes related to item such as capitalized software development and deferred revenues that we may make.

Although these items are not expected to impact cash flow, we are still reviewing these items accordingly. So accordingly we are not yet in the position to comment on the GAAP EPS impact of the TCS acquisition.

As we think about our forward-looking financial performance we expect that adjusted EBITDA as we defined it in our press release, will become and even more important and key metrics for investors. As such metric is anticipated to highlight the earnings power of the combined entities.

In summary, I believe the financial aspects of this deal are compelling and I am confident that we will be able to grow the combined business and achieve our expected operating synergies. Now, let me turn it back to Stan, who will discuss our business and outlook in further detail. Stan..

Thanks Mike. Given the fact that not much has changed in our existing business since we announced our initial 2016 guidance back in September 2015, I'll briefly discuss our three business segments and then talk a little bit about TCS.

Let me start with our largest segment, telecommunications transmission, which is comprised of two product lines, satellite earth stations and over-the-horizon microwave systems.

We remain the undisputed leader in the satellite earth station SCPC modem area, driven primarily by our proven ability to deliver the most bandwidth efficient modems and highest efficiency amplifiers to our end customers. Market conditions remain tough and have not improved.

Given the August 2015 retirement of our subsidiary precedent for this product line, we decided to make several personal changes including in our sales and marketing team, do we expect to produce improved bookings, particularly on the international side which has been weak for several quarters.

I do believe there is pent up demand and based on our funnel of opportunities, I'm optimistic that we will achieve sequential order and revenue growth for each of the next three quarters as compared to our most recent quarter. I'm also enthusiastic about our new Heights solution.

Heights is a scalable networking platform designed with the service provider in mind, it leverages a single user interface with a powerful traffic analytics engine that allows simplified design implementation, monitoring, control and optimization of networks using our hubs and gateways.

The Heights platform is designed to support the traffic load of demanding premium enterprises using traditional satellites as well as HTS or High Throughput Satellites. Heights is a successor to our advanced VSAT product line, it will take a little time to establish itself in the market.

However, we continue to invest in enhancements, so that the platform can be used in markets that we have not historically participated in. To-date, customer reaction to the Heights platform has been very positive.

We have some initial orders and we are expecting Heights and our advanced VSAT products to contribute meaningful sales in the second half of fiscal 2016. On the U.S.

government side of our satellite earth station product line, we continue to perform work on our Advanced Time Division Multiple Access Interface Processor or ATIP contract and anticipate sales in fiscal 2016 from shipments of ATIP production units to the U.S. Navy.

In addition, we anticipate new development and production contracts to further improve the Navy's communications system performance. We are also pursuing similar programs with other U.S. military customers. On the over-the-horizon front, interest in troposcatter communication systems, both with the U.S.

government customers as well as new international customers continues to be strong. However, as you all know, predicting the timing of these potential contract awards is very difficult. As previously announced, we have received orders valued at $4.8 million for MTTS Troposcatter terminals, solid-state amplifiers, associated parts used by the U.S.

military. At the heart of the MTTS system is Comtech Systems’ industry leading CS67500 digital troposcatter modem, which provides the highest data capacity of any troposcatter modem available. Our modem features turbo code forward error correction, ethernet baseband connectivity with variable rates up to 50 megabits per second.

We do expect to book and ship additional orders for MTTS terminals before fiscal 2016 is over. Also we are bidding on international opportunities in the Middle East, Australia, Asia, South America and Africa.

Although, timing remains difficult to predict, I still believe that we will be awarded one or more of these contracts in fiscal 2016 and that we will generate related revenue and operating income in the latter part of second-half 2016.

Turning to our RF microwave amplifier segment, I expect that fiscal 2016 will be another year of revenue and operating income growth. We have seen extremely positive customer reaction to our new SuperPower traveling wave tube amplifiers, which were introduced in March 2015.

Our SuperPower amplifiers will not only allow our customers such as broadcasters to build out new infrastructure, it will enable the replacement of aged inefficient equipment in their current infrastructure with high-power, high-efficiency broadband amplifiers, necessary for high-definition and ultra high-definition broadcasting.

During the past year or so, we have also made significant inroads into the high growth in-flight connectivity market. Our solid-state power amplifiers help enable commercial airlines to provide in-flight connectivity services to their passengers.

This is a new and growing market for us and we expect additional orders and we believe that this area should be a significant revenue contributor for Comtech over the next several years. On the U.S.

military front, we remain well positioned regarding our traveling wave tube amplifiers that support both the FAB-T and WIN-T programs that plus opportunities we see in tactical communications enabled by our X-band products will provide a strong base of U.S. government related revenues for the next several years.

On the broadband high-power solid-state power amplifier side, business remains steady, we continue to develop new products that will ensure we remain at the forefront of this technology. In our third segment, mobile data communications, the largest revenue contributor remains our BFT-1 sustainment work for the U.S. Army.

This work is tangible evidence of the important role our technology plays with the army. Our primary goal in the mobile data communications segment continues to be providing the army with outstanding support, and doing so should position as well to participate in next generation platforms. Now let me provide some commentary on the TCS acquisition.

First, like Mike said, I want to express my sincere thanks to the many Comtech and TCS employees who made this announcement possible. I'm very excited about the future prospects of the combining company and we look forward to welcoming TCS' talent and dedicated employees to the Comtech team.

I believe we'll make the TCS acquisition or rewarding transaction for our customers, our employees and our shareholders. As most of you know, the past several years Comtech has had to reposition itself from the loss of the BFT-2 contract and this had to deal with difficult market conditions, particularly in the international market.

Additionally, we conducted a strategic alternative analysis, which included a potential sales process. Ultimately our board decided that the best path forward was remained independent. During our last conference call on September, I informed you that I believed our customers love our products and our technical prowess.

At the same time, they told us they wanted to do more to meet their needs. As a result, we embarked on a focused acquisition plan to expand our global footprint and further diversifies our business. As such I'm pleased that we were able to announce the TCS acquisition. It's a large step forward in our growth strategy.

Comtech has viewed TCS as an attractive acquisition candidate for many years. TCS is a business we're comfortable with. We believe we understand it very well, during the last few months of have gotten to know not only the company, but its leadership and I'm convinced the TCS is an excellent fit for us.

TCS is a technology company that generate significant IP as a portfolio of over 300 granted patents worldwide and nearly 400 patent pending applications. Combined, we represent significant technical competence. Let me walk you through some key TCS solutions and tell you why I'm excited about the growth opportunities, I see ahead of us.

As Mike referred during his portion of the call, we think about TCS solution in two groupings, commercial solutions and government solutions. There is some overlap in synergy between the two, but we believe this grouping is right way to think about the TCS business.

Let me start with commercial solutions of TCS, they include public safety solutions such as enhanced 911 systems, location based wireless infrastructure applications and solutions, telematics and navigation and text messaging infrastructure for wireless operators. Since deploying the first U.S.

wireless E911 solution in 1998, TCS has been a leader in providing public safety solutions. TCS is a pioneer and continues to improve the methods by which U.S. Public Safety Answering Points of PCAPs can receive a wireless or Voice-Over-Internet Protocol subscribers location during calls for emergency assistance.

Public safety solutions include 911 call routing for wireless and Voice-Over-Internet Protocol network operators and next gen 911 solution for federal, state and local public safety operations. Given all that's going out in the world today, it's easy to see how this market should grow.

TCS also provide location based wireless infrastructure, applications and solutions, which support the generation and distribution of location information for both indoor and outdoor environments as well as telematics and navigation solutions.

TCS’ location based solutions in telematics and navigation solutions can cover the entire value chain and is backed by over two decades of experience.

TCS’ navigation applications include GPS enabled software such as horizon’s navigator services, which make it easy for users to find whatever they need and get directions to nearby restaurants and other points of interest.

While it is true that there are free mapping solutions such as Google and Apple, TCS offers a concept called trusted location, which offers location aware applications to receive a precise location using an unique and patented set of libraries which leverage cellular, satellite, Wi-Fi and other datasets.

Unlike other mobile location services, this trusted location is not dependent on carrier networks and calculates trust score to report back the level of certainty associated with the location and authenticity.

Whether it's for credit card security, enterprise mobility management or cross boarder compliance or such market as online gaming, we believe the demand for this type of service is going to grow rapidly.

TCS also offers text messaging solutions, we believe they are one of the leading providers of text messaging in North America, the comprehensive message solutions provide carrier grade platforms and high performance Short Messaging Service or SMS routing.

These solutions include API's for cloud messaging centers, wireless intelligent gateways and a future rich operator grade messaging platform designed to support both traditional networks and new LTE networks.

Given continued investment by carriers in the networks, we believe this business will bring repeat type revenue to Comtech and that we can potentially bring these technologies to some of our current international mobile carriers.

TCS has several strategic initiatives underway to monetize its proprietary commercial software including licensing of location tool kits in API solutions. I do believe success in this area has been achieved and look forward to future announcements. As Comtech and TCS both sell into the U.S.

government, I believe we can offer differentiated tracking solutions and hope to incorporate some of this technology into next generation BFT offering for example somewhere down the line. This is just one example of the synergies that still excite me about the acquisition. TCS and Comtech have decades combined experience working with the U.S.

government. Many of you know about Comtech’s solutions, so let me talk about TCS’ government solutions. TCS’ government solutions are primarily sold U.S. department of defense agencies and primarily consist of C4ISR solutions.

They include wireless ground terminals related support, management and resale of satellite bandwidth and information technology outsource services.

TCS furnishes and supports ground terminals used for secure satellite based another line of site and beyond line of site communications as well as related component incorporating government approved cryptological devices and other hardened components for aerospace and defense. Additionally, TCS provides cyber security services support and training.

I’m excited about the growth opportunities as it relates to C4ISR solutions. For example, TCS provides deployable very small aprature terminal or VSAT ground terminal called Secret Non-Secure Access Point or SNAP for the army. They continue to support and upgrade these systems.

TCS is also a prime vendor under two five year in definite delivery and definite quantity defense contract vehicles, the army’s Global Tactical Advance Communication System or GTAC contract which as 20 prime contract awards and a maximum value of $10 billion and the defensive information system agencies custom SATCOM solutions or CS2 contract with eight prime awards and a maximum value of $2.6 billion.

In 2014, TCS is one of the awardees of department of homeland securities $22 billion Enterprise Acquisition Gateway for Leading Edge II or EAGLE II contract. The contract enables the purchase of full range of TCS IT services technical and management expertise and solution oriented products.

I’m confident in TCS’ sales force, customer relationships and contract vehicles will provide growth opportunities for us. Let me close this portion of the conference call by saying that we did have numerous opportunities to push forward on several acquisitions.

After careful analysis, I felt strong that this acquisition was the right one to pursue; I believe that all our stakeholders will benefit from the transaction in years ahead. With that, I would like to proceed to the question-and-answer part of conference call. Operator..

[Operator Instructions] Our first question from Mark Jordan from Noble Financial. Your line is open..

Yes, good morning gentlemen. Mike or Stan, I would like to just on a top - from a high level looking at this acquisition incrementally. If you have a base adjusted EBITDA rate of about $40 million and if you were to exclude in the first 12 months integration and assume that your $8 million of synergies were in place at the start of the year.

So if you were to do that you would have about a $48 million basis. It’s fair to say that the interest expense for this transaction should be of which you are borrowing $15 million and $16 million, I know that TCS was at about a $15 million CapEx run rate.

So would this imply that you would have incremental positive free cash flow changes and working capital in the $15 million positive impact again giving the assumptions that all the first year synergies were realized?.

Yes. I mean I think when use free cash flow, I'll caution you that there is always differences between EBITDA and cash flow. So certainly if you just want to use EBITDA as a proxy, our view would be you will have $40 million some more of adjusted EBITDA plus their synergies.

And then of course you have got the interest expense which I think Mark you even had in your report somewhere between $15 million and $17 million or so per year depending on what the final terms and conditions are and the final loan amount that we go with..

Okay.

So that thought process is reasonable then?.

I think so..

Segment and just compare it to the first quarter also?.

Sure. Certainly our backlog in our Telecom segment is down, we went from $54.9 million in Q4 last year to $49 million. Our RF amplifier backlog actually grew given the expected growth that we have and we finished at $45.8 million and our Mobile Data COM as we run off the BFT-1 sustainment option is about $13.1 million for the quarter.

So if you take $49 million, $45.8 million, $13.1 million, we finish with backlog of $107.9 million. I mean obviously we do expect to get the next phase if you will of the BFT stuff and our backlog is expected to grow as we get these large orders especially on the over-the-horizon side later in the year..

Okay. Question relative to TCS, I know that at least TCS had size that business opportunity as a $200 million or five year opportunity. For them which obviously would incorporate your modems. Do you have a sense of - think that as a better visibility revenues coming from that product line over the next six and 12 months..

So, I can't comment on how they have sized, you know I can tell you that based on the number of terminals we think that are going to be deployed, the number doesn't sound unreasonable, but that's about all I can tell you.

They have been just the terminal, they do support maintenance, training and other things, so I'm I would have differ to them on the details of how they come up with that estimate at this point..

Mark, just to add to Stan's comments as well is, obviously when you combine the two companies.

You will lose some of the duplicate revenue, because some other revenue will flow through both companies on a standalone basis, but with one company it will be one number, but obviously the revenue number will be lower, but the margin percentage will be higher.

You will still retain the same profit, but one of the things we are still working through is, TCS as of fiscal year December 31, and we are [indiscernible], so the timing of some of things, we just need to kind of sort through, but I think I agree with Stan's comments..

Okay. Question relative to accounting, you mentioned that there was a probability that you were going to recast the way you report results.

Would you assume that that would be done with reporting of your fourth fiscal quarter or do you assume that that may be done at the end of the April quarter?.

Well it will really be dependent upon the timing of close, so if we do close in the March period our hope would be to get it done in the Q3 period, but we'll see if we could that there are some system of things we got to go through and we need to obviously finalize our decisions in terms of how the segments work, but that would be our goal..

Final question from me. Relative to the integration opportunities, your [attention] manufacturing facility has, I know especially like with the mobile data [indiscernible] almost set up to do [indiscernible] there is a contract manufacturer for outside opportunities in mobile data use them.

Is there the opportunity to drive some significant efficiencies using that as a large manufacturing base that you could leverage TCS activities off of?.

I would anticipate that the answer of that is yes. Obviously at the moment, TCS is outsourcing some things that we see as potentials to bring into in-house. So I think so, we haven't worked through the details obviously, I also think there is opportunities for us to provide components and other things which are currently not being purchased from us.

So I think there is potential synergies. I can't quantify it for you yet, we just haven't got to that level of detail..

Okay. Thank you very much..

[Operator Instructions] Our next question is from Chris Quilty from Raymond James. Your line is open..

This is a little bit of a follow-on to Mark's question, but Stan could you give us perhaps your top two or three areas where you think there are operating synergies with TCS either on product line, customers or projects?.

So there is the obvious ones right the public company costs and there are some obvious duplication and some of the corporate functions which are potential synergies. So once you get pass that then troposcatter is probably an easy one to look at, we are each marketing independently on troposcatter.

So I think getting that together will provide synergy, we have access to some markets where TCS doesn't have marketing coverage necessarily. So I think there is synergies there. The other one I think that's pretty exciting, we've talked about the public safety stuff, the 911 call routing and next-gen and those sorts of things.

We have customer relationships in a lot of places in the world with particularly mobile carriers that are potentials for us to provide entrees to TCS folks. So that to me looks like some good synergies.

There is the manufacturing stuff we talked about, there is some of the engineering things that I think we can do for TCS that would provide some synergy as well..

Great. Great.

On the Troposcatter, do you anticipate any issues there with Hart-Scott Rodino because I don't think other than Raytheon got a whole bunch of other companies out there offering solutions?.

Yes. I do not, there are in fact several companies offering troposcatter modems, Raytheon is one, there is others outside of the U.S. and there is one or two other U.S. manufacturers as well. I don't think there is going to be an issue there..

Gotcha.

On the RF Amplifier and in-flight connectivity opportunity, can you talk specifically about how you are sizing and attacking a market and what you are doing different in terms of product?.

So the amplifier for that is very challenging technically. It has to be very compact. Obviously the technical performance has to be very good, but you have size, weight, power and other issues associated with mounting it structurally in the aircraft having it qualified for flight.

So those are not just your father’s amplifiers, they are pretty technical. The efficiency is really where we think we have the advantage that's in terms of power output and in the package. So we are going to continue to do that. We are looking at other potential frequencies and other providers of the end system.

So we expect that to be a good area for growth.

Did that answer to your question?.

I was going to ask a quick question for Mike.

I know you haven’t yet done the purchase accounting, but do you have any sense of two things, what the split between good and intangibles might look like and just a clarification is it fair to assume the deal intangibles will probably amortized over like seven, eight year time frame?.

Well we have not completed the analysis Chris and I would even say it’s very preliminary. I mean I have used a rule of form when I do my initial modeling and I almost say if you look at the net intangible book value of TCS today, you will find it almost all of the purchase price will be ascribed to either the intangibles or the goodwill bucket.

So we are talking about a pretty large bucket that will be allocated to those two groupings. And then from a rule of thumb, yes I think if you just rule of thumb it for the time being at 50% go into intangibles and 50% go into goodwill. That's our initial straw that we're using for our modeling.

Once we go through the process we will obviously adjust that and that could change significantly, it's just a [straw man] (ph) number. But yes, I think if you look at what the norm is and what acquisitions of the size and this type of technologies, I think if you look at a six or seven or eight year life that's probably good guess..

Gotcha and can you also talk about the deal of finance and I think you said you have at least an initial commitment for $400 million, how would you look to structure of long-term financing for the deal?.

Sure, we have a $400 million of committed credit facility that we've entered into. It consist of two types of structures, a $250 million term loan and with the remainder being a revolving credit line. So the term loan will be pretty much filled up when we close the transaction, the remaining pieces is going to be what comes out of the revolver.

We are looking at a few other things to see if it make sense to get lower interest cost, but we do think that the - we have a LIBOR base interest rate that we think is pretty reasonable.

The total number will be in the fours, by the time we get so somewhere around 4.5% or something like that we will wind up with, but we are still trying work through some of the final details and final structuring and we will do that before close..

Gotcha. Thanks guys..

[Operator Instructions] And it appears we have no following questions at this time..

Great. Thanks again for joining us today. We will look forward to speaking with you again in March..

This does conclude today's program. You may now disconnect at any time..