CMTL
#Sure, <UNK>.
So I would tell you to think about our gross margins more in aggregate than by segment because we do have some inter-company manufacturing that goes on between the segments.
Just a couple of comments.
On the Government Solutions segment side, we are actually likely to see a downdraft in gross margins because of the wind down of the BFT intellectual property thing, which by Q4 will no longer be in our financial results.
So that's a $2.5 million drop, if you will.
That's the negative.
On the good hand, we think we'll be able to absorb it in the numbers given the growth in the other areas and bookings and margin profiles that we're seeing in our backlog.
We would love to get to 40% gross margins in total.
That's certainly a near term target for us, and we obviously need the bookings and execution to come in, but we did do 38% and change this quarter, so it's not such a stretch for us to get to 40%.
In our Commercial Segment, <UNK>, we have pretty good contribution margins.
So when we get incremental revenue it's even possible that we can pick up almost 45% to 50% contribution margins most of that does appear in the gross margin line.
So the way to think about our business model is incremental revenue drops to the bottom line real quickly and, if you think about the way we're giving you our projections, you kind of see that in Q4 is that in incremental revenue we expect our Q4 revenue to be the peak quarter of revenue for this year and resulting adjusted EBITDA margin for the most part is coming from that incremental revenue.
Yeah, I mean, I think when you say the energy side <UNK>, I'm assuming that you're seeing what we're seeing on the international market side in our satellite earth station business.
We do see some continued challenging conditions in the international markets.
Although, oil prices have rebounded, the dollar continues to be strong overseas.
So from that perspective our international market is still struggling.
On the other hand there's been this huge pent up in demand that's being built as a result of the Heights product so we hope that the Washington, D.
C.
satellite show, which is really, it's one of the premiere shows in our specific space, will ultimately result in the orders and based on the feedback we're hearing, we seem to be on track for that to occur.
In terms of the manufacturing vertical, I'm assuming you're referring to somewhat of the connected car market that we're involved in with the enterprise space.
And, again, it's a longer term play, the manufacturing vertical using that phrase is not a material portion of our business, but it is a growth area that we are focusing in on and that will take some time to play out.
Sure.
Yeah.
The revenue in the 9-1-1 portion of the business that we call safety and security is growing and it's growing very nicely.
During the quarter, in addition to some contract renewals that occurred during the quarter, we actually did get some additional work related to the state of Washington as that contract scope continues to increase, which is one of the nice things about these large contracts.
As you get more deeply involved with the customer, things become bigger and more important and you can get to pick up some additional work.
So yeah, the revenue is growing and the opportunities are growing and we see some good things ahead of us.
The answer is yes, and it is reflected in our ---+ in our guidance and our thinking.
So yeah, you'll see that really in our Q4, which is one of the reasons that the Q4 revenue and adjusted EBITDA is expected to be higher.
But you know that's stuff that we have in our backlog and based on the timing of the deployment and the way the revenue recognition works, we should see that benefit in Q4.
Yeah.
We are expecting ---+ I mean, we did $13.5 million of EBITDA in Q2.
We're expecting just a few million dollar increase in Q3 with significant, significant EBITDA in our Q4 as the revenue comes in.
Well, we've kind of thrown out numbers, Glen, of somewhere between $5 million and $10 million and we've not been specific about it because we obviously didn't want the other party to get a sense of how we were looking at the cases.
So we are ---+ we are down to sort of one case.
And it obviously will be on the lower side of that ---+ that number is the way to think about it.
But there's definitely a drop in spending from the first half to the second half.
I think generally ---+ generally I think we're partnered with, as you mentioned, partnered with Motorola and GD.
And typically, the third ---+ the third bidder is usually someone like AT&T.
So we kind of have two-thirds ---+ two-thirds of a chance of winning these contracts.
I think and all of these areas in the pipeline, you can assume that all three of those prime contractors are still involved.
There are competitive advantages and they're different for each of our partners.
But I think it's not a ---+ it's not a total let's say qualified bid and then low price.
It is ---+ each bid is different.
Yes.
There really is optional renewals and it's really on a year-to-year basis.
Sure.
So, <UNK>, yeah most of the revenue assessment change that we've made is really in the government side of the camp.
We are expecting our sales in Q3 to be slightly lower than Q2 and that will be in the government segment.
We are expecting our commercial segment to be the same or slightly higher in Q3 with incremental increases in Q4, most of that coming from the Heights products that we are expecting to deliver in Q4, along with the in-flight entertainment amplifiers that we have in our backlog.
So the backlog is sort of supporting a trajectory, if you will, of our commercial business sort of being slight ---+ similar to what we did in Q2, slightly higher in Q3 with significant increase in Q4.
Our government side is kind of staying slightly lower in Q3 with a big pick up in Q4.
Again, a lot of that is supported in backlog already, given that we have $453 million in our backlog at the moment.
We expect obviously incremental bookings in Q3, that $20 million we're expecting shortly, and there's other stuff that we expect to occur in 2017 that will also result in revenue in Q4.
Sure.
Again, same comment and, again think about it from an EBITDA perspective.
Our EBITDA in our Government Segment will be impacted as that IP fee sort of rolls off but offsetting that will be the incremental revenue from these contracts in Q4.
So again from a segment perspective, we're expecting a drop in the EBITDA in our Government Segment in Q3 before it increases to Q4 with Q4 being our peak.
On the commercial side, we are expecting sequential, sequential growth in EBITDA.
So even though we're expecting our revenue in our commercial segment to be the same or slightly higher in Q3, with increase further if Q4 and EBITDA will follow along that same trajectory.
During the quarter, we've also made various cost reductions and so those cost reductions are not yet reflected in our Q2 results and you'll see that come into play in Q3 and Q4 which is why, I think I said earlier in the call, if you think about our Q3 in total, we did $13.5 million of EBITDA in Q2, you can think about Q3 being higher by a couple million on the EBITDA line in aggregate with the rest coming in Q4, Supported by our backlog and the timing of the stuff that we've been talking about.
Well, I think the way I would say it this way is we still need some time for it to shake out.
We are targeting as <UNK> mentioned 12% adjusted EBITDA margins in total.
If you look at it by segment, our Commercial Segment did 15.5% adjusted EBITDA in Q2.
We think with incremental revenue and incremental profit, we can get that close to 20%.
And that's not a crazy number because if you look at what we did in Q4 of 2016, we did 19.3% adjusted EBITDA margins.
We do need the revenue to come in to achieve that.
But that's the way we're thinking about it.
In the Government Solutions segment, and, again there's lots of blended mix, could we get to a 10% margin in the long-term basis.
That's not unreasonable.
And so obviously on a longer term basis, we would ---+ we would be ---+ we would certainly say we would like to be higher than 12% but we're not going to put out a number at this point.
We just need some of these contracts to come in and kind of still work through our cost reductions before we get more specifically.
But in aggregate, we have a longer term plan to achieve higher than 12% adjusted EBITDA margins but that's the number we're shooting for right now and we'd like to achieve that first.
I'd like to thank everyone for joining us today and we look forward to speaking with everybody again in June.
Thank you very much.
