Comtech Telecommunication (CMTL) Q2 2021 Earnings Call Transcript

Comtech Telecommunication (CMTL -0.49%)
Q2 2021 Earnings Call
Mar 11, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp. second quarter fiscal 2021 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded, Thursday, March 11, 2021.

I would now like to turn the conference over to Mr. Jason DiLorenzo of Comtech Telecommunications. Please go ahead, sir.

Jason DiLorenzo -- Investor Relations

Thank you, and good afternoon. Welcome to the Comtech Telecommunications Corp. conference call for the second quarter of fiscal-year 2021. With us on the call today are, from his home, Fred Kornberg, chairman of the board and chief executive officer of Comtech; and at our corporate headquarters, Michael D.

Porcelain, president and chief operating officer; and Michael Bondi, 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 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 chairman and chief executive officer of Comtech, Fred Kornberg. Fred?

Fred Kornberg -- Chairman of the Board and Chief Executive Officer

Thank you, Jason, and good afternoon, everyone, and thank you for joining us on this call. Today, we will be discussing the results for our second quarter of fiscal 2021 and our outlook for the full fiscal year. As you see from our announcement this afternoon, our second quarter of fiscal '21 exceeded our business expectations. Our second quarter net sales were $161.3 million with an adjusted EBITDA of $18.1 million, both of which exceeded our expectations and prior guidance.

In addition, we are targeting fiscal 2021 sales to be in the range of $610 million to $620 million with an adjusted EBITDA in the range of $74 million to $76 million. Although the pandemic is, by no means, over, we continue to believe that the worst impact on our business is largely behind us. Our strategic initiatives are paying off, and we are clearly holding our own. Our pipeline remains strong.

And if business momentum continues as it is, we anticipate a book-to-bill ratio in fiscal 2021 to be in excess of 1.0. Moreover, although we are only halfway through fiscal 2021, we are already excited about fiscal 2022 as an overall domain -- demand remains strong, and we believe we are seeing a number of increased opportunities, some of them very, very large. In simple terms, we have the right products and the right technologies. If the issues from COVID-19 fade away, as we expect them to, fiscal 2022 will become a banner year for Comtech.

Now let me turn the call over to Michael Bondi, our CFO, who will provide additional commentary about the second-quarter performance and business outlook. After that, Michael Porcelain, our president and COO, will provide an update on our business, including our exciting acquisition of UHP, which we were able to close this month. Then I will come back before the -- opening the line to the questions and answers. Mike?

Mike Bondi -- Vice President and Controller

Thank you, Fred, and good afternoon, everyone. As mentioned, our net sales of $161.3 million in Q2 were similar to what we achieved in last year's Q2 and was $26.1 million higher than what we achieved in our first quarter of fiscal 2021. Of the $161.3 million of sales, 78.1% were to U.S.-based customers with 21.9% to international customers. Bookings for the second quarter were $215.8 million, and our consolidated book-to-bill ratio was 1.34.

We finished the quarter with healthy backlog of $660 million, which represents a growth of about 9% since Q1. And when you factor in the total unfunded value of certain multiyear contracts that have been awarded to us but which are not yet in our backlog, we have visibility into over $1.1 billion of potential future revenue. Our gross profit percentage in Q2 of fiscal 2021 was 34.5% as compared to the 37.5% achieved in the second quarter of fiscal 2020. The year-over-year change in gross margin was largely expected and reflects the period-to-period decrease of net sales in our Commercial Solutions segment, which historically achieves higher gross margins than our Government Solutions segment as well as the ongoing impact from COVID.

Given all events and expected level of sales, we continue to target a consolidated 35% to 36% gross margin percentage for fiscal 2021. SG&A for Q2 of fiscal 2021 was $29.5 million or 18.3% of consolidated net sales as compared to $29.4 million or 18.2% in Q2 of fiscal 2020. Our Q2 reflects a full quarter of expenses from our CGC acquisition, which closed last fiscal year on January 27, 2020. In Q2, we incurred $600,000 of restructuring costs related to the relocation of production of certain of our satellite Earth station products to a new 146,000-square-foot facility in Chandler, Arizona.

We expect another $600,000 of such costs in Q3 and another $900,000 of costs in Q4. These costs may fluctuate a bit. Turning to R&D. We spent $12.7 million in the second quarter or 7.9% of net sales, representing a decrease of $1 million from last year's Q2.

The majority of this spend was in our Commercial Solutions segment. Total stock-based compensation for the second quarter was $1.3 million, and amortization of intangibles was $4.8 million. Looking forward, we continue to expect stock-based compensation to approximate $11 million to $12 million. Given the closing of the UHP acquisition on March 2, 2021, total amortization of intangibles in Q3 and Q4 is expected to approximate $5 million per quarter, resulting in expected fiscal 2021 intangible amortization of approximately $21 million.

Our consolidated GAAP operating income was $5.4 million for the second quarter of fiscal 2021. GAAP operating income reflects the incurrence of $3.4 million of acquisition plan expenses. As described in our 10-Q, most of these expenses relate to lingering litigation from our acquisition of the GD NG-911 business. We expect to incur several million dollars of cost during Q3 2021, and we hope this matter will be resolved by the end of our fiscal 2021.

Our adjusted EBITDA was $18.1 million or 11.2% of consolidated net sales for the second quarter of fiscal 2021. Adjusted EBITDA in our Commercial Solutions segment was $16.2 million or 18.5% of related sales. And in our Government Solutions segment, it was $6.6 million or 9% of related net sales. For fiscal 2021, we anticipate our consolidated adjusted EBITDA margin to approximate 12%.

Now let me talk about interest, taxes, EPS, cash flows and our balance sheet. Interest expense was $1.4 million in the second quarter. For fiscal 2021, we expect total interest expense to approximate $7 million. Our annual estimated effective tax rate, excluding discrete tax items, is expected to approximate 17%.

On the bottom line, our GAAP net income in the second quarter of fiscal 2021 was $4.2 million or a $0.17 income per diluted share. Excluding acquisition plan expenses, restructuring costs, COVID-19-related costs and a net discrete tax benefit of $800,000 in the second-quarter, non-GAAP net income was $6.8 million or $0.27 per diluted share. Cash generated by operating activities was $10.9 million for the second quarter. As we said on earlier conference calls, we expect to generate a significant amount of positive operating cash flows during the remainder of 2021.

Our balance sheet as of January 31, 2021, includes $30.9 million of cash and cash equivalents, and our total debt outstanding was $208 million. With the reduction of our debt since Q1, our current secured leverage ratio, as defined in our credit facility, was three times. Finally, let me provide the cadence of revenues and EBITDA for the rest of the year based on what we think today. Because of the overall impact of COVID-19 and the second spike that occurred in December, we did experience some shifting of anticipated orders from Q3 to Q4 and some into fiscal 2022.

As such, we still expect our Q4 to be the peak quarter of sales for the year. Further, we continue to be mindful that additional shifts could occur as reopening plans from country to country change. Based on current thinking, we anticipate third quarter net sales to approximate $140 million with adjusted EBITDA to approximate $10 million with Q4 results filling in the rest of the year. Q4 is expected to be the peak quarter.

Now I will hand it over to Michael Porcelain. Mike?

Mike Porcelain -- Chief Operating Officer

Thanks. Good afternoon, everybody. We are really pleased with our Q2 2021 business performance. And as Mike just said, in the early December 2020 period, the world did experience a spike of COVID.

The second wave impacted many of our international end customers, a number of whom purchase our satellite Earth station technology products. Had this second wave not hit, we actually believe that Q2 bookings could have been significantly higher than the amount we ultimately reported. As a result of the second spike, we continue to conduct most of our global nonproduction-related operations using remote working arrangements, curtailed most business travel, and we have maintained social distancing safeguards in our workplaces. Also, several anticipated large projects in our government segment were delayed and have shifted into fiscal 2022.

COVID also significantly impacted our operations in the United Kingdom, forcing the complete closure of our antenna design and manufacturing center in December 2020. This facility is now reopened and beginning to resume normal operations. Although the COVID-19 pandemic is, by no means, over and additional waves could occur again, we believe that growing COVID-19 vaccination inoculations will lead to improved business conditions. The reopening of the world economy does bode well for us for the rest of fiscal '21, and perhaps more importantly, we believe it bodes well for fiscal 2022.

We believe our long-term fundamentals remain strong. And as I will explain, we continue to think that both our segments are well positioned for growth. In our Commercial Solutions segment, net sales were $87.8 million this quarter, and it was a great quarter for bookings. We received orders aggregating $179.1 million, resulting in a book-to-bill ratio of 2.04 for the segment.

The quarter included $111.6 million of initial bookings for our contract valued up to $175.1 million to design, deploy and operate next-generation 911 services for the Commonwealth of Pennsylvania. This contract was awarded to us shortly after the Q4 2020 receipt of a $54 million contract to design, deploy and operate NG-911 services for the state of South Carolina. Based on our anticipated timing of performance, we expect meaningful revenue contribution from both of these contracts to begin in fiscal 2022. Clearly, we believe we are seeing positive momentum in our public safety and location product lines.

Although Q2 2021 sales were lower than last year's Q2 sales as we worked through a previously announced transition of AT&T 911 wireless call routing solutions, business prospects are clearly bright. To date, the business impact of COVID-19 on our public safety and location technology solutions has been relatively muted. In addition to the 911 contract for Pennsylvania, we received several other notable orders in Q2, including a $2.9 million award to provide Next Generation 911 services, including Solacom Guardian call handling software to the Toronto Police Service, supporting the largest 911 center in Canada and one of the largest cities in all of North America. Toronto is the latest customer to join Solacom's growing customer base in Australia, Canada, New Zealand and the United States, and we are pleased with this international expansion.

Solacom is not our only product line doing well. We have received several location-based service orders from mobile network operators, including a one-year contract valued up to $1.6 million, to provide hosted location-based services, known as LBS platforms. We also received two other location-based orders aggregating $2.4 million from two other mobile network operators. We are building out various situational awareness data products for our 911 customers and are working on a number of exciting initiatives in the public safety, cybersecurity area.

Stay tuned as we look forward to making future announcements in this area. Now let me turn to our satellite ground station product line where things remain challenging but looking better. Net sales in this product line during Q2 were lower than the comparable three months of fiscal 2020. This product line continues to be impacted by the pandemic's effect on international customers which represent a large majority of end users for this product line.

However, at the same time, we experienced an increase in total bookings for this product line as compared to Q1 fiscal 2021. We benefited this quarter from $11.4 million in orders from the U.S. Naval Information Warfare Systems Command for our latest-generation 5650B satellite modems and firmware upgrades. We also received a $1.6 million follow-on order for Ka-band solid-state power amplifiers that use state-of-the-art gallium nitrate technology for in-flight connectivity applications.

We also received $1.5 million in orders for satellite modems and optimization equipment from a North American communication service provider. And finally, I am pleased, truly pleased to highlight that, on March 2, 2021, we completed our acquisition of UHP Networks, a leading provider of innovative and disruptive satellite ground station technology solutions. As we've said before, we believe UHP has developed a revolutionary technology, and it's transforming the growing very small aperture terminal, or VSAT, market. This acquisition closed at the very start of our Q3.

With end markets for high-speed satellite-based networks significantly growing, we are excited to extend our product offerings to include their TDMA satellite modems. The feedback we are hearing from customers has been extremely positive, and initial UHP orders are starting to come in nicely. In aggregate, our Commercial Solutions 2021 sales look like they will be similar to fiscal 2020 sales but are shaping up very nicely for 2022. Now let us turn to our Government Solutions segment, where sales were $73.5 million as compared to $65.5 million in Q2 of last year.

Bookings in our Government Solutions segment came in at $36.6 million with a book-to-bill ratio of 0.5. As everyone knows, period-to-period fluctuations in bookings are normal for this segment. Net sales of both our Mission-Critical Technologies and our High-Performance Transmission Technologies were higher this quarter. During the quarter, we benefited from performance on orders related to high-reliability, satellite-based space components and cybersecurity training solutions and ongoing performance on our contract to provide next-generation troposcatter systems in support of the U.S.

Marine Corps. During the second quarter, we did get a small benefit from the inclusion of a nominal amount of sales of X/Y antenna products that we now offer as a result of our January 2020 acquisition of CGC Technology. Notable new orders in our government segment during this quarter include orders of $11.5 million related to a new multiyear contract valued up to $235.7 million to provide ongoing system refurbishment, sustainment services and baseband equipment to the U.S. Army.

This new $235.7 million contract will support the sustainment of the U.S. Army SNAP family of ground satellite terminals to include spare parts, repairs, upgrades, refurbishments, logistics and engineering services and training. This multiyear contract includes a base year award and three one-year option periods exercisable by the U.S. Army.

We expect that additional funding will be authorized over the remaining contract period. During Q2, we also received $4.2 million of orders from the U.S. government for our joint cyber analysis cost training solutions. We received $3.5 million of contracts for solid-state, high-power RF amplifiers from a major domestic medical instrumentation provider.

We received a $2.8 million contract for high-power amplifiers from an international prime contractor to be incorporated into electronic warfare systems, and we also received a $2.7 million contract from an international oil and gas company, which will provide the first over-the-horizon troposcatter system for a floating liquefied natural gas facility, utilizing our troposcatter CS67PLUS radio modem. Understandably, we believe COVID-19 has resulted in some of our international and military customers in this segment delaying potential orders. And as Mike said, they have shifted fielding schedules from fiscal '21 to fiscal '22. At the same time, though, we continue to see strong interest from both the U.S.

military and foreign governments for our recently introduced Comtech common terminals, the world's smallest deployable troposcatter terminal. We are really excited about the future prospects of this product line. All in all, fiscal 2021 net sales for our Government Solutions segment will be similar to the amount we achieved in fiscal 2020. And prospects appear to be brightening, and we are focused on making fiscal 2022 a great year for this segment.

Now I will give you an update on some current actions that we are taking to improve our long-term adjusted EBITDA margins. First, in our Government segment, we are embarking on efforts that include the consolidation of certain administrative and operating functions in both our Florida and Maryland locations and the elimination of certain duplicate functions. In connection with this consolidation, we intend to increase our marketing and R&D efforts with respect to providing integrated satellite solutions. These integrated solutions are anticipated to include everything from our best-in-class TDMA and SCPC modems; our high-quality, solid-state power amplifiers; and our recently acquired X/Y antenna product line that can be used by the U.S.

government and other large government customers. It also includes focusing marketing efforts on our troposcatter product line, including the COMET, as I said earlier, the world's smallest deployable troposcatter terminal. We have been setting the stage for this for quite a while, and we hope this multiyear initiative will start paying dividends at some point during fiscal '22. In our Commercial Solutions segment, we expect to continue shifting production of many of our key satellite Earth station products from our existing Tempe, Arizona location to a new 146,000-square-foot facility in nearby [Audio gap] This new facility, which is located less than 10 miles from our current facilities, is expected to support our anticipated growth and the long-term business goals that we are trying to achieve for our satellite Earth station product line.

By streamlining and modernizing our operations over time, such efforts are expected to improve adjusted EBITDA margins and will allow us to support large volume orders that we believe are coming down the pike. With that said, let me turn it back to Fred, who will provide some closing remarks. Fred?

Fred Kornberg -- Chairman of the Board and Chief Executive Officer

Thank you, Mike. As I mentioned before, I'm very pleased with how our business is performing. As we enter our third quarter of fiscal 2021, I believe we are on track for a very respectable fiscal year, considering everything that is going on in this world. Further, we are looking forward to a strong prospect in fiscal 2022, including the additional opportunities which UHP will bring with their TDMA product line.

Given our business outlook, our Board of Directors declared a dividend for the second quarter of fiscal 2021 of 10% -- $0.10 per common share, payable on May 21, 2021, to shareholders of record at the close of business on April 21, 2021. Now I would like to proceed to the question-and-answer period of our conference call. Operator?

Questions & Answers:

Operator

[Operator instructions] And we will take our first question from Mike Latimore. Please go ahead. Your line is open.

Mike Latimore -- Northland Securities Inc. -- Analyst

Thank you. Yeah. Congratulations on the great results there. I guess, Mike, you mentioned that you're expanding capacity, new facility in anticipation of maybe some large orders coming down the pike.

I guess can you just elaborate on that a little bit, what product areas would that be?

Mike Porcelain -- Chief Operating Officer

Yeah. I mean we are bidding on, and as you mentioned on our last conference call, a number of large opportunities with several customers, some new and some existing. And obviously, this is a multiyear type of thing and things that you could read about in the newspapers and so forth like that. But we do see our current product line with our SCPC modems, the big shift going to 5G in the international market, the launching of LEO satellites around the world.

You add these trends up, and we just see a lot of opportunity over the next few years.

Mike Latimore -- Northland Securities Inc. -- Analyst

Got it. And then the 911 category, Next Gen 911, I guess do you have other good-sized prospects for kind of Next Gen 911 deals?

Mike Porcelain -- Chief Operating Officer

Yes, we do. We've been waiting on one particular opportunity that we've talked about as being a large opportunity that's out there that we feel pretty comfortable that we will get. We're really just waiting for the customer to work through legislative funding that they need to do on their side. So that's a contract we ultimately expect to get I would say sooner rather than later.

But obviously, it hasn't come yet, but we think that's on the horizon. And yes, there are a number of bids out there that we are actively working on that we hope that over the next 12 to 18 months that we could report some good news on.

Mike Latimore -- Northland Securities Inc. -- Analyst

OK. Great. And just last one, I guess, on the 911 business. Kind of as you've had a number of large contracts, maybe add some more and then kind of by -- I guess by the December time frame, you'll be lapping the -- effectively lapping the AT&T deal.

So I guess what kind of growth rate do you think this kind of normalizes to over time here?

Mike Porcelain -- Chief Operating Officer

It's -- when you use the word normalize and you spread that over a number of years, it could be maybe in the mid- to high single digits. But the business is lumpy. You get a contract, you have to do some work, and then you get straight-line for a while. So as you get each contract, the revenue base will grow.

I don't know if it translates into a specific annual growth rate, but the numbers that we expect to achieve will hopefully grow that product line over the course of a number of years.

Mike Latimore -- Northland Securities Inc. -- Analyst

OK. Great. Thanks a lot.

Operator

Our next question will come from Asiya Merchant. Please go ahead. Your line is open.

Asiya Merchant -- Citi -- Analyst

Great. Thank you very much, and congratulations on the quarter as well. I think Fred mentioned like a banner you're shaping up for 20 -- for the next fiscal year. You guys obviously are embarking on a bunch of stuff that you guys already talked about.

Should we expect like revenues to exceed where they were back a couple of years ago? And even before the pandemic, you guys were talking about somewhere in the range of $715 million, $720 million, maybe even a little bit higher than that for the business. Is it fair to assume that as you get recovery and as you embark, plus you have the acquisition as well, which should contribute a little bit, that revenues could approach those levels?

Mike Porcelain -- Chief Operating Officer

Oh, boy. I hope you're right. But I would say to you, look, it's very early, and it's -- we're seeing just what we believe to be the start of the reopening in the United States. Europe, for the most part, from what we see still is significantly closed in areas, and economic activity remains suppressed.

There are definitely some terrific signs. If you look at the first six months of this fiscal year, we had a year over year 18% in total bookings increase. So we're seeing good signs of it. Q2 was nice.

But at the same time, we've seen things shifting around. So I think our take here is we want to see how the next six months play out this year. But from every sign we're seeing, 2022 is looking good. It's certainly looking better than 2021.

I think that statement, we feel good to say, but we're not going to put numbers on it yet. It's just way too premature.

Asiya Merchant -- Citi -- Analyst

Great. And then you guys talked a little bit about expansion from all these efficiencies that you're driving toward. Can you level set, like after hitting margins where they are in fiscal '21, how we should think about as an higher revenue run rate, the EBITDA margin?

Mike Porcelain -- Chief Operating Officer

Yes. Look, I mean, right now, we do believe margins can be improved. If you look at what we did back in 2019, I would say that's the next step we got to get back to. So no matter what the revenue is, we'd like the margin to kind of go back to at least the 2019 level, where we had increase in revenues and increased margin.

We think we could do better than that, but it's going to take some time, and we're going to work through the facility move in the second half of the year and the streamlining of our efficiencies in our government segment. And as we think about again next year, the hope is between incremental revenue and higher -- better margins, yes, we think we'll -- I'll use my phrase. We'll think we'll have a banner year next year. But the number we're targeting is higher than the 12% or so that we expect to achieve, obviously, from that perspective.

But again, these things are complicated, and we're going to do things at a relatively slow pace. But we're hoping to get back to margins, and we like that first step to get back to maybe the 13%, 14% range is the first step that we'd like to achieve.

Asiya Merchant -- Citi -- Analyst

OK. And was there anything between the fiscal 2Q versus fiscal 3Q? Why fiscal 3Q was guided down? I believe, sequentially, it's been like an up quarter for you guys, but maybe there is something in terms of whether it was demand or revenue that got pulled into the fiscal 2Q versus fiscal 3Q.

Mike Porcelain -- Chief Operating Officer

Yes. The way we're seeing this year, and again, we've always said it's very difficult to compare our business. But at the end of the day, if you look at the midpoint of our guidance, our fiscal year, for the most part, is going to be very similar to last year in terms of Q2, Q3. Last year, in Q3, we did $135 million of total revenue.

And Mike said here, we're going to do about $140 million. So it's really just timing. We had a big shift in fielding schedules in the U.S. government in Q2 of this year going to Q4 and some shifting into next year.

So at the end of the day, it's really timing.

Asiya Merchant -- Citi -- Analyst

OK. Thank you

Operator

[Operator instructions] And we will take our next question from Chris Sakai. Please go ahead. Your line is open.

Chris Sakai -- Singular Research -- Analyst

Hi, guys. All right. Well, I just had a quick question. I know it was Mike went over what Q3 net sales to be $140 million? And then was it EBITDA -- was that? I didn't get the last part.

What was that?

Mike Bondi -- Vice President and Controller

Along with the $140 million, we're expecting EBITDA to be about $10 million in Q3, and then we're holding for the year at the $75 million. So obviously, everything shifts into Q4.

Chris Sakai -- Singular Research -- Analyst

OK. All right. Great. And then let's see.

I just want to get a sense of the UHP acquisition. I mean how much do you guys think it would contribute to revenue right off the bat? And then -- or how many -- is it going to take into 2022 to really start to see things?

Mike Porcelain -- Chief Operating Officer

Yes. I mean, obviously, it's not a material enough number for us to talk about. And given the nature of the competitiveness of this market, we're not going to give out a number. We can tell you that this has been a long time coming.

If you might remember, we announced this acquisition first in November of 2019, so it's been more than a year plus. Customers are waiting for this thing. And finally, now that Comtech has closed on the acquisition, we can start talking to our customers about what the road maps are and how things are going to be fitting now that we know that we have actually closed the transaction. So I could tell you the reception from our customers is very well received.

Initial orders have started to come in based on people just wanting to move forward. UHP, if you look at some of their prior announcements that they put out by themselves, I would refer you to those announcements for what's out there in the marketplace. But we think it's going to add certainly year-over-year growth to that product line, and we're delighted to have them.

Chris Sakai -- Singular Research -- Analyst

OK. Great. And then I just wanted to ask a question about -- so for instance, just -- I know the NG-911 contract with the Toronto Police Department. I wanted to see, so what -- you mentioned the maintenance period.

For how long is that? And then when would you expect renewal there with them?

Mike Bondi -- Vice President and Controller

Chris, I'll take that. Those contracts tend to be the first year like an implementation year where you're putting in the equipment and then usually have a tail of maybe two to three years. And as we always say, once you get there, the cost of switching is high, so you're likely to get the optional renewals from the customer. So -- but I believe that contract is at least two to three years.

Chris Sakai -- Singular Research -- Analyst

Oh, OK. So what -- I guess, as far as the renewals go, I mean, is it -- and the ones that you've already had, what's the percentage of them renewing?

Mike Porcelain -- Chief Operating Officer

It's pretty high. We've been -- Solacom's been part of Comtech for a couple of years right now. And to be quite honest with you, I'm not sure we've lost a contract on a renewal since I've been here. So it's definitely probably close to 100%.

Maybe there's a few small ones maybe that I'm not even aware of. But our customer retention rate nearly has to be 100%. And we're certainly picking up market share, as you can see, based on this recent win in Toronto and some of the awards that we've gotten over the last six months, so pretty high.

Chris Sakai -- Singular Research -- Analyst

Great. And last one, I guess, I know you guys signed -- had a big deal with the Army. Do you see any sort of -- anything like that in the future coming out?

Mike Porcelain -- Chief Operating Officer

Yes. There's a number of programs that we're working through. Again, Army programs are very difficult to predict. Nothing to report to you today, and stay tuned.

Chris Sakai -- Singular Research -- Analyst

OK. All right. Great. Thanks.

Operator

Our next question comes from Joe Gomes. Please go ahead. Your line is open.

Joe Gomes -- NOBLE Capital Markets -- Analyst

Thank you. Let me add my congratulations for the nice quarter also. Just real quick back, if we could circle back for a minute here on UHP. You weren't able to get the Russian assets there.

I was just wondering if you could give us just a little color on what happened there because that would seem to have been the large hang-up for the approval process for acquiring the entire company with something that, in the past, you had said you really wanted to get those assets. So if you could talk a little bit about that, I'd appreciate it.

Mike Porcelain -- Chief Operating Officer

Sure. We -- from the day we first announced it in November of 2019, the main part of UHP was based in Canada, and that clearly was the gem of the company. At the same time, hey, we'd love to expand sales in Moscow. So you have to go through a regulatory approval process in Russia to do that.

And at the end of the day, as you kept seeing in our press releases, boy, it sure took a long time. And we came to the conclusion sometime in December and January of this year that we don't want to wait anymore. We've been waiting for a long time. COVID certainly delayed things, everything from their Prime Minister, who, unfortunately, developed the COVID -- COVID thing.

I mean you can name it one thing after another, but we ultimately decided let's move forward with the transaction that we have now. We obviously -- as we said in the press release, we have the right to market into the region in Russia, and we expect to do really well. And so at the end of the day, we just really don't want to wait anymore. We want to move forward and move forward with our business plans.

Joe Gomes -- NOBLE Capital Markets -- Analyst

OK. And now that, that is complete, what does the acquisition pipeline look for you guys? Are you kind of pulled back here and let's just focus on what we've got? Or are you still out there looking for additional opportunities on the acquisition front?

Mike Porcelain -- Chief Operating Officer

I think we're just -- at this point, I'd say our primary focus right now is to execute. That's what I would say. We have so many good opportunities internally that we see. And given the move and the streamlining of operations, that is our immediate focus.

From a large acquisition, do I expect us to do a $500 million acquisition tomorrow? No. Are there some other smaller type things that are out there that we're thinking about and talking to? Yes. But that's the way I would describe the way we're thinking about it.

Joe Gomes -- NOBLE Capital Markets -- Analyst

OK. And one last one, kind of a big picture here. Michael, maybe if you could talk a little bit about -- Fred, you, too, if you wanted to. I mean you started off saying you believe the worst of COVID is behind us.

But then in your commentary, you mentioned how you continue to see stuff shifted to the right. In the press release, you talked about because of COVID, you weren't going to provide some type of guidance and everything. So I'm just trying to square that circle, so to speak. If the worst is behind us, why are we still seeing some of these things being shifted? Or is it just a near-term impact or lingering, so to speak, of COVID? But as you mentioned, the orders are coming in strong.

I'm just looking a little for a little more color or detail there. Thank you.

Fred Kornberg -- Chairman of the Board and Chief Executive Officer

I think let me take that one. I think what we've seen is a lot of shifting to the right. And what does that mean? Some shifting is into the third and fourth quarter. Some shifting is actually into fiscal 2022.

Besides the shifting of the requirements, there's also an actual request by some customers just not to ship. Even though we have some orders that we could ship, we can't ship. Customer doesn't want. So there's multiple reasons out there because of COVID, various customers taking various positions.

Now we think the COVID situation should be over, hopefully, this summer based on the vaccines being available. And hopefully, the world will get inoculated and go back to normal. Could that happen in a short period of time? We hope so. We certainly don't know.

We don't know. Could there be another spike? Yes, there could. But for the moment, what we see is we see a start of, at least dialogue, at least dialogue in various programs that we just shut down during that period. Specifically, the international area was just impossible to do any business, and that's where our satellite business was mainly operating in.

And I think having -- that's hopefully solved. That will put us, hopefully, back into, at least, the 2019 type of business situation internationally. The other thing that I might mention is, as Mike mentioned, the UHP acquisition just took us so long, so long. We were hoping to get, obviously, the Russian business with it.

But in the end, we just made a decision that the world's business, especially with the market opening up, should come first. And we pulled the trigger and we acquired the Canadian operation and not the Russian operation. We still think we can perform in Russia and do well. However, we don't want to wait anymore on the market and the rest of the world.

Now UHP gives us products and technology and a platform to operate within a TDMA market. As everyone knows, we've been operating in the SCPC market, which is the long channel but smaller market. The low-channel TDMA market, we haven't even been operating, and that is three times as big as the SCPC market. So even though it's a small acquisition, I think with our sales force and our remaining product lines, combined with UHP, I think will enable us to really attack the larger market, TVA -- I'm sorry, COVID-19 notwithstanding.

Joe Gomes -- NOBLE Capital Markets -- Analyst

Great. I appreciate that. Thanks for taking the questions, guys.

Fred Kornberg -- Chairman of the Board and Chief Executive Officer

Thanks, Joe.

Operator

[Operator instructions] We will take our next question from Kyle McNealy. Please go ahead. Your line is open.

Kyle McNealy -- Jefferies -- Analyst

Hi ,guys. Thanks a lot for the question. Wondering if you could give us a sense for the current growth rate of satellite ground station products. We heard that it's positive in the January quarter, but can you give us anything more precise than that in terms of a number around it? What was it last quarter? Has it gotten better this quarter?

Mike Porcelain -- Chief Operating Officer

Yes. Kyle, I know you always try to pin this down on numbers as precise as you do. But right now, it's -- we view the business as probably a low single-digit growth business on an annual basis. And then there's these large projects on top.

And we just can't tell you when those large projects could come in and what those numbers may be. But from a modeling perspective, we think the trend, putting COVID aside and the timing issues of it, we think that business is about low single-digit market for us.

Kyle McNealy -- Jefferies -- Analyst

OK. Great. And next one is around the Heights platform, and it kind of connects to the last question that was asked. I know the idea there was that you could cover some traditional TDMA use cases and cover some aspects of the TDMA segment of the market.

Wondering if you have any kind of sense for what kind of penetration you're getting into use cases that would have otherwise selected TDMA but may have gone with Heights. And what's the mix of TDMA-like applications versus SCPC for your Heights deals so far?

Mike Porcelain -- Chief Operating Officer

We don't really see any cannibalization, if you will, between the Heights business and what the UHP business brings to the table. Clearly, Heights was getting into higher -- call it, the mid part of the market where TDMA or the volume of data was higher than, call it, low-end TDMA. But UHP really allows us to go into the small enterprise market and multiple terminals. So you're talking about thousands and thousands of terminals with, call it, lower data rates.

That's the market that we were never in. And Fred mentioned it to you that the market is probably three to four times the size of SCPC. And again, not naming other competitors out there, but we just didn't play in that market because we didn't have a product in there. But as the Internet protocol continues to expand in rural areas around the world and the need for transmission of 4G and 5G is rolled out in remote areas of the world, the only really way you could do it is satellite.

And so we really have a system, a TDMA-based system that could be worked in that areas. And then when you get to the large cities, which is where we have traditional strength, that's where our SCPC modems come. And so we believe we're going to be the only company in the world to be able to offer a comprehensive integrated solution to our customers over time. You want to go into the rural areas, the TDMA UHP product is a good product.

As that volume increases and as the sophistication of that network increases, you might go to a Heights system. And we're going to -- that's what our customers are excited about that they have options, and they have options to work with one customer with a strong brand and Comtech being a much bigger company than UHP, that, we think, is going to give a big uplift to people that were making purchasing decisions of which brands to go with. We, Comtech, didn't have one before. Now we do.

Kyle McNealy -- Jefferies -- Analyst

OK. That's great. And given the strong bookings and backlog this quarter and the overall January quarter results, we would have thought we'd have more confidence in the full year. What's holding you back there in terms of changing the full-year guide, taking it up at all? Is it really driven by the pushouts in the government segment? Are they -- I guess you're suggesting maybe slower through the Q3 and Q4 period.

Mike Porcelain -- Chief Operating Officer

Yes. I mean it's certainly not a lack of confidence. We're just as confident as we were before, if not even more. And to your point, the backlog increased almost 9% in Q2 versus Q1.

So we do have a shifting of products from Q3 to Q4 and Q4 into 2022. So we're just as confident and I would say more confident about 2022 than we were just three months ago. So look, you read the newspapers and you see starting the reopening in the United States. It's not like that in the international world.

They don't have the vaccines yet in parts of Africa or in parts of South America and Latin America, so they're a couple of months behind where the U.S. is. We think it's going to break free, and a post-pandemic recovery is going to happen, and that will make us do better. But we're pretty confident on where we sit.

And if shifts happen, more shifts happen, we just deal with them. And maybe we have some shifts from 2022 into -- back into 2021. As Fred mentioned, we did have customers that have said, "Don't ship. We don't want people in our facility." Maybe they start telling us to bring this stuff today.

We don't know. We'll just deal with that as it comes through, and that's how we manage the business.

Kyle McNealy -- Jefferies -- Analyst

All right. Thanks very much.

Operator

And we have a question from Chris Quilty. Please go ahead. Your line is open.

Chris Quilty -- Raymond James -- Analyst

Thank you. I wanted to follow up on UHP and was hoping you could talk a little bit about both the branding strategy of how you intend to brand and I guess channel as well as the manufacturing. I mean how do you intend to fold it in and position that product line, which is a very different product line than your traditional SCPC products?

Mike Porcelain -- Chief Operating Officer

Look, from a manufacturing perspective, it's clear we have the skill to do modem manufacturing. So I would say to you it's very much like our existing product set. To build a modem, we know how to do that pretty well. So we're going to obviously build those modems where we can in the lowest-cost space.

And whether that's through an outsourced manufacturer or doing it in our new facility in Chandler, that's our strategy. In terms of the brand, everybody knows Comtech in our space, and everybody knows UHP. The reaction to our customers, just to keep it simple, is a Comtech UHP product. People know the UHP is revolutionary TDMA technology.

They know what it is. I think customers in the past had concerns over the small-nature company that UHP was. Could they provide the support and service necessary? You put that Comtech name in front of it, that changes the game for those customers. So the simple branding strategy right now is Comtech UHP.

As we look to the future, might we tweak that a little bit? Maybe. But right now, that's our branding strategy, and we think it's going to serve us well.

Chris Quilty -- Raymond James -- Analyst

Got you. And how does adding the UHP line impact your R&D strategy in terms of product areas that you want to invest in or end market applications? And does it allow you or cause you to shift your R&D focus in any way?

Mike Porcelain -- Chief Operating Officer

Well, we're really focused on integrated solutions and network solutions, whether it be Heights or whether it be UHP and how those products will work together. That is an area of focus, but I don't see any significant change in how we think about R&D. We definitely take a long-term view, and we're going to deliver a product that our customers want.

Chris Quilty -- Raymond James -- Analyst

Good. Thank you.

Operator

And we do not have any further questions in the queue. I will turn it back over to the speakers.

Fred Kornberg -- Chairman of the Board and Chief Executive Officer

Thank you very much. That's the end of today's call. Thanks again for joining us today, and we look forward to speaking with you again in June.

Operator

[Operator signoff]

Duration: 56 minutes

Call participants:

Jason DiLorenzo -- Investor Relations

Fred Kornberg -- Chairman of the Board and Chief Executive Officer

Mike Bondi -- Vice President and Controller

Mike Porcelain -- Chief Operating Officer

Mike Latimore -- Northland Securities Inc. -- Analyst

Asiya Merchant -- Citi -- Analyst

Chris Sakai -- Singular Research -- Analyst

Joe Gomes -- NOBLE Capital Markets -- Analyst

Kyle McNealy -- Jefferies -- Analyst

Chris Quilty -- Raymond James -- Analyst

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