Release Date: June 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successfully completed a $222 million refinancing, strengthening the balance sheet and extending debt maturity to 2028.
- Secured a significant $120 million contract with the Commonwealth of Massachusetts for the next-generation 911 public safety system.
- Continued to win new business, including a $48 million contract extension with the state of Washington and a $13.5 million award from the U.S. Army.
- Added experienced leadership, including Jeff Roberts as President of the terrestrial and wireless business, enhancing operational capabilities.
- Maintained a strong backlog of $653.4 million, providing revenue visibility and stability for future periods.
Negative Points
- Net sales decreased to $128.1 million from $134.2 million in the previous quarter, reflecting challenging business conditions.
- Gross margins declined to 30.4% from 32.2% in the previous quarter, indicating pressure on profitability.
- Reported a GAAP operating loss of $3.5 million, including $2.5 million in CEO transition costs.
- Interest rates on the new credit facility are higher, with a blended rate of approximately 14%, compared to 10% under the old agreement.
- Supply chain disruptions and liquidity issues temporarily slowed down the receipt of components and delivery of finished products, impacting revenue.
Q & A Highlights
Q: Congrats on the refinancing. Did White Hat and Magnetar contribute any additional funds over what they had done previously? Also, who received the 1.4 million warrants attached to the deal, and how does the new blended 14% rate compare to the old facility?
A: The warrants went to the lenders as part of the deal, not to Magnetar or White Hat. Magnetar and White Hat did not put any new cash into their investment. The previous rate was about 10%, so there was a step-up reflective of the new deal. (Michael Bondi, CFO)
Q: How long will it take to resolve the supply chain issues and get back to a normalized production rate?
A: We hope to reset the supply chain and return to normal production within a three-month timeframe. (John Ratigan, CEO)
Q: Can you provide an update on the global field services contract that was under protest?
A: The stop-work order was lifted last Thursday, and we anticipate taking over the contract soon. We expect meaningful revenue contributions starting in 2025. (John Ratigan, CEO; Michael Bondi, CFO)
Q: When will the temporary CEO tag be removed?
A: The Board of Directors is conducting a search, and you would need to speak to our chairman for specifics. However, I am committed to making it difficult for them to find someone better. (John Ratigan, CEO)
Q: Does the entire $140 million from the Massachusetts contract go into bookings for the July fourth quarter?
A: Yes, it will be a Q4 booking, but the option year will not be included in the backlog at this point. (Michael Bondi, CFO)
Q: Can you explain the timeline and mechanisms for reducing unbilled receivables, particularly for troposcatter products?
A: We are starting to get components and make deliveries, which should clear unbilled receivables over the next few months. Significant deliveries began at the end of May and will continue through August, with the last deliveries expected in early September. (Michael Bondi, CFO; John Ratigan, CEO)
Q: How will you stay in compliance with the new covenants, considering the current run rate?
A: Liquidating unbilled receivables is key. We expect these to unwind over the summer, generating cash flows. Our growing backlog also supports compliance. (Michael Bondi, CFO)
Q: How much of the business disruption is due to supply chain issues versus lost business?
A: The majority is due to supply chain issues. We were delayed in getting key components, but now that the refinancing is complete, we can prioritize manufacturing and deliveries. (Michael Bondi, CFO; John Ratigan, CEO)
Q: What is the timeline for the EDM modem development and revenue expectations?
A: Prototypes are due in September, with significant revenue expected towards the end of fiscal year 2025. This aligns with our strategy of digitalizing the satellite industry. (John Ratigan, CEO)
Q: What is the pricing like on the 911 renewals?
A: These were competitive awards, and while we won't get into specifics, we did not see massive discounts. The contracts offer opportunities for margin expansion. (Michael Bondi, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
