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

Mark Jordan - Noble Financial Josh Kehoe - Citi Mike Latimore - Northland Capital Glenn Mattson - Ladenburg Thalmann Kyle McNealy - Jefferies.

Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp.’s First Quarter Fiscal 2018 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 on Thursday, December 7, 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 first quarter of fiscal year 2018. With us on the call this morning are Fred Kornberg, Chief Executive Officer and President 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. 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 and good morning, everyone, and thank you for joining us on this call. As announced yesterday afternoon, we reported our first quarter results of $121.6 million in revenues and operating profit of $0.2 million and an adjusted EBITDA of $9.6 million.

Additionally, we reconfirmed our fiscal 2018 revenue target range of $550 million to $575 million and increased our adjusted EBITDA guidance to a range of $69 million to $73 million. During the first quarter, we received a number of large strategic contract awards and achieved bookings of $165.7 million.

Order flow for many of our products was very strong and we finished the quarter with a consolidated backlog of $490.4 million. Our first quarter results exceeded our expectations and I am pleased with our current business momentum and it looks like fiscal 2018 is really beginning to look like a very strong year.

I will tell you why I’m so optimistic about our future in a bit, but first let me turn it over to Mike Porcelain, our CFO, who will provide a discussion of our first quarter financial results and our updated fiscal 2018 guidance in more detail. Then, I’ll come back before opening it up to questions and answers.

Mike?.

Thanks, Fred and good morning, everyone. Consolidated net sales for Q1 were $121.6 million of which approximately 32.4% were generated from U.S. government end customers, 23.3% from international end customers and 44.3% from domestic commercial end customers.

During Q1, we achieved bookings of approximately $165.7 million with strong order flow across many of our product lines. We achieved a consolidated book-to-bill ratio of 1.36 and both segments achieved a book-to-bill ratio in excess of one-time sells.

Net sales in our Commercial Solutions segment were $76.1 million as compared to Q1 of last year, which were $76.2 million. Sales in the segment represented approximately 62.6% of total net sales. The slight decline in sales in this segment is primarily due to timing.

This quarter was a terrific quarter for bookings, our Commercial Solutions segment achieved a book-to-bill ratio of 1.48. On a product line basis in our Commercial Solutions segment, overall market conditions for a satellite earth station solutions continue to be good, and it was a great quarter of bookings.

Bookings for these products were not only significantly higher than Q1 of fiscal 2017, but they were also sequentially higher than our normally strong Q4. We believe that we are seeing increased interest from customers across our entire customer base. Most notably from our U.S.

Government customers, as well as strengthening end market validation of our new commercial HEIGHTS products. Turning to our enterprise technology solutions and safety and security technology solutions, our sales were down slightly this quarter mostly the result of timing.

As Fred will discuss in more detail, we were awarded almost $100 million of strategic contracts for these products this quarter. Now let me talk about our Government Solutions segment, where net sales were $45.5 million, as compared to $59.6 million in Q1 of fiscal 2017. This represents a decrease of approximately 23.7%.

Sales in the segment represented approximately 37.4% of total net sales. The period over period decline in sales was expected and primarily reflects significantly lower sales of over-the-horizon microwave products due to contract timing.

Our tactical shift in strategy away from bidding on large commodity contracts and the absence of $2.5 million of BFT intellectual property licensing fees that we earned in the first quarter of fiscal 2017, supporting the U.S. Army’s BFT program.

Despite the expected decline in sales, order activity in this segment was strong and our Government Solutions segment achieved a book-to-bill ratio of 1.17 for the quarter. This was the third quarter in a row that our book-to-bill ratio for this segment exceeded 1.0 and we believe this trend validates the strategy we initiated.

In fact, backlog for our Government segment is the highest it has been since our acquisition of TCS back on February 23, 2016. This is quite an accomplishment and we are optimistic that bookings and backlog can go even higher than our most recent quarter if we are able to secure a few of the opportunities we were chasing.

At the moment, given the difficulty to predict timing, our business outlook for fiscal 2018 only includes a nominal amount of revenue and operating income assumptions from these opportunities. Now let me give you some color on our operating metrics.

Our gross profit in Q1 of fiscal 2018 as a percentage of consolidated net sales was 39.3% as compared to 38.4% in Q1 of fiscal 2017. Given overall expected product mix, changes and the absence of $6.7 million of BFT-1 IP fees for the year, we currently expect consolidated gross profit to be slightly lower than the 39.6% we achieved in fiscal 2017.

On the operating expense side, SG&A expenses were $28.5 million in Q1 of fiscal 2018 or 23.4% of consolidated net sales. For the year, given our current spending plans and second half revenue growth assumptions, we currently expect SG&A expenses as a percentage of revenue for fiscal 2018 to be comparable to the 21.1% we achieved in fiscal 2017.

Research and development expenses were $13.8 million in Q1 of 2018 or 11.3% of consolidated net sales and was comprised of $11.8 million of spending in the commercial solution segment and almost $1.9 million of spending related to the government solution segment with the rest constituting amortization and stock-based compensation.

We continued to invest significantly in new technologies across our entire product line. For the year, we expect R&D to approximate 10% of revenues, which is about the same as what we did in fiscal 2017. Total stock-based compensation expense was $700,000 for the quarter of fiscal 2018 as compared to a million for the first quarter of fiscal 2017.

This decrease is primarily due to the reversal of $400,000 of stock-based compensation expense related to certain performance shares that were previously expected to be earned. Otherwise it would have been $1.1 million for the quarter, which is similar to what we currently expect in Q2.

For the year, given the type of awards that are currently outstanding and awards expected to be issued during the year, we believe the total amortization of stock-based compensation expense in fiscal 2018 will be higher than that $8.5 million recorded in fiscal 2017.

Amortization of intangibles was $5.3 million in Q1 of fiscal 2018, and we expect this run rate to remain the same for the next three quarters. On a GAAP basis, our consolidated operating income was $200,000 or 0.2% of net sales in Q1 of fiscal 2018.

For the year, we’re targeting to achieve gap operating income as a percentage of consolidated net sales in the range of 4% to 5%. This range compares to 3.3% of consolidated net sales in fiscal 2017, which excludes the $18.8 million of favorable investments described in our Form 10-K filed last year.

Based on the amount of total amortization expense we expect in Q2 and everything else we see at the moment, we continued to expect a GAAP operating loss in our second quarter of fiscal 2018 with each of the third and fourth quarters of fiscal 2018 achieving GAAP operating income.

We believe that adjusted EBITDA is an important metric and in this regard, our adjusted EBITDA was $9.6 million in Q1 of fiscal 2018 or 7.9% of consolidated net sales. Adjusted EBITDA in our Commercial Solutions segment was $11.7 million or 15.3% of related sales and in our Government Solutions segment was $800,000 or 1.8% of related net sales.

This quarter, our adjusted EBITDA in our Government Solutions segment was impacted by the low level of sales and operating income contributions from over-the-horizon microware products as well as related investments in R&D and marketing efforts and the absence of $2.5 million of BFT IP licensing fees that we no longer earn.

Based on expected order flow and spending, Q2 adjusted EBITDA in dollars in this segment will be slightly less than Q1 before significantly improving in Q3 and Q4. We currently expect that the fourth quarter of fiscal 2018 will be the peak quarter by far for consolidated net sales, GAAP operating income, GAAP net income and adjusted EBITDA.

Let me now talk about our taxes, interest expense and our balance sheet. Interest expense was $2.6 million for the first quarter of fiscal 2018 and primarily reflects interest on our secured credit facility.

Our total interest expense is expected to reflect the rate of 5.5% in fiscal 2018 or actual case borrowing rate, which excludes the amortization of deferred financing cost currently approximates 3.7%. On the tax side, the company currently expects its fiscal 2018 effective income tax rate excluding discrete items to approximate 34.5%.

Our effective tax rate estimate does not include the impact of any potential reform of the Internal Revenue Code, which is currently being debated amongst members of the U.S. Presidential Administration and Congress.

Once political decisions are made, we will analyze it all and report back to you, the impact which we hope will be positive on our tax rate and our guidance. At the end of the day, it was a really good quarter for Comtech and its surpassed our original expectations.

On the bottom-line GAAP diluted EPS was a loss of $0.07 per share in Q1 of fiscal 2018 and adjusted EBITDA as defined at the end of our press release was $9.6 million.

On the balance sheet side, on October 31, 2017, we had $42.5 million of cash and cash equivalents and in Q1 of fiscal 2018 we generated cash flow from operating activities of $6.5 million and we reduced our total indebtedness by approximately $1.5 million this quarter.

As of October 31, 2017, we had total debt excluding on amortized for financing cost of $199.1 million. As of October 31, 2007, our leverage ratio was 2.83, as compared to a maximum allowable of 3.5 times EBITDA. So, we have a pretty good balance sheet flexibility at the moment.

Given our fiscal 2018, we anticipate being in compliance with our credit facility for the foreseeable future.

Given our Q2 adjusted EBITDA it is likely to be the same as our Q1 adjusted EBITDA and we are planning on growth for Q3 and Q4, you should expect cash flow in Q2 to be slightly down from Q1 levels with the majority of our cash flow for fiscal 2018 being generated in Q4.

With this in mind, our Board of Directors declared a dividend for the second quarter of fiscal 2018 of $0.10 per common share payable on February 16, 2018 to shareholders of record at the close of business on January 17, 2018.

Future dividends remain subject to board approval, as well as compliance with financial covenants under our secured credit facility. Now let me turn it back to Fred, who will discuss our business in further detail.

Fred?.

Thanks Mike. Let me give you some color on what is happening in each of our Comtech segments. First, let me discuss our Commercial Solutions segment, which is focused on several large growing markets.

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

We’re also a leading provider of public safety systems such as Next Generation 9-1-1 networks; enterprise applications such as messaging and trusted location-based technologies. Our satellite-based communication products participate in the satellite back haul and network services market.

In the satellite and modem area, we continue to be the undisputed leader in single channel per carrier or 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.

The Height solution is intended not only to meet the demands of traditional fixed geo-satellite systems, but also provide distinct advantages for those system uses considering migrating to high throughput satellite systems and MEO and LEO forbidding satellite systems.

This is an entirely new market for us, but one which is much larger than our traditional SCPC market. To date, customer reaction has been and continues to be positive. In the past two quarters, we have announced several important customer wins for this product line and we have a growing sales pipeline of HEIGHTS opportunities.

We also believe that fiscal 2018 will be a breakout year for HEIGHTS orders. Another area we continue to be excited about is the IFEC market or the In-Flight excuse me, satellite based connectivity market. Our solid-state power amplifiers help enable commercial airlines to provide In-Flight connectivity services to their passengers.

This also is a growing market for us and we believe this area will be a significant revenue contributor for Comtech in fiscal year 2018 and beyond. As you know in the first quarter we announced the receipt of a $7.5 million follow order from GoGo for a solid-state amplifiers and we hope to announce more awards soon.

We're also seeing continued strength for a satellite communication amplifiers and recently announced the expansion of our high-powered GaN solid state power amplifier product line.

As you know, the new GaN compact and rugged amplifiers are significantly more efficient making them ideal for transportable and mobile applications, where size and power consumption matters.

On the public safety side, our solutions include 911 call routing for wireless, 911 routing for voice over internet networks, next generation 911 solutions for state and local public safety operations.

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

During the past quarter, we were awarded a number of large strategic multi-year contracts as Mike mentioned from ATT, with an aggregate value of $96.2 million and an initial funding of $26 million.

These contracts provide for a variety of safety and security technology and enterprise technology solutions including wireless enhanced E911, Next Generation NG911 solutions, public safety call handling solutions and emergency service IP network or ESI net solutions.

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

Turning to our enterprise and 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.

During our most recent quarter, we were awarded an $8.4 million contract award for location-based application from a key Fortune 100 customer. We also offer text messaging solutions, providing such service to Verizon and others for many years.

As part of our text messaging solutions, we offer carrier-grade platforms and high-performance short messaging service or SMS routing for cloud messaging centers, wireless intelligent gateways, and feature-rich operating-grade messaging platforms.

At this point, let me talk about the government markets in our Government Solutions segment, where we serve large government end users that require mission critical technologies and systems. Our Government Solutions are sold to the U.S.

Department of Defense agencies and international government agencies and primarily consist of C4ISR or command, control, communications, computers, intelligence, surveillance, and reconnaissance solutions.

Our solutions include satellite, line of sight and tropospheric scatter, tropospheric scatter ground terminals, management and sale of satellite bandwidth, information technology outsourced surfaces and RF power and switching technologies.

Recent contract awards in the Government Solutions segment that are expected to contribute to fiscal 2018 net sales, include a $23.8 million order from an international space agency. A $14.5 million contract modification to continue to provide KU satellite bandwidth and support services for the U.S. Marine Corp.

A $10.3 million contract modification to provide enhanced communications infrastructure for U.S. forces in the Central Command area of responsibility. Funding of $7.7 million for our five-year BFT sustainment contract and a contract valued at $4.2 million for BFT-1 aviation transceivers.

We also received a separate $6.5 million contract from the BFT program office, to port Comtech’s BFT two-way form – excuse me – on to the present BFT-2 transceivers. This I believe is a step for us to be largely considered back to supply more transceivers for BFT-2 as well be in a position for BFT-3 competition.

We also received the $7.5 million contract to supply troposcatter equipment to support the U.S. Army activities throughout the South Korea Peninsula and initial funding of $4.6 million related to a contract with a major U.S. space contractor to source and test space components in support of a critical NASA program.

We’re also seeing increased interest from U.S. Government customers for our commercial satellite earth station networks and products. And believe there are sales to the U.S. Government of commercial products will noticeably improve in fiscal 2018, as compared to fiscal 2017.

For example, during the most recent fiscal quarter, we received this $7.7 million follow-on contract from a U.S. Government integrator to supplied satellite earth station, high-power traveling wave tube amplifiers for airborne strategic military programs, excuse me, looking forward we're expecting to receive a contract from the U.S.

Space and Naval Warfare Systems Command, which publicly announced its intention to so -- so show us a five-year $50 million indefinite delivery and indefinite quantity or IDIQ contract to Comtech to procure our model SLM-5650B satellite modems.

We believe no other competitor responded to the Navy's request and we are expecting to receive the IDIQ contract in fiscal 2018. Our pipeline of future opportunities also includes pending proposals on several large multi-year contracts, including a potential renewal of existing sustainment and retrofit services that we provide to the U.S.

Army's AN/TSC-198 family of communication systems that are commonly referred to as SNAP terminals.

In addition to the SNAP program, we are preparing to respond to an expected large multimillion dollar and multi-year RFP for the supply of tropospheric communications equipment to replace hundreds of very old AN/TRC-170 troposcatter terminals and government inventory.

Just recently on that program, a third draft RFP has been circulated to prospective vendors and we believe a final request proposal – for proposal will be issued sometime in fiscal 2018.

As you know, we've been waiting for this opportunity for a long time, although an award of this program would likely not affect fiscal 2018 revenue or perhaps even fiscal 2018 bookings, we would expect it to make significant contribution to our future revenue in subsequent years.

As you know, we have been a supplier of over the horizon troposcatter systems to international and U.S. Government agencies and to commercial off-shore oil platform customers for many years.

We have a large worldwide installed base of over-the-horizon microwave systems and our systems can transmit video and other broadband applications at throughputs of over 50 megabits per second. We continued to be involved also in discussions and negotiations related to several large international opportunities.

However, contract awards for these opportunities are difficult to predict, but as history shows, it is usually not a matter of if, but when. Excuse me, all in all, we continue to see very positive signs and broad opportunities for future growth across all of our businesses.

Let me conclude this conference call by saying, I'm pleased with our first quarter results and now I would like to proceed to the question-and-answer part of our conference call.

Operator?.

[Operator Instructions] And we’ll take our first question from Mark Jordan with Noble Capital Market. Please go ahead..

Good morning, gentlemen. First, a question on the NextGen 9-1-1. Obviously, the AT&T contracts which you received is a significant block of business.

I’d like to step out and just look at that specific line of business from say by the 2019 or 2020 timeframe what kind – what size of business could that be on an annual basis? Are you looking at something that could be $50 million to $75 million worth of annualized revenues on an ongoing basis a couple of years out?.

Mark, I think the best way for us to respond to your question is to say, we expect it to be higher than what it is today. It's real difficult for us to predict the timing of some of these state awards and local agency awards and a lot of these new contracts will be hosted type systems that the revenue will be recognized over a straight line.

So, until the awards are announced and we win them, it's just tough to put a number on a specific year, but in summary, we hope it to be higher than where we are today..

Okay.

The tropo contract you got, $7.5 million in October for deployment into Korea, was there any effective competition for that? And do you think that sort of signals which you are kind of dominant position in that marketplace going into the large competition this year?.

The first part of the question, Mark is, it was a sole source contract. Second part is, obviously, it puts us in a better position, but we do expect that there will be competition for the large program as it is, whether the other competition have or have not any products in the tropo area, doesn’t seem to matter. Anybody really can bid on a major U.S.

program and you certainly can't say that's some of the large – let's say government contract that nobody can really see that they can’t replicate what we have done. But I think our position and then our – and our you know working with the government for many, many years now, I think puts us in a very, very good position..

Okay. A final question for me. Revenues in the first fiscal quarter came in about [$50][ph] million above Street consensus and as you said above your expectations.

What percent of that upside was incremental business that you know was not in your business plan and what percent of that [$50] [ph] million upside was actually pulled in from the second quarter or third quarter?.

That’s a good question, Mark. It’s a little bit of both. You know we definitely saw better demand than what our original business plan, you know was expecting this quarter. So, you know there is definitely some new incremental demand.

We did see some pull-ins from Q2 and Q3 into our Q1, I mean, not to put a specific dollar on it, but there were some pull-ins.

At this point, we’ve kind of taken a – I’ll call it a prudent approach, we’re not increasing our guidance, our revenue cycle reflect the incremental demand that we’re seeing and that’s just because of the difficulty of predicting some of the contracts that we’re still expecting in Q3, Q4 and things could always slip into next year.

So, at the moment, you know we are seeing an increased demand, some of these were pull-ins, but you know, we feel right now that you know this is where we are and we feel pretty good about it..

Okay. Thank you very much..

And we’ll take our next question from Stanley Kovler with Citi. Please go ahead..

Hi. This is actually Josh Kehoe on for Stan Kovler. My question is on government spending.

When you’re expecting a pick-up in spending on new projects once the budget gets passed? And can you help remind us as how you’re exposed to the growing areas of government, defense and surveillance programs?.

I think as far as the government budget is concerned I think we all know that the position that the two parties are at and what will happen and when is really hard to predict. As far as the programs that that I've enumerated I think and just talking about the large tropo one for instance that is a program of record and that has the funding already.

Even the BFT programs that we've been talking about, those have the funding already. So, a large number of our programs that we – that we follow and we compete in are probably today already funded..

Okay. Thanks. And another follow up on in terms of tax reform implications. And I know you said your guidance doesn’t reflect any impact from the proposed reform.

But what effect are you anticipating on your business and have we taken any maybe initial steps to try and quantify the potential impact?.

We've certainly looked at their proposals. But they change every day. So, we'd be creating Excel spreadsheets every day based on what's been reported. But certainly, if the tax rate for U.S. corporations goes down that will be a positive impact to us. And it would be a meaningful impact.

There are some things that go away, like the domestic production tax credit and so forth, and that goes away and since we do produce in the U.S. we’d kind of lose that piece.

So, until they put specifics on what they're going to pass and they ultimately pass it, it's tough to put a real number out there, but I would say that overall based on what we're seeing in the two dress that are out there it looks like it will be positive to us to us you know in the year that it’s adopted..

All right. That it’s for me. Thanks..

And we’ll take our next question from Mike Latimore with Northland Capital. Please go ahead..

Yeah. Great. Thanks a lot.

On the SNAP opportunities, what is the sort of potential revenue opportunity, booking opportunity you see in the SNAP area?.

The SNAP program, as you know, we are the incumbent on that program. We have bid the program, I would rather not you know specify a number today because the program is in evaluation, but it is in excess of $100 million..

Okay. Great.

And then on your large 9-1-1 renewal in the quarter, I believe there's also some up-sell there, what kind of incremental business did you get with that, you know in conjunction with that renewal?.

I'm sorry.

Can you repeat that?.

Yeah.

I believe you had a big you know renewal with a Tier 1 carrier in the quarter and then you also have some up-sell, I was just kind of curious what additional services you're providing?.

For the AT&T programs….

Yeah..

That we do. We're providing the -- basically, the wireless and ESI net services. There is a small amount of the location business as well, so it's kind of spread over a number of programs, they’re multi-year programs and they vary from a different contract to different contract whether it's two-year or multi-year or a five-year multi-year.

So, it's kind of spread around..

Got it.

And then just last on the BFT-3 opportunity, any initial sense of when there might be an RFP around that?.

No. I think it will be – it will be quite some time, I really don’t even expect anything in terms of BFt-3 to happen till let's say our fiscal 2019. However, there is an opportunity that there are more requirements for BFT-2, which are not being fulfilled. And our porting of our waveform, which we have demonstrated fully works for BFT-2 program.

We're doing that, we have that contract. And in fact, we also got a small contract for 100 transceivers. So that the government can actually put some out in the field or in the laboratories and do some further testing on it before they actually decide to buy more transceivers..

Okay. Thank you..

And we’ll take our next question from Glenn Mattson with Ladenburg. Please go ahead..

Hi, good morning. On the – congrats on the tropo order in Korea.

It's interesting that the theater that the government rushed – it seems they rushed through in order for the product in a theory that potentially could become an active theater, maybe does that speak to the conference that they have in the product and perhaps maybe give you a leg up in winning some of the next phase of orders that come through?.

Well, we certainly think so..

All right.

And what about the other foreign government opportunities in tropo, if those moved along at all or what's the status on those?.

Yeah. As you know, we've been operating in the international market for quite some time with some very large customers throughout the years and the some very small customers, but I think – I think we can state that we have more pipeline opportunities right now with more countries than we've ever had before..

Okay. Thanks. And then a last question for me on the, on the – in-flight connectivity, also nice to see a follow-on order there. It was a big space for you last year as I think go, go I think was ramping up you know in a major way. I guess they had built maybe some inventory they had to get deployed to the – to the aircraft.

I guess that's, that's all happened now and they're reordering.

Do you expect fiscal 2018 to be up year-over-year versus 2017 in that category?.

No, I think we continue to see the orders really from this point on through 2018 and 2019 to be more of a flat nature..

Okay. Great. That's it for me. Thanks..

And we'll take our next question from George Notter with Jefferies. Please go ahead..

Hi, guys. Thanks a lot. This is Kyle on for George. I wanted to talk a little bit about the EBITDA margins in Government Solutions business. I guess -- I guess the rare question is, is are we at the bottom as you transition through your movement away from low margin government business and contracts like that.

And you know we have the BFT license revenue coming out, you know where's the bottom and how do they recover. I know you mentioned a bit about your expectations for Q2, but you also put in the 10-Q when you talked to it on the call that the backlog for Government Solutions is highest since the TCS acquisition.

So, just wondering how to reconcile, where that bottom is and what the trajectory is of – of the margins in the Government Solution business going forward if you could talk to that please?.

Sure Kyle. So, I would say that Q2 is likely going to be our bottom in terms of the quarter. It's tough to say whether the Q1 was but you know we have the sort of the similar revenue profile in Q2 and maybe even slightly worse in terms of what’s going to ship.

So, our adjusted EBITDA margin for the segment will be the same or slightly lower than what we did in Q1. But to the point that’s in the 10-Q when you just said, we got some good backlog. And that backlog is expected to start shipping in Q3 with heavy in Q4. And you know we – that’s kind of where we hope to live.

We did about 8% adjusted EBITDA margins in the segment last year, but that 8% included the BFT-1 intellectual property fee. So, if you just take a very broad step back and you look at the segment, last year we would have done 5.1% adjusted EBITDA margins in this segment excluding the BFT-1 fee.

And we’re expecting to beat that number by a couple of points this year when all said and done. So, you know maybe we get to the 7% type number, but in order to do that you know our Q3, Q4 will have to be pretty high. But if you look at where Q3 and Q4 is, you’re going to see a big uplift in our margins.

And then looking forward to 2019 and beyond, you know if we get these over-the-horizon opportunities, that stuff drops to the bottom line pretty good and right now, our adjusted EBITDA margins in the segment are being suppressed by the fact that we’re not shipping a lot of over-the-horizon stuff, but once that comes in, the margins will increase.

So, short answer is, I think Q2 is our bottom with significant expansion from that level..

Got it.

And is it appropriate to assume that the level of backlog currently being greater than it’s been since the TCS acquisition? Is it appropriate to assume that means we’re either at or largely past the transition away from the low-margin government business?.

Yeah..

Okay. Okay, great. And then, another question on the BFT-2 Program and porting your waveforms over to that program. I guess, the real question is around the shape of that revenue. You mentioned $6 million, $6.5 million that you noted in 2018. Does that ramp from there? I know you mentioned the potential to sell transceivers.

How should we think about what that opportunity looks like for you, specifically with BFT-2?.

I think for FY 2018, we certainly don't have any of any, any upside in our plan at the moment. However, having said that, I think there is an upside that we, that we’re talking about with the government.

But again, I want to stress that, although the government has lots of funded programs for us and so forth, as I mentioned, it's not – it's not if, it's always when you finally receive that contract.

Anyway, as far as BFT-2 is concerned, I think I kind of mentioned before that we actually did get a small little order for a hundred dental pieces of our version of the BFT-2 transceiver which has the successful waveform that we've demonstrated to the government in the past and very recently.

The government has a need for a substantial amount of transceivers in the -- from what they tell us, in the April-May timeframe, substantially, being in the thousands of transceivers. So, that is an opportunity that could -- could actually fall into our lap, but we’re, we’re certainly not counting on it for FY-2018..

Okay. Great. So, the real difference is with the BFT-2 program any future contracts for BFT-2 transceivers you have the opportunity to participate in now..

Absolutely..

Okay. Great.

And then on Heights revenue, did you see any Heights’ revenue in the quarter or is there anything you can give to us on – color on Heights revenue and maybe what you’re currently thinking about the future ramp for the Heights platform?.

Yeah, it's going really well. We said before that we think that we can get into the double-digit millions in terms of Heights this year. And I would say the opportunity pipeline is probably higher than that, but we want to book them, and we want to bring them in-house first. But yes, we did have revenue in Q1, we did have orders in Q1.

And as the year progresses, we hope to announce some additional opportunities that we can. As we said before, it's a longer sales cycle that our products and some of our customers are replacing competitor products. And so, they’re asking us not to announce certain things because they don't want to let the current supplier know of the information.

So, we're working pretty hard at the product line, it's getting great reception, and that ramp should hopefully continue not only in 2018, but 2019 and beyond..

Just to add to that, you know as I mentioned, the traction I believe is there. I think we're getting a lot of opportunity, let's say discussions right now around it, and some programs and contracts.

One that I probably could mention since it has really come out for bid, and we are actually written into the statement of work for the Carnival Cruise Lines that our HEIGHTS platform is going to be the platform that will be used by whoever is the integrator that integrates that particular program for the Carnival Cruise Lines.

That I think is a validation of our network and of the performance of our network. So, we’re very happy with that..

Okay. Great. Thanks. And last one for me, I know you mentioned that there is a bit of a pull on into Q2, you gave guidance on Q2.

I guess how does the -- given the strong first quarter, how does this affect the shape of your revenue for 2018 you know versus your original expectation of you know the lowest is Q1 and it ramps sequentially into the end of the year.

Are we looking at you know flat into Q2 and then Q3 and Q4 larger? How should we think about that?.

Yeah. We do think Q3 will be higher than what we will do in Q2, but I think Q4 performance is going to be the highest revenue that we expect this year.

You know when I use the phrase by far to give some revenue guesstimates, we’d like to -- we don’t look at -- on the Street likes to look at it and everyone pays attention to quarter-to-quarter performance, we don’t -- we obviously look at on a sort of a trailing 12 months basis if you will, because of the timing that occurs from quarter-to-quarter.

But taking a step back, you know we did a $147.8 million of revenue in Q4 last year, we would like to be higher than that you know in Q4 of 2018 and that would be a directional way that I would tell you to think about where the year is going to be. It will be higher in Q4 than Q3, but by good amount..

Okay. Great. Thanks a lot. That’s it for me. Congrats on the quarter..

Thanks..

And we have no further questions at this time, I’d like to turn the conference back over to the Comtech speakers for any additional or closing remarks..

Okay. Thanks again for joining us today. I want to wish everyone -- excuse me, a happy holiday season and an upcoming New Year and we look forward to speaking with you again in March. Thank you very much..

This does conclude today’s call. You may disconnect at any time and have a wonderful day..