Comtech Telecommunications Corporation (NASDAQ:CMTL) reported its first quarter earnings report and discussed the following topics in their conference call.
Army Network Operating Center
Mark Jordan – Noble Financial asked: Was I correct that in reading the Q that you are building a Network Operating Center for the Army in their facility to be ready around mid-year? In the past you’d talked about that being a point of leverage in your negotiations as you were the only operator with NOC.
If you come to an impasse, what is your recourse with the Army after the end of March if they decide not to honor your intellectual property?
Fred Kornberg – President and CEO responded: First on the NOC basis, we originally ran the NOC and the network for the MTS program and for the BFT-1 program. The NOC was being run by the Army war fighters not by Comtech.
We were supplying the network, but not the NOC for that one.
Now since the MTS program has been rolled under the BFT program, the Army wants to combine the two NOCs together in one location at Aberdeen. So instead of having the NOC at our facility, the NOC will be moved to the Aberdeen facility, where their previous NOC is located and will be co-located; it will still be manned by our people.
That’s the story on the NOC.
As far as our negotiations right now, we are negotiating on two fronts. One, the sustainment contracts and the level of the work that we will be needed or receive from the Army for the next three to five years, whatever they finally choose. I believe the Army today is interested in not having two networks, but having one network.
What I think we are finally going to see in the end is one network that is capable of supporting the BFT-1 and the BFT-2 systems simultaneously and both will have to be operating together. That can be accomplished by our IP being given to the BFT-2 system and the BFT-2 system IP being loaded on our system.
I think that’s where the army appears to be headed.
Not really clear whether this will happen or not. A lot of things depend upon budget constraints today. But March 31, we should be able to settle something hopefully before that but the army does have until March 31, that’s when our performance ends.
Joseph Nadol – JPMorgan asked: On the telecom transmission margins, you mentioned that there was some benefits from the mix. Is that within the earth stations or is that between over the horizon and earth stations?
Michael Porcelain – SVP and CFO responded: Yeah. We just had a super quarter in our satellite earth station business line so we had a very favorable product mix within the segment related to that. We also had an unusually strong favorable mix within the quarter.
Since that’s such a book-to-ship business, it’s difficult to say. Normally you get it more evenly spread out–a mix of digital versus an RF type of product mix. It was a very good quarter.
We are not really banking that into our Q2 assumption of the mix because it should kind of normalize out a little bit. It was within this segment and within our satellite earth station product line itself.