Maria Ceriello - IR Fred Kornberg - President and CEO Michael Porcelain - SVP and CFO Michael Galletti - COO.

Stanley Kovler - Citi Research Michael Latimore - Northland Capital Kyle McNealy - Jefferies & Company Glen Mattson - Ladenburg Thalmann.

Ladies and gentlemen, thank you for standing by. Welcome to the Comtech Telecommunication Corp's Third Quarter Fiscal 2017 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, June 8, 2017. I would now like to turn the conference over to Ms. Maria Ceriello of Comtech Telecommunications. Please go ahead, ma'am..

Thank you and good morning. Welcome to the Comtech Telecommunications Corp Conference Call for the third quarter of fiscal year 2017. With us on the call this morning are Fred Kornberg, Chief Executive Officer and President of Comtech; Michael D.

Porcelain, Senior Vice President and Chief Financial Officer; and Michael Galletti, our Chief Operating 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 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 Chief Executive Officer and President of Comtech, Fred Kornberg.

Fred?.

Thank you, Maria. Good morning, everyone and thank you for joining us on this call. As announced yesterday afternoon, we reported our third quarter results of $127.8 million in revenues and operating profit of $10.2 million and an adjusted EBITDA of $18.1 million.

I am very pleased with our third quarter performance on many fronts as we march towards a strong finish to what is turning out to be a very successful year. Our adjusted EBITDA as a percentage of revenue in the third quarter was 14.2% above our fiscal target of approximately 12%.

I believe this percentage will even be higher in the fourth quarter with room for more growth down the road. In this regard we have just started our fiscal 2018 business planning process and I'm seeing positive signs across almost all aspects of our business.

We continue to be focused on increasing shareholder value, being more competitive, reducing costs, and growing our revenues. Although there's still work to do I believe we're on the right path and I remain very pleased at the progress that we're making.

I will tell you why I'm so optimistic about our future in a bit but let me first turn it over to Mike Porcelain, our CFO, to discuss our financial results and update on legal matters and our fiscal 2017 guidance in more detail. Then I'll come back and leave it up to the questions-and-answers. Thank you.

Mike?.

Thanks Fred and good morning everyone. Consolidated net sales for Q3 were 127.8 million of which approximately 32% were generated from U.S. government end customers, 26.7% from international end customers, and 41.3% from domestic commercial end customers.

Consolidated backlog as of April 30, 2017 was 461.3 million and during Q3 we achieved bookings of approximately 135.7 million, a book-to-bill ratio of 1.06 which was led by strong bookings in our Government Solutions segment which achieved a book-to-bill ratio of 1.39 for the quarter and which is clearly a significant improvement from our last quarter and which bodes well for our future.

Let me provide some color on Q3 sales information by segment. Net sales in our commercial solutions segment were 79.4 million as compared to Q3 of last year which were 72 million. This represents an increase of approximately 10.3%. Sales on the commercial solutions segment approximated 62.1% of total net sales.

During Q3 this segment benefited from an additional month of sales of our location and messaging based platforms and safety and security technology solutions such as wireless and next generation 911 platforms that we now offer as a result of the TCS acquisition.

In addition our commercial solutions segment benefited from increased sales of traveling wave tube amplifiers driven by strong demand from the in-flight connectivity market. Our book-to-bill ratio in this segment was 0.86.

This ratio was lower than the amount we achieved in Q2 primarily due to timing associated with several pending large multi-year contract awards that we are still expecting and continued softness of bookings in our satellite earth station product line.

Although market conditions for our international satellite station customers are definitively improving and sales to those customers have actually increased, overall sales for a satellite earth station products have been impacted by continued softness from U.S.

government customers which we attribute to ongoing political and budget uncertainty due to the presidential administration change that we mentioned in our last conference call. Although we are not expecting a significant increase in short-term sales to the U.S.

government for our satellite earth station products, we are expecting overall sales and a rebound in bookings of communication technology solutions to increase from current levels.

In fact we expect that the fourth quarter will be our peak quarter for satellite earth station bookings in aggregate in end sales and we are expecting a large order for our traveling wave tube amplifier that are used in the in-flight connectivity market.

In addition we are anticipating that our fourth quarter will also benefit from an increase in orders for our Heights satellite earth station products now that it is available. Our commercial solutions segment could really have a [better] [ph] fourth quarter of bookings.

We are in late stage contract negotiations for several large multi-year contracts for our safety and security and enterprise technology solutions and we are awaiting a decision by a domestic state to announce a large nine - next generation 911 award.

Turning to our government solutions segment, despite an additional month of TCS legacy government revenues from field support, space components, and cyber training solutions that we now offer as a result of the TCS acquisition, net sales were 48.4 million as compared to Q3 of last year which were 52.2 million, this represents a decrease of approximately 7.3%.

Sales in this segment represented approximately 37.9% of total net sales. The period over -- the period over period decrease primarily reflects the impact of the implementation of our tactical shift in strategy focusing on contracts that have more profitability.

Sales of Comtech legacy products which include over the horizon microwave system products, high powered broadband amplifiers, and blue force tracking, sustain and support services were higher than Q3 of last year.

As a reminder this quarter includes only 1.7 million of BFT-1 intellectual property license fees and going forward we will not charge this fee to the U.S. Army going forward.

Our book-to-bill ratio during Q3 in this segment as I mentioned was 1.39 and reflects the receipt of several important orders including a $23.8 million order from a Japanese Space Agency, initial funding of 3.5 million pursuant to a new 42.7 million five year contract to provide the U.S.

Army with continued BFT-1 sustainment support and an initial order pursuant to a new $4.2 million firm fixed price IDIQ contract to provide BFT-1 aviation transceivers to the defense logistic agency. These BFT contracts were important strategic wins.

As Fred will discuss we are starting to see the benefits of our tactical change in this segment and continued focus on the U.S. Army. Looking forward to the fourth quarter of fiscal 2017, net sales in our government solutions segment are expected to be significantly higher than our most recent quarter.

Now let me give you some color on our operating metrics. Our gross profit in Q3 was 41.1% which is similar to the percentage we achieved in Q3 of last year and higher than our Q2 percentage.

Looking to Q4, we do expect our consolidated gross profit percentage to be slightly lower than the level we achieved in Q3 most of which is driven by the absence of the intellectual property licensing fee as well as other product mix changes.

On the operating expense side SG&A expenses were 25.9 million in Q3 of fiscal 2017 or 20.3% of consolidated sales. The 25.9 million reflects a significant reduction as compared to the 31 million we had in Q2. During the quarter we benefited from a recovery of legal expenses and cost reduction actions previously initiated.

Looking to Q4 and given our expectations of sales growth, we do expect that SG&A expenses in dollars as well as a percentage will increase in Q4 from the level we just achieved.

Research and development expenses were 13 million in Q3 of 2017 or 10.2% of consolidated net sales and was comprised of 10.7 million of spending in the commercial segment, 2.2 million in the government segment with the rest constituting amortization of stock based compensation that is not allocated to our two operating segments.

Total stock based compensation expense which is recorded and allocated as I mentioned was 1 million for the third quarter of fiscal 2017. We expect amortization of stock based compensation for the year to range from 6 million to 8 million.

The final amount of stock based compensation will be dependent upon the final allocation of incentive compensation and our final stock price and our final fiscal 2017 performance. Amortization of intangibles was 5.5 million in Q3 of fiscal 2017. On a GAAP basis our consolidated operating income was 10.2 million in Q3 of fiscal 2017.

Our adjusted EBITDA which excludes a $2 million favorable legal settlement that I will discuss in a bit was 18.1 million or 14.2% of consolidated net sales. Adjusted EBITDA on our commercial solutions segment was 15.5 million or 19.5% of related set sales. In the government solutions segment it was 3.1 million or 6.4% of related net sales.

Given our overall sales and spending plans for the remainder of fiscal 2017 we expect that consolidated adjusted EBITDA both in dollars and a percentage of our consolidated net sales for Q4 will be the highest of any quarter for the fiscal year. Let me now talk about taxes, interest expense, and our balance sheet.

The company currently expensed that its tax rate for the year excluding discrete items will approximate 36%. Interest expense was 2.8 million in the third quarter of fiscal 2017 and primarily reflects interest on a secured credit facility.

Our total interest expense including amortization of deferred financing costs is expected to range from 4.5% to 5.5% for the year. Our actual cash borrowing rates which excludes the amortization of deferred financing fees currently approximates 4%. Adding it all up all in all it was a really terrific quarter.

On the bottom line we delivered GAAP EPS $0.19 per share in Q3 and excluding a $2 million adjustment related to the litigation settlement, our EPS would have been $0.13.

At April 30, 2017 we had 58.8 million of cash and cash equivalents and year-to-date we have generated cash flows from operating activities of 43.7 million of which 18.3 million occurred in Q3.

Clearly this was another spectacular quarter of cash flow generation and reflects an ongoing concentrated effort across our company to better manage working capital and reduce unnecessary spending. Given our year-to-date financial performance and our strong operating cash flows we have successfully reduced the level of our total indebtedness.

In fact for the nine months ended April 30, 2017 we have reduced total debt by 28.8 million of which 18.4 million occurred in Q3 alone. As of April 30, 2017 our total that excluding deferred financing costs was 235.4 million.

Given our expectation that operating cash flows will continue to be strong I am pleased to say that we have entered into a First Amendment of our secured credit facility that is expected to result in increased operating and acquisition flexibility while at the same time simplifying the calculations of our financial covenants as compared to the original terms.

In summary these changes provide us relief from the steep step downs required in the original net leverage ratio that more closely aligns the bank's definition of consolidated EBITDA with our own definition of adjusted EBITDA.

It simplifies the financial covenant calculations and provides us increased operating and acquisition flexibility as I mentioned. For those interested in the full details I refer you to our Form 8-K filed with the SEC which contains the First Amendment in full. Although it took some time to get this amendment finalized I am pleased with the outcome.

We were able to obtain this amendment from a position of strength as we were fully compliant with our covenants at the end of Q3 and would have been in compliance as of Q4 and likely 2018 prior to this change.

Given our current business projections and this amendment I am comfortable that we will be able to maintain compliance with our financial covenants for the foreseeable future. Now let me update you on the TCS litigation matters that we have been working our way through throughout the year.

As discussed on our last quarterly conference call we favorably resolved three different TCS legacy intellectual property matters. In connection with one of these final settlements we recorded a favorable $2 million contribution net of estimated legal fees to operating income in the third quarter.

As of today we have made almost all cash payments required as part of these three settlements including making significant cash payments in Q3. As such I want to point out that our strong Q3 cash flow from operating activities reflects payments for these settlements.

We still have one more case which we referred to as the vehicle IP matter and here too we have made some good progress and have good news.

Vehicle IP was a TCS case that went back to 2009 and just recently on May 30, 2017 the District Court issued a supplemental claim construction order in our favor and the parties have agreed to enter into a stipulation that the defendants TCS and our customers products do not infringe the plaintiffs patent under the District Court's current revised construction of the disputed patent claim term.

In very simple terms at the moment there is no infringement. Although we expect that the plaintiffs will appeal the matter, if this decision is upheld we may not have to go to trial or pay any monetary damages. At the moment the parties have agreed to postpone the July trial.

As such we are not expecting any significant legal costs for this matter or related cash payments in our Q4 results. Given where we were at the beginning of the year with these four legal cases we are clearly pleased with the overall progress we have made.

Finally before turning it back to Fred I would like to provide some additional comments on our fiscal 2017 guidance. First, we did update our revenue guidance to a new range of 550 million to 555 million.

This is a reduction of approximately 22.5 million from the midpoint of our guidance and largely reflects our latest assessment of the impact of our tactical shift in strategy in our government solutions segment as we deemphasize pursuing large commodity type service contracts that produce little or no EBITDA margin.

Our revenue guidance also reflects an updated assessment of the sales cycle related to our Heights products. As Fred will discuss in a bit we are really excited about this product line going forward but the long sales cycle that we originally expected is taking a bit longer.

We also firmed up our adjusted EBITDA guidance to a range of 68 million to 70 million. We believe our 70 million goal is attainable but the ultimate amount will be partially dependent on our final product mix and the timing of a few items.

From our perspective no matter how you slice it we believe our Q4 will be the strongest quarter of performance and will firm up 2017 as a solid year. As we exit the year we are pursuing a number of awards for large multimillion dollar and multi-year contracts and there is some uncertainty regarding contract awards and order timing.

As such it is difficult to predict our fourth quarter book-to-bill ratio. If some of these orders are booked in the fourth quarter, our fourth quarter bookings could be almost twice the level we achieved in Q3.

That said some or all of these orders may slip into fiscal 2018 but either way these orders if booked are expected to benefit fiscal 2018 financial results. Now let me turn it back to Fred who will discuss our businesses in further detail.

Fred?.

Thanks Mike. As I mentioned earlier I'm really excited about the growth opportunities that lie ahead of us. Let me give you some color on what is happening in each of our segments. First, let me discuss our commercial solutions segment.

Here we are a leading provider of satellite communications networks and products such as satellite modems, up and down frequency converters, and solid state and traveling wave tube power amplifiers.

We're also a leading provider of public safety systems such as the next generation 911 networks and enterprise applications such as messaging and trusted location based technologies. Our commercial solutions segment is focused on several large growing markets.

Our satellite base communication products participated in the satellite back haul and network services market. In the satellite modem area we continued to be the undisputed leader in single channel per carrier SCPC driven primarily by our proven ability to deliver the most bandwidth efficient modems.

Our strategy in the past few years has been focused on developing and marketing our new what we call Heights network solution for use with the new high throughput satellites. Last month we announced the general availability of our new Heights dynamic network access or HDNA technologies.

The height solution is intended not only to meet the demands of traditional fixed satellite, but also provide distinct advantages for those system uses considering migrating to the high throughput satellite systems. This is an entirely new market for us but one which is much larger than our traditional single channel per carrier market.

Last month we also announced that three different customers have now installed and are now using Heights to support their business needs. To date customer reaction has been positive and we have a growing sales funnel of our Heights opportunities.

We anticipate that we will benefit from an increase in orders for our Heights satellite earth station products in the fourth quarter. As I mentioned on our last conference call Heights has a sales cycle that is longer than our traditional SCPC products.

Given the longer sales cycle as Mike mentioned, the complexity and sophistication of the Heights system and our experience since our launch of Heights we're shifting some of our initial expected Heights orders and sales to fiscal 2018. As such we now anticipate that fiscal 2018 will be the breakout year for orders and sales of Heights.

Another area we continue to be excited about is the IFEC market or the in-flight satellite based 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 believe this area will be a significant revenue contributor for Comtech in fiscal year 2018. During the past quarter we saw a continued strength for our satellite communications TWT or traveling wave tube amplifiers and received a $6.6 million contract from a U.S.

military integrator to provide high power Sat Com traveling wave tube amplifiers. On the public safety side our solutions include 911 call routing for wireless, 911 routing for voice-over-Internet networks, and next generation 911 network solutions for state and local public safety operations.

We have built partnerships with key system integrators such as Motorola and General Dynamics and we are actively participating in multiple RF fees responses.

We believe we're seeing the benefit of our overall strategy as our pipeline is full and we're in the final contract negotiations with several large multi-year contracts for our safety and security and enterprise technology solutions.

While we continue to bid on new opportunities, we continued to roll out the multi-year next generation ESI net deployment for the State of Washington. We're also continuing to deploy next generation systems in California, Tennessee, Indiana, and Florida.

We believe that this market will continue to grow for many years ahead and that the current political environment will be helpful to facilitate such growth.

Turning to our enterprise trusted location solution product line, here our solutions include GPS enabled software which we provide for Verizon’s navigator services which makes it easier for users to find, locate, and get directions to various points of interest.

We also offer text messaging solutions and believe we are one of the leading providers of text messaging in North America. We often carry a great platforms and high performance short messaging service or SMS routing for cloud messaging centers, wireless intelligent gateways, and feature rich operated great messaging platforms.

During the third quarter we received two key contracts for our enterprise technology products including a $4.5 million agreement for navigation and telematics services from a major mobile network operator in the Republic of China who will use our location studio platform in their navigation and telematics applications.

And a two-year renewal agreement worth 7.3 million with a tier-one North American telecommunications company for the use of a customized location position gateway that manages all location requirements and access technologies including CDMA, GSM, LTE, and Wi-Fi.

We expect this platform will be extended to include location of IoT or of internet of things devices. We’re also continuing to market products and solutions and are pleased with our customer feedback.

From our newly released location studio which was recognized by the Cellular Telecommunications Industry Association or CTIA as the winner for the industrial IoT product of the year. Looking forward we expect to provide location studio enabled applications in the connected car and mobile OEM and data analytics domains.

At this point let me switch to the governance markets in our government consumer solutions segment where we serve large government end users that require mission critical technologies systems. Our government solutions are primarily sold to U.S.

Department of Defense agencies and primarily consist of C4 ISR or command, control, communications, computers, intelligence surveillance and reconnaissance solutions.

Our solutions include satellite, line of sight, and troposcatter event terminals, management and sale of satellite bandwidth, information technology outsource services, and RFR and switching technologies.

As we announced back in March we continued to implement a tactical shift in this segment strategy to focus less on commodity service contracts with more emphasis on contracts for products with higher margins. We believe that we're starting to see some early benefits of this strategy.

We had a very busy third quarter in the government solutions segment. We received several key contracts.

Our fourth quarter and fiscal 2018 will certainly benefit from the award of a $23.8 million contract to support the Japanese Space Exploration Agency or Japsea for the design, development, and installation of multiple launch vehicle tracking stations in the South Pacific.

These stations will provide mission supports for newly developed launch vehicle technologies. We were also awarded a five year contract with a not to exceed value of 42.7 million to continue to provide the U.S. Army with BFT-1 sustainment support and received initial funding just recently of $3.5 million.

We were also awarded a separate indefinite delivery and an indefinite quantity or IDIQ contract to provide BFT-1 aviation transceivers to defense logistics agency with a five year ordering period through April 2022 and a maximum value of $4.2 million. We believe that U.S.

Army has a requirement for a next generation system referred to commonly BFT-3 and based on our recent developments with the U.S. Army we're becoming increasingly confident that we will be able to participate in future BFT program awards.

Some of the large opportunities we see include a large multi-million dollar multi-year draft RFP which was issued in April by the D.O.D. for the supply of troposcatter communications equipment to replace hundreds of the AN Track 170 troposcatter terminals. And as you know we have been waiting for this opportunity for a long time.

We have been a supplier of over the horizon troposcatter systems to the U.S. government and commercial applications for many years. We have a large, worldwide installed base of over horizon microwave systems and our systems can transmit video and broadband data at throughputs of a 50 megbits per second.

I believe our field proven technologies are ideally suited to meet the government needs and we are actively pursuing this opportunity. Award is expected late calendar year 2017 or early fiscal year 2018.

In addition to this large over the horizon microwave system of opportunity we are currently responding to a large multi-million dollar competitive solicitation from the U.S. Army to provide sustainment services to its AN/TSC-198 family of satellite communication systems.

We are the incumbent here and we believe our customer understands the value we bring to this very successful program. Award of this sustainment contract is expected to occur sometime in the early part of fiscal 2018. Additionally on the cyber training front we continue to see interest from the D.O.D.

and select national intelligence entities for our cyber training solutions. Unfortunately recent events have demonstrated that cyber threats continue to escalate. To help the D.O.D. and other customers respond, we provide a variety of cyber security training products and services.

This includes our performance scoring tool which enables real time performance based training. We are also expanding this capability to interested commercial customers. All in all we see very positive signs and broad opportunities for future growth across all of our business segments. Now let's proceed to the question-and-answer period.

Operator?.

[Operator Instructions]. And we can take our first question from Stanley Kovler with Citi Research. Please go ahead..

Yes, thank you very much for taking the question.

I just wanted to ask you about your views on spending in terms of the list of the budgets recently and the outlook for defense spending overall and I have a follow-up, thank you?.

I think our expectation is for defense spending obviously to rise. However the gridlock in Congress at the moment and the White House I think is pushing that a little bit out into the let’s say next quarter or the following quarter. Well really it’s hard to anticipate but I think overall certainly the expectation is for a rise in government spending..

And thank you and then on the Heights platform, can you help us understand also I guess just the size of the funnel, you started off with some three customers, what's the potential market opportunity or the eventual revenue opportunity of this market size, if we can get a better feel for that as well? And similar question for the in-flight Wi-Fi market, I will be curious to get your take on the pace of the deployments within various airline fleets and how quickly that ramp can happen?.

Sure Stanley, it’s Mike. On the Heights products I mean this is a product that for all intents and purposes we have zero dollars in revenue earlier in the year. So from our perspective we're talking in the double-digit millions in terms of where we expect this product to be in the very short-term time period.

And we did shift the double digits into next year from what we see in terms of the opportunity. So it is growing and as Fred had mentioned this is a market in total that again is going from zero to what could be hundreds of millions of dollars over the next few years. So we are really excited about this market.

In terms of the rollout of the in-flight opportunities -- the in-flight connectivity market we can't really talk specifics because we have certain confidentiality agreements with our customers.

But that all being said I think if you just look at the public statements by the airlines on what they're doing with their old planes and every single new plane, that’s the best gauge for where the markets is and where it's heading..

Thanks, and Mike I just have one clarification on the expense line, I wanted to better understand your comments about the SG&A trending up into next quarter especially given the lower legal that seem to be expecting going forward? Thanks a lot..

Sure, a couple of two things to talk about, right. Our Q3 did have a benefit of recovery of legal expenses so you got to kind of think about adding some back when you want to normalize it.

And then just the fact that our Q4 is going to be significantly higher and we are chasing a bunch of opportunities, our SG&A in total in dollars is going to be higher.

I think if you are looking for a dollar kind of framework for where things could be despite having significantly higher sales expectations in Q4, I think if you look at our Q1 SG&A that may give you a sense of where we kind of think the dollars would be..

Thank you very much..

We'll take our next question from Mike Latimore with Northland Capital. Please go ahead..

Hey, thanks, very nice quarter and good to see the credit agreement.

On the tropo opportunity, you mentioned that is replacing under the legacy terminals, what roughly would that be in terms of revenue opportunity?.

I think if you just look at the replacement of the AN Track 170 terminals there were 350 terminals that the army had and another 150 the Marine Corp had. And it's an old terminal obviously, it’s been around for a number of years. I think this is a program probably that will for us mean 15 to 20 years of revenue.

I'd say the best estimate that I can give you is probably over $600 million over that span..

Right and then just about the EBITDA contribution commercial versus government so there was 15.5 commercial free government in the quarter, how do you see that playing out over time, I know you have talked about the revenue I think getting back to sort of 50:50 split but how was the EBITDA, what was – where might EBITDA go, it seems like commercial, is that related to commercial right now?.

Well, there is a couple of things as we look at the dimensions going forward. First from a percentage perspective is the way I would tell you to think about it, we did 14.2% in Q3 and we almost hit 20% EBITDA margins in the quarter.

A lot of folks were questioning how fast we could ramp that up but if you can see with the progressive price we did 13% or so in Q1, increased to 15% and now we are a little under 20%. We expect our Q4 as a percentage to continue to increase.

On the government side we are still working through this tactical change and so I would almost tell you that the 6.4% we did as a percentage is certainly a low point. We are expecting that percentage to increase so then you kind of come back to the dollars and the contributions.

As the sales come in and as the opportunities are closed, obviously the dollars will increase but for the moment right now the commercial side is driving profit but the government is not far behind in terms of coming back with some significant increases in dollars.

And if these opportunities that we're seeing in the government's space come to fruition that dollar number contribution will increase. .

And then obviously you are optimistic about fiscal 2018, I guess did you kind of indicate that you think EBITDA margins continued to improve next year or what was your comment on the EBITDA margins say next year?.

So, we think in total for the year for FY 2017 we're going to be around 12%. I think if you do the math it's a little bit higher than just 12.0%, it's a 12.3 and change or something like that.

So when we look at next year we're going to see that same quarter-to-quarter issue that we had in this year where we had a ramp up going from Q1 to Q4 and you know we've seen that trend for this year as well as the prior year. So we do expect to have significant back end loaded nature to next year as well.

And even some of these opportunities that we're seeing, we're thinking of Q1 just in terms of EBITDA contribution in dollars as well as but dollars could be actually be lower than Q1 of this year.

So in terms of the ramp we have to kind of see how it plays out but all in all if you think about just 12% being this number, our expectation without giving the number is that we should be able to beat 12% next year. We give our guidance in the September timeframe for FY 2018, we are going through our fiscal 2018 planning process.

So we don't want to give out a number that we don’t think we could achieve but our kind of internal planning targets just to give a sense is we hope to be higher than 12%. .

Great, fair enough. Thanks a lot. .

Our next question is from Kyle McNealy with Jefferies. Please go ahead..

Hi guys, this is Kyle here for George Notter. Thanks for taking the question.

Given the positive commentary around potential bookings for Q4 for the Heights platform and I guess into Q1 as well, does this suggest that there's some pent up demand awaiting the product? And I guess the question after that would be how lumpy it might be going forward, is there some big initial bolts that happen and then trails off slightly going forward or does the momentum continue to carry through 2018, how should we think about that shape?.

I think what was mentioned is that we were finding this to be kind of a longer sales cycle. To answer your questions there is a pent up demand primarily because A) we announced it early and nobody wants to buy the serial number one. So that's the usual problem. But there is a pent up demand.

I don't think it's going to be very, very broad in the fourth quarter but certainly in 2018 I think we expect that to be the breakout year not only for the commercial but also for the U.S. government applications..

Thanks and I know there are different products, the Heights versus just your single channel per carrier platforms but is there any kind of impact on it, I know you mentioned softness in this quarter, is there any kind of weight for effect or transition from those users of single channel per carrier that are kind of migrating to the high throughput satellite in the Heights platform.

.

I think the migration is just about starting to go to the high throughput satellite systems and I think a lot of customers are planning to do that. So we see that as happening in 2018 and beyond. .

Great, thanks and one last one, your typical seasonality in the first quarter is generally down, how should we think about that relationship to the ramp in Heights, does it track better than historical or should we think of the Q1 sequential comps to be kind of generally in line with what you've seen historically. .

I think what you probably saw in 2017 I think it seems to be a seasonal aspect for our business and I think we see the same type of transitions from first quarter to fourth quarter kind of hopefully a softer ramp..

Okay, great. Fair enough. Thanks a lot..

[Operator Instructions]. We can go next to Glen Mattson with Landenburg Thalmann. Please go ahead..

Yeah, hi, could you just talk about some of the dynamics that play that are elongating the sales cycle for Heights and you know why you have such confidence that you're -- you'll convert those opportunities in the first part of 2018? Thanks..

I think our great feeling and the opportunities are really based on some of the trade shows that we've had our people go to. And the really interest that we've seen in it. It is a longer cycle because it's a network whereas the SCPC market that we were a dominant figure was really a box of product supply. This really Heights is a network product.

So as such it's much more value added and it's a larger market that we're addressing than the SCPC market that we had traditional interest. And finally the funnel in discussions with our potential customers, the funnel right now is pretty large..

But in terms of timing, as far as early 2018 perhaps converting some of those orders, is it simply just maturation of the process and what has you confident in that ability?.

Well again it's a longer sales cycle because it is a network and it is the longest cycle for our customers as well in terms of planning their systems and how they go forward. So what we're really seeing is probably not the expectations that we wanted to in the fourth quarter, we see that more happening in fiscal 2018.

Glenn just to add to what Fred is saying and elaborate a little bit, we're seeing two things right, we're seeing a longer sale cycle in terms of the orders. So we have this big build up of funnel.

So if you look at the funnel, if you think about the sales funnel from Q2 to Q3 we have a much higher sales funnel of customers that we're actively talking with about the product. So that sales cycle overall is just taking longer but the funnel is also growing. So then we have the actual initiation of the order and getting that order in.

And I would also say to you, the second piece that we also have is that, these are all sort of customized boxes. So if the order flow getting out of the facility also is probably a little bit longer. So the entire process takes a little bit longer.

So when we're thinking about the ramp next year we may have this big increase in bookings and where we traditionally have a higher book to ship, right. That percentage may get down because we may have the order in backlog and it would take us some extra 30 days, 40 days to get the product out the door.

So the entire process is longer than our traditional shipping boxes because as Fred had mentioned it's a network. So the orders are expected to start to come in more than they did in Q3 in our Q4 and in Q1 and we expect that trajectory to increase throughout the year.

And then with the sales being little bit more weighted towards Q3 and Q4 simply because of the longer cycle time. .

Okay, thanks that's helpful. And then just last thing on tropo, is there any other opportunities outside of U.S. government that are moving along at all? Thanks. .

Yeah, we continue to have the opportunities in offshore oil platforms and also international, various countries with their defense systems or radar systems that require tropo for their communications or their C4 ISR needs. So, that market continues to be strong. .

Okay, thanks. I will leave the floor. .

And it appears we have no further questions at this time. I will return the floor to our speakers for any closing or additional remarks. .

Okay, well thank you very much for joining us today. And we look forward to speaking with you again in September. Thank you very much. .

This will conclude today's program. Thanks for your participation. You may now disconnect..