What changed in this filing

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Item 1. Financial Statements

2021-03-11 compared with 2020-12-09 · 318 added, 208 removed, 755 unchanged (41% of the section changed)

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CONDENSED CONSOLIDATED BALANCE SHEETS

Assets October 31, 2020 July 31, 2020

Assets January 31, 2021 July 31, 2020

Current assets:

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authorized 100,000,000 shares;

issued 40,043,753 shares and 39,924,439 shares at October 31, 2020 and July 31, 2020, respectively

issued 40,059,977 shares and 39,924,439 shares at January 31, 2021 and July 31, 2020, respectively

4,006,000 3,992,000

2 unchanged sentences

905,133,000 991,148,000

Treasury stock, at cost ( 15,033,317 shares at October 31, 2020 and July 31, 2020)

Treasury stock, at cost ( 15,033,317 shares at January 31, 2021 and July 31, 2020)

( 441,849,000 ) ( 441,849,000 )

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended October 31,

Three months ended January 31, Six months ended January 31,

2021 2020 2021 2020

Net sales $ 161,292,000 161,654,000 296,510,000 331,921,000

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50,278,000 54,368,000 186,202,000 108,675,000

Operating (loss) income ( 85,716,000 ) 9,260,000

Operating income (loss) 5,402,000 6,234,000 ( 80,314,000 ) 15,494,000

Other expenses (income):

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Interest (income) and other ( 66,000 ) 6,000 — ( 71,000 )

(Loss) income before (benefit from) provision for income taxes ( 88,079,000 ) 7,533,000

Income (loss) before (benefit from) provision for income taxes 4,050,000 4,612,000 ( 84,029,000 ) 12,145,000

(Benefit from) provision for income taxes ( 155,000 ) 1,117,000 ( 2,394,000 ) 2,262,000

Net (loss) income $ ( 85,840,000 ) 6,388,000

Net (loss) income per share:

Net income (loss) $ 4,205,000 3,495,000 ( 81,635,000 ) 9,883,000

Net income (loss) per share:

Basic $ 0.17 0.14 ( 3.22 ) 0.40

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

THREE MONTHS ENDED OCTOBER 31, 2020 AND 2019

Three months ended January 31, 2021 and 2020

Common Stock Additional

1 unchanged sentence

Shares Amount Shares Amount

Balance as of October 31, 2019 39,402,226 $ 3,940,000 $ 551,316,000 $ 424,237,000 15,033,317 $ ( 441,849,000 ) $ 537,644,000

Equity-classified stock award compensation

— — 1,238,000 — — — 1,238,000

Proceeds from exercises of stock options

6,100 1,000 161,000 — — — 162,000

Proceeds from issuance of employee stock purchase plan shares

9,875 1,000 263,000 — — — 264,000

Forfeiture of restricted stock ( 12,652 ) ( 1,000 ) 1,000 — — — —

Net settlement of stock-based awards

23,506 2,000 ( 688,000 ) — — — ( 686,000 )

Common Stock issued for acquisition of CGC Technology Limited ("CGC") 323,504 32,000 11,543,000 — — — 11,575,000

Cash dividends declared, net ($ 0.10 per share)

— — — ( 2,432,000 ) — — ( 2,432,000 )

Accrual of dividend equivalents, net of reversal ($ 0.10 per share)

— — — ( 57,000 ) — — ( 57,000 )

— — — 3,495,000 — — 3,495,000

Balance as of January 31, 2020 39,752,559 $ 3,975,000 $ 563,834,000 $ 425,243,000 15,033,317 $ ( 441,849,000 ) $ 551,203,000

Balance as of October 31, 2020 40,043,753 $ 4,004,000 $ 569,422,000 $ 328,575,000 15,033,317 $ ( 441,849,000 ) $ 460,152,000

Equity-classified stock award compensation

— — 1,287,000 — — — 1,287,000

Proceeds from issuance of employee stock purchase plan shares

15,857 2,000 185,000 — — — 187,000

Net settlement of stock-based awards

367 — ( 3,000 ) — — — ( 3,000 )

Cash dividends declared, net ($ 0.10 per share)

— — — ( 2,495,000 ) — — ( 2,495,000 )

Accrual of dividend equivalents, net of reversal ($ 0.10 per share)

— — — ( 49,000 ) — — ( 49,000 )

Net income — — — 4,205,000 — — 4,205,000

Balance as of January 31, 2021 40,059,977 $ 4,006,000 $ 570,891,000 $ 330,236,000 15,033,317 $ ( 441,849,000 ) $ 463,284,000

See accompanying notes to condensed consolidated financial statements.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Six months ended January 31, 2021 and 2020

Common Stock Additional

Paid-in Capital Retained Earnings Treasury Stock Stockholders'

Shares Amount Shares Amount

Balance as of July 31, 2019 39,276,161 $ 3,928,000 $ 552,670,000 $ 420,333,000 15,033,317 $ ( 441,849,000 ) $ 535,082,000

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107,326 10,000 ( 3,469,000 ) — — — ( 3,459,000 )

Common stock issued for acquisition of CGC 323,504 32,000 11,543,000 — — — 11,575,000

Cash dividends declared, net ($ 0.20 per share)

3 unchanged sentences

— — — 9,883,000 — — 9,883,000

Balance as of October 31, 2019 39,402,226 $ 3,940,000 $ 551,316,000 $ 424,237,000 15,033,317 $ ( 441,849,000 ) $ 537,644,000

Balance as of January 31, 2020 39,752,559 $ 3,975,000 $ 563,834,000 $ 425,243,000 15,033,317 $ ( 441,849,000 ) $ 551,203,000

Balance as of July 31, 2020 39,924,439 $ 3,992,000 $ 569,891,000 $ 417,265,000 15,033,317 $ ( 441,849,000 ) $ 549,299,000

11 unchanged sentences

— — — ( 191,000 ) — — ( 191,000 )

Adoption of current expected credit loss standard (see Note (3)) — — — ( 215,000 ) — — ( 215,000 )

Adoption of current expected credit loss standard — — — ( 215,000 ) — — ( 215,000 )

Net loss — — — ( 81,635,000 ) — — ( 81,635,000 )

Balance as of October 31, 2020 40,043,753 $ 4,004,000 $ 569,422,000 $ 328,575,000 15,033,317 $ ( 441,849,000 ) $ 460,152,000

Balance as of January 31, 2021 40,059,977 $ 4,006,000 $ 570,891,000 $ 330,236,000 15,033,317 $ ( 441,849,000 ) $ 463,284,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended October 31,

Six months ended January 31,

Cash flows from operating activities:

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Amortization of deferred financing costs 368,000 369,000

Estimated contract settlement costs — 230,000

Changes in other liabilities ( 3,756,000 ) ( 2,067,000 )

Loss on disposal of property, plant and equipment 29,000 17,000

Provision for (benefit from) allowance for doubtful accounts 204,000 ( 626,000 )

Provision for excess and obsolete inventory 2,444,000 932,000

Deferred income tax expense 816,000 2,286,000

Deferred income tax (benefit) expense ( 287,000 ) 2,912,000

Other ( 225,000 ) ( 32,000 )

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Cash flows from investing activities:

Payment for acquisition of CGC, net of cash acquired ( 750,000 ) ( 11,165,000 )

Purchases of property, plant and equipment ( 3,686,000 ) ( 2,508,000 )

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Cash flows from financing activities:

Net borrowings of long-term debt under Credit Facility 67,500,000 4,000,000

Net borrowings (payments) of long-term debt under Credit Facility 58,500,000 ( 7,000,000 )

Remittance of employees' statutory tax withholding for stock awards ( 2,740,000 ) ( 5,246,000 )

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Cash and cash equivalents at end of period $ 30,934,000 46,471,000

See accompanying notes to condensed consolidated financial statements (Continued)

See accompanying notes to condensed consolidated financial statements.

COMTECH TELECOMMUNICATIONS CORP.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three months ended October 31,

Six months ended January 31,

Supplemental cash flow disclosures:

Cash paid during the period for:

Cash paid (received) during the period for:

Interest $ 3,208,000 3,202,000

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Accrued additions to property, plant and equipment $ 1,132,000 787,000

Issuance of restricted stock $ 4,000 —

Common stock issued for acquisitions $ — 11,575,000

Accruals related to acquisitions $ — 750,000

See accompanying notes to condensed consolidated financial statements.

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The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp.

and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three months ended October 31, 2020 and 2019 are unaudited.

and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and six months ended January 31, 2021 and 2020 are unaudited.

In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods.

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Since March 2020, we have conducted most of our non-production related operations using remote working arrangements, curtailed most business travel, and have established social distancing safeguards.

These precautions and business practices are expected to remain in effect so long as government advisories recommend.

Additionally, we have experienced order delays, production delays, minor supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs.

Although the COVID-19 pandemic is by no means over and additional waves of COVID-19 could again alter the business landscape, we believe that the pandemic’s worst impact on our business is largely behind us.

As the vaccine for COVID-19 becomes widely available, we believe that business conditions will improve.

Our long-term fundamentals remain strong as we continue to believe we are well-positioned for growth as business conditions meaningfully improve.

Our long-term fundamentals remain strong and we continue to believe both of our segments are well-positioned for growth.

(2) Acquisitions

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CGC is a leading global provider of high precision full motion fixed and mobile X/Y satellite tracking antennas, reflectors, radomes and other ground station equipment.

The acquisition of CGC brought established relationships with several top-tier European aerospace companies and other government entities, and we expect CGC to participate in the anticipated growth in the number of low Earth orbit ("LEO") and medium Earth orbit ("MEO") satellite constellations.

The acquisition has a preliminary purchase price for accounting purposes of $ 23,650,000 , of which $ 12,075,000 was payable in cash and $ 11,575,000 was payable by the issuance of 323,504 shares of Comtech’s common stock at a volume weighted average stock price of $ 35.78 .

The fair value of consideration transferred in connection with this acquisition was $ 22,740,000 , which was net of $ 160,000 of cash acquired and $ 750,000 payable by us upon the first anniversary of the closing of the transaction, subject to certain conditions.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The acquisition has an aggregate purchase price for accounting purposes of $ 23,650,000 , of which $ 12,075,000 was paid in cash and $ 11,575,000 was paid by the issuance of 323,504 shares of Comtech’s common stock at a volume weighted average stock price of $ 35.78 .

The fair value of consideration transferred in connection with this acquisition was $ 23,490,000 , which was net of $ 160,000 of cash acquired.

We are accounting for the acquisition of CGC under the acquisition method of accounting in accordance with FASB ASC 805.

The purchase price was allocated to the assets acquired and liabilities assumed, based on their preliminary fair value as of January 27, 2020, pursuant to the business combination accounting rules.

The purchase price was allocated to the assets acquired and liabilities assumed, based on their fair value as of January 27, 2020, pursuant to the business combination accounting rules.

Acquisition plan expenses were not included as a component of consideration transferred and were expensed in the period incurred.

Pro forma financial information is not disclosed, as the acquisition was not material.

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in connection with the CGC acquisition:

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the fair value of the assets acquired and liabilities assumed in connection with the CGC acquisition:

Purchase Price Allocation (1)

Measurement Period Adjustments Purchase Price Allocation

(as adjusted)

Payable in cash $ 12,075,000 — $ 12,075,000

Payable in common stock 11,575,000 — 11,575,000

Preliminary purchase price at fair value $ 23,650,000 — $ 23,650,000

Preliminary allocation of aggregate purchase price:

Paid in cash $ 12,075,000 — $ 12,075,000

Paid in common stock 11,575,000 — 11,575,000

Purchase price at fair value $ 23,650,000 — $ 23,650,000

Allocation of aggregate purchase price:

Cash and cash equivalents $ 160,000 — $ 160,000

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Non-current liabilities ( 1,327,000 ) — ( 1,327,000 )

Net tangible liabilities at preliminary fair value $ ( 5,077,000 ) 101,000 $ ( 4,976,000 )

Net tangible liabilities at fair value $ ( 4,976,000 ) ( 332,000 ) $ ( 5,308,000 )

Identifiable intangibles, deferred taxes and goodwill:

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Trade name 1,000,000 100,000 1,100,000 5 years

Other intangible liabilities — ( 2,500,000 ) ( 2,500,000 ) 1.5 years

Deferred tax liabilities ( 2,984,000 ) 426,000 ( 2,558,000 )

Goodwill 15,810,000 2,306,000 18,116,000 Indefinite

Preliminary allocation of aggregate purchase price $ 23,650,000 — $ 23,650,000

(1) As reported in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2020.

The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized over their estimated useful lives.

The preliminary fair value of customer relationships (which include acquired backlog) was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future.

The preliminary fair value of technology and trade name was based on the discounted capitalization of royalty expense saved because we now own the assets.

Among the factors contributing to the recognition of goodwill, as a component of the preliminary purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce.

Allocation of aggregate purchase price $ 23,650,000 — $ 23,650,000

(1) As reported in the Company's Quarterly Report on Form 10-Q for the three months ended October 31, 2020.

The acquired identifiable intangible assets and liabilities are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets and liabilities are utilized over their estimated useful lives.

The fair value of customer relationships was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future.

The fair value of technology and trade name was based on the discounted capitalization of royalty expense saved because we now own the assets.

The fair value of other intangible liabilities was based on the difference in cash flows related to remaining performance obligations under certain acquired contracts as compared to market terms for similar arrangements that a market participant would expect.

Other intangible liabilities will be credited against the cost of sales over the remaining performance of the contracts.

Among the factors contributing to the recognition of goodwill, as a component of the purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce.

This goodwill has been assigned to our Government Solutions segment based on specific identification and is generally not deductible for income tax purposes.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The allocation of the preliminary purchase price shown in the above table was based upon a preliminary valuation and estimates and assumptions that are subject to change within the purchase price allocation period, generally one year from the acquisition date.

As such, the preliminary purchase price for accounting purposes is subject to finalization.

The primary areas of the purchase price allocation not yet finalized include the purchase price (due to potential indemnification obligations of the seller under the Share Purchase Agreement), a final assessment of assets acquired and liabilities assumed (including inventory, contract liabilities and warranty obligations), income taxes and residual goodwill.

UHP Networks Inc.

In November 2019, we entered into an agreement to acquire UHP Networks, Inc.

and its sister company (together, "UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions.

UHP is based in Canada and has developed revolutionary technology that is transforming the Very Small Aperture Terminal ("VSAT") market.

With end-markets for high-speed satellite-based networks significantly growing, our acquisition of UHP, if consummated, will allow us to enhance our solution offerings with low cost time division multiple access ("TDMA") satellite modems, which we do not currently offer.

In June 2020, we agreed with UHP to amend the terms of our purchase agreement, which resulted in the total aggregate purchase price being reduced by approximately 24 % from $ 50,000,000 to $ 38,000,000 (of which $ 5,000,000 will be paid in cash, with the remainder in shares of our common stock, cash, or a combination of both, as we may elect at the time of closing).

The transaction is subject to customary closing conditions, including regulatory approval to allow us to purchase UHP's sister company which is headquartered in Moscow.

In August 2020, at the request of the Federal Antimonopoly Service ("FAS") of the Russian Federation we submitted an application for regulatory approval to the FAS and the Commission for Supervising Foreign Investments in the Russian Federation (the "Russian Commission") pursuant to Russia’s Foreign Investment Law ("FIL").

In order to purchase UHP’s sister company, which is based in Moscow, approval by the Russian Commission and the FAS is required.

If we do not receive approval by December 31, 2020, either we or UHP may terminate the purchase agreement.

Subsequent Event - Acquisition of UHP Networks Inc.

On March 2, 2021, we completed our acquisition of UHP Networks Inc.

("UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions pursuant to a stock purchase agreement initially entered into in November 2019 and amended in June 2020 and on March 2, 2021.

The initial up-front payment of approximately $ 24,000,000 was paid in shares of our common stock.

An additional $ 5,000,000 , payable at our option in cash and or shares of common stock, is subject to certain conditions that we expect will be satisfied within twelve months after the acquisition.

The stock purchase agreement also provides for an earn-out payment of up to an additional $ 9,000,000 , also payable at our option in cash and or common stock, if specified sales milestones are reached during the eighteen-month period ending September 30, 2022.

We issued 1,026,567 shares of our common stock at closing, based on a volume weighted average price of approximately $ 28.14 per share, to satisfy initial payment and escrow arrangements under the terms of the stock purchase agreement.

Acquisition Plan Expenses

During the three months ended October 31, 2020 and 2019, we incurred $ 91,183,000 and $ 2,389,000 , respectively, of acquisition plan expenses.

For the more recent fiscal quarter, $ 88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, LTD.

During the three and six months ended January 31, 2021 and 2020, we incurred acquisition plan expenses of $ 3,357,000 and $ 6,025,000 and $ 94,540,000 and $ 8,414,000 , respectively.

Of the amount recorded in the six months ended January 31, 2021, $ 88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd.

("Gilat"), including $ 70,000,000 paid in cash to Gilat.

The remaining costs primarily related to the pending acquisition of UHP and GD NG-911 acquisition-related litigation.

The remaining costs for the three and six months ended January 31, 2021 primarily related to the acquisition of UHP and GD NG-911 acquisition-related litigation.

Additionally, we recorded $ 1,178,000 of incremental interest expense for ticking fees related to a now terminated financing commitment letter.

Cash Flow Presentation of $ 70,000,000 Merger Termination Fee

Because we did not complete the Gilat acquisition, we presented the $ 70,000,000 payment to Gilat made during the three months ended October 31, 2020 as a reduction to cash flows from operating activities for the current period rather than as a cash outflow stemming from investing activities.

Because we did not complete the Gilat acquisition, we presented the first quarter fiscal 2021 $ 70,000,000 payment to Gilat as a reduction to cash flows from operating activities for the period rather than as a cash outflow stemming from investing activities.

(3) Adoption of Accounting Standards and Updates

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generally accepted accounting principles, which are commonly referred to as "GAAP." The FASB ASC is subject to updates by the FASB, which are known as Accounting Standards Updates ("ASUs").

During the three months ended October 31, 2020, we adopted:

During the six months ended January 31, 2021, we adopted:

• FASB ASU No.

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On August 1, 2020, we adopted this ASU on a modified-retrospective basis and recorded a $ 215,000 decrease to opening retained earnings.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

• FASB ASU No.

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Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

• FASB ASU No.

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As a result, these modifications form part of an existing contract and we must update the transaction price and our measure of progress for the single performance obligation and recognize a cumulative catch-up to revenue and gross profits.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For over time contracts using a cost-to-cost measure of progress, we have an estimate at completion ("EAC") process in which management reviews the progress and execution of our performance obligations.

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Contract revenue and cost estimates for significant contracts are generally reviewed and reassessed at least quarterly.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The cost-to-cost method is principally used to account for contracts in our mission-critical technologies and high-performance transmission technologies product lines and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line.

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When identifying a contract with our customer, we consider when it has approval and commitment from both parties, if the rights of the parties are identified, if the payment terms are identified, if it has commercial substance and if collectability is probable.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

When identifying performance obligations, we consider whether there are multiple promises and how to account for them.

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In many cases, we provide assurance-type warranty coverage for some of our products for a period of at least one year from the date of delivery.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

When identifying the transaction price, we typically utilize the contract's stated price as a starting point.

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Sales by geography and customer type, as a percentage of consolidated net sales, are as follows:

Three months ended October 31,

Three months ended January 31, Six months ended January 31,

2021 2020 2021 2020

United States

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Total 100.0 % 100.0 % 100.0 % 100.0 %

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Sales to U.S.

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Included in domestic sales are sales to Verizon Communications Inc.

("Verizon"), which accounted for 12.5 % of consolidated net sales for the three months ended October 31, 2020.

("Verizon"), which accounted for 10.0 % and 11.1 % of consolidated net sales for the three and six months ended January 31, 2021, respectively.

Except for the U.S.

government, there were no customers that represented more than 10.0% of consolidated net sales during the three months ended October 31, 2019.

government, there were no customers that represented more than 10.0% of consolidated net sales during the three and six months ended January 31, 2020.

Except for the U.S., no individual country (including sales to U.S.

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three months ended October 31, 2020 and 2019.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our chief operating decision-maker ("CODM") for the three months ended October 31, 2020 and 2019.

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three and six months ended January 31, 2021 and 2020.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize our disaggregation of revenue consistent with information reviewed by our chief operating decision-maker ("CODM") for the three and six months ended January 31, 2021 and 2020.

We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors which impact our business:

Three months ended October 31, 2020

Commercial Solutions Government Solutions Total

Three months ended January 31, 2021 Six months ended January 31, 2021

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

Geographical region and customer type

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Total $ 87,825,000 73,467,000 $ 161,292,000 $ 169,627,000 126,883,000 $ 296,510,000

Three months ended October 31, 2019

Commercial Solutions Government Solutions Total

Three months ended January 31, 2020 Six months ended January 31, 2020

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

Geographical region and customer type

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Under ASC 606, unbilled receivables constitute contract assets.

There were no material impairment losses recognized on contract assets during the three months ended October 31, 2020 and 2019, respectively.

There were no material impairment losses recognized on contract assets during the six months ended January 31, 2021 and 2020, respectively.

On large long-term contracts, and for contracts with international customers that do not do business with us regularly, payment terms typically require advanced payments and deposits.

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Under the typical payment terms for our contracts accounted for at a point in time, costs are accumulated in inventory until the time of billing, which generally coincides with revenue recognition.

Of the contract liability balance at July 31, 2020 and July 31, 2019, $ 16,370,000 and $ 18,609,000 was recognized as revenue during the three months ended October 31, 2020 and 2019, respectively.

Of the contract liability balance at July 31, 2020 and July 31, 2019, $ 24,320,000 and $ 26,665,000 was recognized as revenue during the six months ended January 31, 2021 and 2020, respectively.

We recognize the incremental costs to obtain or fulfill a contract as an expense when incurred if the amortization period of the asset is one year or less.

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As for commissions payable to our third-party sales representatives related to long-term contracts, we do consider these types of commissions both direct and incremental costs to obtain and fulfill such contracts.

Therefore, such commissions are included in total estimated costs at completion for such contracts and expensed over time through cost of sales on our Condensed Consolidated Statements of Operations.

Therefore, such types of commissions are included in total estimated costs at completion for such contracts and expensed over time through cost of sales on our Condensed Consolidated Statements of Operations.

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the end of a fiscal period.

Remaining performance obligations, which we refer to as backlog, exclude unexercised contract options and potential orders under indefinite delivery / indefinite quantity ("IDIQ") contracts.

As of October 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 605,464,000 (which represents the amount of our consolidated backlog).

We estimate that a substantial portion of our remaining performance obligations at October 31, 2020 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During the three months ended October 31, 2020, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

As of January 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 659,957,000 (which represents the amount of our consolidated funded backlog).

We estimate that a substantial portion of our remaining performance obligations at January 31, 2021 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During the three and six months ended January 31, 2021, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(5) Fair Value Measurements and Financial Instruments

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The fair value of our Credit Facility that we entered into on October 31, 2018 approximates its carrying amount due to its variable interest rate and pricing grid that is dependent upon our leverage ratio as of the end of each fiscal quarter.

As of October 31, 2020 and July 31, 2020, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

As of January 31, 2021 and July 31, 2020, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

COMTECH TELECOMMUNICATIONS CORP.

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When calculating our diluted earnings per share, we consider the amount an employee must pay upon assumed exercise of stock-based awards and the amount of stock-based compensation cost attributed to future services and not yet recognized.

There were no repurchases of our common stock during the three months ended October 31, 2020 and 2019.

There were no repurchases of our common stock during the three or six months ended January 31, 2021 and 2020.

See Note (17) - " Stockholders’ Equity " for more information.

Weighted average stock options, RSUs and restricted stock outstanding of 1,839,000 and 382,000 shares for the three months ended October 31, 2020 and 2019, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 232,000 and 197,000 weighted average performance shares outstanding for the three months ended October 31, 2020 and 2019, respectively, as the performance conditions have not yet been satisfied.

However, net (loss) income (the numerator) for EPS calculations for each respective period, is reduced by the compensation expense related to these awards.

Weighted average stock options, RSUs and restricted stock outstanding of 1,496,000 for the three months ended January 31, 2021 and 1,515,000 and 178,000 shares for the six months ended January 31, 2021 and 2020, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 237,000 and 203,000 weighted average performance shares outstanding for the three months ended January 31, 2021 and 2020, respectively, and 235,000 and 196,000 for the six months ended January 31, 2021 and 2020, respectively, as the performance conditions have not yet been satisfied.

However, net income (loss) (the numerator) for EPS calculations for each respective period, is reduced by the compensation expense related to these awards.

The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:

Three months ended October 31,

Net (loss) income for basic calculation $ ( 85,840,000 ) 6,388,000

Three months ended January 31, Six months ended January 31,

2021 2020 2021 2020

Net income (loss) for basic calculation $ 4,205,000 3,495,000 $ ( 81,635,000 ) 9,883,000

Numerator for diluted calculation $ 4,205,000 3,495,000 $ ( 81,635,000 ) 9,883,000

5 unchanged sentences

Accounts receivable consist of the following at:

October 31, 2020 July 31, 2020

January 31, 2021 July 31, 2020

Receivables from commercial and international customers $ 77,551,000 67,109,000

10 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unbilled receivables as of October 31, 2020 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

Unbilled receivables as of January 31, 2021 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

Under ASC 606, unbilled receivables constitute contract assets.

Management estimates that substantially all amounts not yet billed at October 31, 2020 will be billed and collected within one year.

Allowance for doubtful accounts as of October 31, 2020 includes $ 215,000 recorded at August 1, 2020 as a result of our adoption of FASB ASU No.

Management estimates that a substantial portion of the amounts not yet billed at January 31, 2021 will be billed and collected within one year.

Allowance for doubtful accounts as of January 31, 2021 includes $ 215,000 recorded at August 1, 2020 as a result of our adoption of FASB ASU No.

2016-13, which is discussed in more detail in Note (3) - " Adoption of Accounting Standards and Updates ."

As of October 31, 2020, the U.S.

As of January 31, 2021, the U.S.

government (and its agencies) and Verizon represented 32.5 % and 12.7 %, respectively, of total accounts receivable.

3 unchanged sentences

Inventories consist of the following at:

October 31, 2020 July 31, 2020

January 31, 2021 July 31, 2020

Raw materials and components $ 62,194,000 59,175,000

3 unchanged sentences

Inventories, net $ 81,630,000 82,302,000

As of October 31, 2020 and July 31, 2020, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 7,633,000 and $ 7,215,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 1,383,000 and $ 1,387,000 , respectively.

As of January 31, 2021 and July 31, 2020, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 5,535,000 and $ 7,215,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 1,597,000 and $ 1,387,000 , respectively.

(9) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:

October 31, 2020 July 31, 2020

January 31, 2021 July 31, 2020

Accrued wages and benefits $ 26,623,000 20,857,000

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Accrued contract costs represent direct and indirect costs on contracts as well as estimates of amounts owed for invoices not yet received from vendors or reflected in accounts payable.

Accrued warranty obligations as of October 31, 2020 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

We generally provide warranty coverage for some of our products for a period of at least one year from the date of delivery.

We record a liability for estimated warranty expense based on historical claims, product failure rates, consideration of contractual obligations, future costs to resolve software issues and other factors.

Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued acquisition plan expenses as of October 31, 2020 and July 31, 2020 primarily relate to legal and professional fees for litigation settlement and merger termination with Gilat as well as legal expenses associated with a previously completed acquisition.

See Note (2) - " Acquisitions " and Note (18) - " Legal Proceedings and Other Matters " for further discussion.

Changes in our accrued warranty obligations during the three months ended October 31, 2020 and 2019 were as follows:

Three months ended October 31,

Accrued warranty obligations as of January 31, 2021 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

We generally provide warranty coverage for some of our products for a period of at least one year from the date of delivery.

Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.

Changes in our accrued warranty obligations during the six months ended January 31, 2021 and 2020 were as follows:

Six months ended January 31,

Balance at beginning of period $ 15,200,000 15,968,000

Provision for warranty obligations 2,329,000 1,937,000

Additions (in connection with acquisitions) 500,000 1,000,000

Charges incurred ( 1,355,000 ) ( 2,479,000 )

1 unchanged sentence

Balance at end of period $ 16,674,000 16,728,000

Our current accrued warranty obligations at October 31, 2020 and July 31, 2020 include $ 1,856,000 and $ 2,158,000 , respectively, of warranty obligations for a small product line that we refer to as the TCS 911 call handling software solution.

This solution was licensed to customers prior to our acquisition of TeleCommunication Systems, Inc.

(10) Credit Facility

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If we issue new unsecured debt in excess of $ 5,000,000 with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

As of October 31, 2020, the amount outstanding under our Credit Facility was $ 217,000,000 which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At October 31, 2020, we had $ 3,046,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the three months ended October 31, 2020, we had outstanding balances under the Credit Facility ranging from $ 125,000,000 to $ 217,000,000 .

As of October 31, 2020, total net deferred financing costs related to the Credit Facility were $ 2,207,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended October 31, 2020 and 2019 was $ 1,111,000 and $ 1,753,000 , respectively.

Our blended interest rate approximated 2.70 % and 4.70 %, respectively, for the three months ended October 31, 2020 and 2019.

As of January 31, 2021, the amount outstanding under our Credit Facility was $ 208,000,000 which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At January 31, 2021, we had $ 2,991,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the six months ended January 31, 2021, we had outstanding balances under the Credit Facility ranging from $ 125,000,000 to $ 217,000,000 .

As of January 31, 2021, total net deferred financing costs related to the Credit Facility were $ 2,023,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended January 31, 2021 and 2020 was $ 1,414,000 and $ 1,572,000 , respectively.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the six months ended January 31, 2021 and 2020 was $ 2,525,000 and $ 3,325,000 , respectively.

Our blended interest rate approximated 2.73 % and 4.33 %, respectively, for the three months ended January 31, 2021 and 2020.

Our blended interest rate approximated 2.71 % and 4.51 %, respectively, for the six months ended January 31, 2021 and 2020.

COMTECH TELECOMMUNICATIONS CORP.

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and (iii) a Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

As of October 31, 2020, our Secured Leverage Ratio was 3.31 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of October 31, 2020 was 11.42 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

As of January 31, 2021, our Secured Leverage Ratio was 3.00 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of January 31, 2021 was 12.45 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

Given our expected future business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future.

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As collateral security under the Credit Facility and the guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

On December 6, 2018, we entered into the first amendment to the Credit Facility.

The purpose of the amendment was to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis.

Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility and the Prior Credit Facility, which have been documented and filed with the SEC.

On December 6, 2018, we entered into an amendment to the Credit Facility to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis.

On January 14, 2021, we entered into a further amendment of the Credit Facility to update the LIBO Rate replacement mechanism language and other definitional items.

Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility, which has been documented and filed with the SEC.

COMTECH TELECOMMUNICATIONS CORP.

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For rent holidays and rent escalation clauses during the lease term, we record rental expense on a straight-line basis over the term of the lease.

As of October 31, 2020, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of January 31, 2021, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

The components of lease expense are as follows:

Three months ended October 31,

Three months ended January 31, Six months ended January 31,

2021 2020 2021 2020

Finance lease expense:

6 unchanged sentences

Total lease expense $ 4,307,000 4,638,000 $ 8,002,000 9,241,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additional information related to leases is as follows:

Three months ended October 31,

Six months ended January 31,

Cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

Operating leases $ 25,663,000 $ 1,823,000

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of October 31, 2020:

During the second quarter of fiscal 2021, we commenced a 15 -year operating lease for a facility in Chandler, Arizona and a 10 -year operating lease for a facility in the United Kingdom.

Accordingly, amounts related to both leases are reflected as an operating lease right-of-use assets or the related operating lease liabilities in our Condensed Consolidated Balance Sheet as of January 31, 2021.

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of January 31, 2021:

Operating Finance Total

11 unchanged sentences

We lease our Melville, New York production facility from a partnership controlled by our CEO and Chairman.

Lease payments made during the three months ended October 31, 2020 and 2019 were $ 163,000 and $ 160,000 , respectively.

The current lease provides for our use of the premises as they exist through December 2021 with an option for an additional ten years .

Lease payments made during the six months ended January 31, 2021 and 2020 were $ 329,000 and $ 322,000 , respectively.

The current lease provides for our use of the premises as they exist through December 2031.

The annual rent of the facility for calendar year 2021 is $ 665,000 and is subject to customary adjustments.

We have a right of first refusal in the event of a sale of the facility.

There are no other rental commitments that have not commenced as of January 31, 2021.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In September 2020, we signed a 15-year lease commencing in December 2020 for a facility in Chandler, Arizona to support our anticipated growth and long-term business goals for our satellite earth station product line.

We anticipate that all existing Tempe, Arizona locations will be fully relocated to this new facility in the second half of our fiscal 2021.

In November 2020, we also signed a 10-year facility lease in the United Kingdom to expand our Government Solution segment's manufacturing capabilities for high precision full motion fixed and mobile X/Y satellite tracking antennas, RF feeds, reflectors and radomes.

Amounts related to both leases are not reflected as either an operating lease right-of-use asset or the related operating lease liability in our Condensed Consolidated Balance Sheet as of October 31, 2020, as the related commitment has not commenced.

There are no other rental commitments that have not commenced as of October 31, 2020.

(12) Income Taxes

At October 31, 2020 and July 31, 2020, total unrecognized tax benefits were $ 8,531,000 and $ 8,345,000 , respectively, including interest of $ 101,000 and $ 75,000 , respectively.

At October 31, 2020 and July 31, 2020, $ 2,147,000 and 1,963,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 6,384,000 and $ 6,382,000 at October 31, 2020 and July 31, 2020, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 7,849,000 and $ 7,700,000 at October 31, 2020 and July 31, 2020, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

At January 31, 2021 and July 31, 2020, total unrecognized tax benefits were $ 8,727,000 and $ 8,345,000 , respectively, including interest of $ 125,000 and $ 75,000 , respectively.

At January 31, 2021 and July 31, 2020, $ 2,286,000 and 1,963,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 6,441,000 and $ 6,382,000 at January 31, 2021 and July 31, 2020, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 8,009,000 and $ 7,700,000 at January 31, 2021 and July 31, 2020, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our condensed consolidated financial statements.

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(13) Stock-Based Compensation

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended, (the "Plan") and our 2001 Employee Stock Purchase Plan (the "ESPP") and recognize related stock-based compensation in our condensed consolidated financial statements.

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended and/or restated from time to time (the "Plan") and our 2001 Employee Stock Purchase Plan, as amended and/or restated from time to time (the "ESPP"), and recognize related stock-based compensation in our condensed consolidated financial statements.

The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants):

1 unchanged sentence

Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

As of October 31, 2020, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not excee d 10,962,500 .

As of January 31, 2021, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500 .

Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a stockholder who owns stock representing more than 10.0 % of the voting power, no more than five years .

We expect to settle all outstanding awards under the Plan and employee purchases under the ESPP with the issuance of new shares of our common stock.

As of October 31, 2020, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,415,658 shares (net of 4,390,752 expired and canceled awards), of which an aggregate of 6,929,378 have been exercised or settled.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of October 31, 2020, the following stock-based awards, by award type, were outstanding:

October 31, 2020

As of January 31, 2021, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,395,629 shares (net of 4,410,781 expired and canceled awards), of which an aggregate of 6,929,904 have been exercised or settled.

As of January 31, 2021, the following stock-based awards, by award type, were outstanding:

January 31, 2021

Stock options 1,331,835

3 unchanged sentences

Total 2,465,725

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our ESPP provides for the issuance of up to 1,050,000 shares of our common stock.

Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85 % of fair market value at the date of issuance.

Through October 31, 2020, we have cumulatively issued 855,274 shares of our common stock to participating employees in connection with our ESPP.

Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85 % of fair market value on the first or last day of each calendar quarter, whichever is lower.

Through January 31, 2021, we have cumulatively issued 871,131 shares of our common stock to participating employees in connection with our ESPP.

Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:

Three months ended October 31,

Three months ended January 31, Six months ended January 31,

2021 2020 2021 2020

Cost of sales $ 59,000 60,000 $ 132,000 119,000

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Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award.

At October 31, 2020, unrecognized stock-based compensation of $ 14,244,000 , net of estimated forfeitures of $ 989,000 , is expected to be recognized over a weighted average period of 3.5 years.

Total stock-based compensation capitalized and included in ending inventory at both October 31, 2020 and July 31, 2020 was $ 48,000 .

There are no liability-classified stock-based awards outstanding as of October 31, 2020 or July 31, 2020.

At January 31, 2021, unrecognized stock-based compensation of $ 12,736,000 , net of estimated forfeitures of $ 1,103,000 , is expected to be recognized over a weighted average period of 3.3 years.

Total stock-based compensation capitalized and included in ending inventory at both January 31, 2021 and July 31, 2020 was $ 48,000 .

There are no liability-classified stock-based awards outstanding as of January 31, 2021 or July 31, 2020.

Stock-based compensation expense (benefit), by award type, is summarized as follows:

Three months ended October 31,

Three months ended January 31, Six months ended January 31,

2021 2020 2021 2020

Stock options $ 97,000 82,000 $ 217,000 164,000

8 unchanged sentences

ESPP stock-based compensation expense primarily relates to the 15 % discount offered to participants in the ESPP.

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled.

Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of January 31, 2021 and July 31, 2020.

The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled.

Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of October 31, 2020 and July 31, 2020.

Stock Options

8 unchanged sentences

Outstanding at October 31, 2020 1,344,635 25.95

Exercisable at October 31, 2020 1,011,335 $ 28.59 2.77 $ —

Vested and expected to vest at October 31, 2020 1,330,173 $ 26.04 4.39 $ —

Stock options outstanding as of October 31, 2020 have exercise prices ranging from $ 17.88 - $ 33.94 , representing the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years .

Expired/canceled ( 12,800 ) 25.86

Outstanding at January 31, 2021 1,331,835 $ 25.96 4.18 $ 1,121,000

Exercisable at January 31, 2021 1,003,835 $ 28.58 2.51 $ 1,000

Vested and expected to vest at January 31, 2021 1,319,141 $ 26.03 4.13 $ 1,078,000

Stock options outstanding as of January 31, 2021 have exercise prices ranging from $ 17.88 - $ 33.94 , representing the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years .

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

8 unchanged sentences

Outstanding at October 31, 2020 1,141,645 20.03

Vested at October 31, 2020 396,254 $ 16.61 $ 5,706,054

Vested and expected to vest at October 31, 2020 1,098,098 $ 20.00 $ 15,812,607

The total intrinsic value relating to fully-vested awards settled during the three months ended October 31, 2020 and 2019 was $ 2,896,000 and $ 5,806,000 , respectively.

Settled ( 526 ) 11.40

Canceled/Forfeited ( 7,229 ) 20.15

Outstanding at January 31, 2021 1,133,890 $ 20.04 $ 24,197,000

Vested at January 31, 2021 396,254 $ 16.61 $ 8,456,000

Vested and expected to vest at January 31, 2021 1,085,777 $ 19.98 $ 23,170,000

The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2021 was $ 9,000 and $ 2,905,000 , respectively.

The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2020 was $ 19,000 and $ 5,825,000 .

The performance shares granted to employees since fiscal 2014 principally vest over a three-year performance period, if pre-established performance goals are attained, or as specified pursuant to the Plan and related agreements.

As of October 31, 2020, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

As of January 31, 2021, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

COMTECH TELECOMMUNICATIONS CORP.

6 unchanged sentences

Share units granted on or after July 31, 2017 were granted to certain employees in lieu of non-equity incentive compensation and are convertible into shares of our common stock on the one-year anniversary of the respective grant date.

Cumulatively, through October 31, 2020, 672,085 share units granted have been settled.

Cumulatively, through January 31, 2021, 672,085 share units granted have been settled.

The fair value of performance shares, RSUs, restricted stock and share units is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive and an applicable estimated discount for any post-vesting transfer restrictions.

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Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of settlement of the underlying award.

During the three months ended October 31, 2020 and 2019, we accrued $ 142,000 and $ 56,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 275,000 and $ 285,000 , respectively.

During the three and six months ended January 31, 2021, we accrued $ 49,000 and $ 191,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 1,000 and $ 276,000 , respectively.

Accrued dividend equivalents were recorded as a reduction to retained earnings.

As of October 31, 2020 and July 31, 2020, accrued dividend equivalents were $ 650,000 and $ 783,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three months ended October 31, 2020 and 2019, we recorded an income tax expense of $ 199,000 and an income tax benefit of $ 612,000 , respectively.

As of January 31, 2021 and July 31, 2020, accrued dividend equivalents were $ 698,000 and $ 783,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and six months ended January 31, 2021, we recorded income tax expense of $ 8,000 and $ 207,000 , respectively, and during the three and six months ended January 31, 2020, we recorded an income tax expense of $ 141,000 and an income tax benefit of $ 471,000 , respectively.

(14) Segment Information

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Our Adjusted EBITDA metric for the Commercial Solutions and Government Solutions segments do not consider any allocation of indirect expense, or any of the following:

income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangible assets, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, facility exit costs, strategic alternatives analysis expenses and other that relate to our Unallocated segment.

income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangible assets, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, facility exit costs, strategic alternatives analysis expenses and other that relate to our Unallocated segment.

These items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results.

2 unchanged sentences

Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Credit Facility) utilized for financial covenant calculations and also may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and, therefore, may not be comparable to similarly titled measures used by other companies.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Operating segment information, along with a reconciliation of segment net income and consolidated net (loss) income to Adjusted EBITDA is presented in the tables below:

Three months ended October 31, 2020

Three months ended January 31, 2021

Commercial Solutions Government Solutions Unallocated Total

15 unchanged sentences

— — 3,357,000 3,357,000

Restructuring costs 601,000 — — 601,000

COVID-19 related costs — 160,000 — 160,000

Adjusted EBITDA

2 unchanged sentences

$ 1,575,000 1,221,000 — $ 2,796,000

Total assets at October 31, 2020

Total assets at January 31, 2021

$ 672,209,000 240,618,000 33,768,000 $ 946,595,000

Three months ended January 31, 2020

Commercial Solutions Government Solutions Unallocated Total

Net sales $ 96,122,000 65,532,000 — $ 161,654,000

Operating income (loss) $ 12,619,000 5,003,000 ( 11,388,000 ) $ 6,234,000

Net income (loss)

$ 12,702,000 5,016,000 ( 14,223,000 ) $ 3,495,000

(Benefit from) provision for income taxes ( 112,000 ) — 1,229,000 1,117,000

Interest (income) and other

20,000 ( 13,000 ) ( 1,000 ) 6,000

Interest expense 9,000 — 1,607,000 1,616,000

Amortization of stock-based compensation

— — 1,238,000 1,238,000

Amortization of intangibles

4,362,000 867,000 — 5,229,000

2,183,000 312,000 226,000 2,721,000

Estimated contract settlement costs ( 262,000 ) — — ( 262,000 )

Acquisition plan expenses

— — 6,025,000 6,025,000

Adjusted EBITDA

$ 18,902,000 6,182,000 ( 3,899,000 ) $ 21,185,000

Purchases of property, plant and equipment

$ 915,000 201,000 142,000 $ 1,258,000

Long-lived assets acquired in connection with acquisitions $ — 31,131,000 — $ 31,131,000

Total assets at January 31, 2020

$ 672,336,000 233,221,000 44,385,000 $ 949,942,000

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended October 31, 2019

Six months ended January 31, 2021

Commercial Solutions Government Solutions Unallocated Total

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$ 17,598,000 8,386,000 ( 107,619,000 ) $ ( 81,635,000 )

Provision for income taxes

Provision for (benefit from) income taxes

556,000 ( 412,000 ) ( 2,538,000 ) ( 2,394,000 )

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3,930,000 846,000 233,000 5,009,000

Acquisition plan expenses

( 1,052,000 ) — 95,592,000 94,540,000

Restructuring costs 601,000 — 601,000

COVID-19 related costs — 160,000 — 160,000

Adjusted EBITDA

$ 30,173,000 10,839,000 ( 8,669,000 ) $ 32,343,000

Purchases of property, plant and equipment

$ 1,964,000 1,642,000 80,000 $ 3,686,000

Total assets at January 31, 2021

$ 672,209,000 240,618,000 33,768,000 $ 946,595,000

Six months ended January 31, 2020

Commercial Solutions Government Solutions Unallocated Total

Net sales $ 190,436,000 141,485,000 — $ 331,921,000

Operating income (loss) $ 22,460,000 12,086,000 ( 19,052,000 ) $ 15,494,000

Net income (loss)

$ 22,569,000 12,111,000 ( 24,797,000 ) $ 9,883,000

(Benefit from) provision for income taxes ( 99,000 ) — 2,361,000 2,262,000

Interest (income) and other

( 27,000 ) ( 26,000 ) ( 18,000 ) ( 71,000 )

Interest expense 17,000 1,000 3,402,000 3,420,000

Amortization of stock-based compensation

— — 2,117,000 2,117,000

Amortization of intangibles

8,724,000 1,711,000 — 10,435,000

4,379,000 625,000 368,000 5,372,000

Estimated contract settlement costs

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$ 1,915,000 425,000 168,000 $ 2,508,000

Total assets at October 31, 2019

Long-lived assets acquired in connection with acquisitions

$ — 31,131,000 — $ 31,131,000

Total assets at January 31, 2020

$ 672,336,000 233,221,000 44,385,000 $ 949,942,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs and also includes all of our amortization of stock-based compensation.

During the three months ended October 31, 2020 and 2019, we recorded $ 91,183,000 and $ 2,389,000 of acquisition plan expenses, respectively, all of which were recorded in our unallocated expenses.

During the three months ended January 31, 2021 and 2020, we recorded $ 3,357,000 and $ 6,025,000 of acquisition plan expenses, respectively, and during the six months ended January 31, 2021 and 2020, we recorded $ 94,540,000 and $ 8,414,000 of acquisition plan expenses, respectively, all of which were recorded in our unallocated expenses.

See Note (2) - " Acquisitions " for further information.

During the three and six months ended January 31, 2021, our Commercial Solutions segment recorded $ 601,000 of restructuring costs in connection with our efforts to shift production of our key satellite earth station products to a new 146,000 square foot facility in Chandler, Arizona.

In addition, during the three and six months ended January 31, 2021, our Government Solutions segment recorded $ 160,000 of additional operating costs incurred for our antenna facility located in the United Kingdom due to the impact of COVID-19 pandemic.

There were no such charges recorded in in the three and six months ended January 31, 2020.

Interest expense in the tables above primarily relates to our Credit Facility, and includes the amortization of deferred financing costs.

See Note (10) - " Credit Facility " for further discussion.

In addition, interest expense for the three months ended October 31, 2020 includes $ 1,178,000 of incremental interest expense for ticking fees related to a now terminated financing commitment letter, as discussed in more detail in Note (2) - " Acquisitions ." There were no such charges recorded in the three months ended October 31, 2019.

Intersegment sales for the three months ended October 31, 2020 and 2019 by the Commercial Solutions segment to the Government Solutions segment were $ 851,000 and $ 1,899,000 , respectively.

In addition, interest expense for the six months ended January 31, 2021 includes $ 1,178,000 of incremental interest expense for ticking fees related to a now terminated financing commitment letter, as discussed in more detail in Note (2) - " Acquisitions ."

Intersegment sales for the three months ended January 31, 2021 and 2020 by the Commercial Solutions segment to the Government Solutions segment were $ 944,000 and $ 1,862,000 , respectively.

Intersegment sales for the six months ended January 31, 2021 and 2020 by the Commercial Solutions segment to the Government Solutions segment were $ 1,795,000 and $ 3,761,000 , respectively.

There were nominal sales by the Government Solutions segment to the Commercial Solutions segment for these periods.

All intersegment sales are eliminated in consolidation and are excluded from the tables above.

Unallocated assets at October 31, 2020 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

Unallocated assets at January 31, 2021 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

Substantially all of our long-lived assets are located in the U.S.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(15) Goodwill

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill during the three months ended October 31, 2020:

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill during the six months ended January 31, 2021:

Commercial Solutions Government Solutions Total

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("Solacom") 1,052,000 — 1,052,000

Balance as of October 31, 2020

Balance as of January 31, 2021

$ 256,484,000 77,309,000 $ 333,793,000

As discussed further in Note (2) - " Acquisitions ," the goodwill resulting from the acquisition of CGC was based upon a preliminary valuation and estimates and assumptions that are subject to change within the purchase price allocation period (generally one year from the acquisition date).

Also, during the three months ended October 31, 2020, we recorded an adjustment to Solacom's goodwill to correct an immaterial item.

During the six months ended January 31, 2021, we recorded an adjustment to Solacom's goodwill to correct an immaterial item.

In accordance with FASB ASC 350, we perform a goodwill impairment analysis at least annually (in the first quarter of each fiscal year), unless indicators of impairment exist in interim periods.

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however, any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On August 1, 2020 (the first day of our fiscal 2021), we performed our annual quantitative assessment using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.

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We also considered overall business conditions.

We also considered overall business conditions, including both the potential short-term and long-term effects of the COVID-19 pandemic.

In performing the quantitative assessment, we estimated the fair value of each of our reporting units using a combination of the income and market approaches.

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Based on our quantitative evaluation, we determined that our Commercial Solutions and Government Solutions reporting units had estimated fair values in excess of their carrying values of at least 8.4 % and 78.0 %, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

It is possible that, during fiscal 2021 or beyond, business conditions (both in the U.S.

and internationally) could deteriorate from the current state, our current or prospective customers could materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we currently anticipate, or our common stock price could decline further.

Such deterioration could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global business activity.

A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal 2021 or beyond.

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Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(16) Intangible Assets

Intangible assets with finite lives are as follows:

October 31, 2020

January 31, 2021

Weighted Average

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The weighted average amortization period in the above table excludes fully amortized intangible assets.

Amortization expense for the three months ended October 31, 2020 and 2019 was $ 5,566,000 and $ 5,206,000 , respectively.

Amortization expense for the three months ended January 31, 2021 and 2020 was $ 4,795,000 and $ 5,229,000 , respectively.

Amortization expense for the six months ended January 31, 2021 and 2020 was $ 10,361,000 and $ 10,435,000 , respectively.

The estimated amortization expense consists of the following for the fiscal years ending July 31:

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2025 18,948,000

We review net intangible assets with finite lives for impairment when an event occurs indicating the potential for impairment.

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of January 31, 2021.

However, if business conditions deteriorate, we may be required to record impairment losses, and or increase the amortization of intangibles in the future.

Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We review net intangible assets with finite lives for impairment when an event occurs indicating the potential for impairment.

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of October 31, 2020.

However, if current poor business conditions further deteriorate, we may be required to record impairment losses, and or increase the amortization of intangibles in the future.

Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

(17) Stockholders’ Equity

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To-date, we have not issued any securities pursuant to our $ 400,000,000 shelf registration statement.

On March 3, 2021, in connection with our acquisition of UHP, we filed a shelf registration statement with the SEC for the sale by the selling stockholder of UHP of up to 1,381,567 shares of our common stock, including 712,439 shares that the Company may elect to deliver in lieu of cash upon termination of certain escrow arrangements, the satisfaction of specified post-closing conditions and/or upon achievement of a post-closing sales target.

Of the 1,026,567 shares that the Company issued to date pursuant to the stock purchase agreement, 357,439 shares are deliverable to the selling stockholder of UHP in the future and may, at our election, be substituted in whole or in part with cash.

See Note (2) - " Acquisitions - Subsequent Event - UHP Networks Inc ." for further information.

Stock Repurchase Program

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The new $ 100,000,000 stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws.

There were no repurchases made during the three months ended October 31, 2020 or 2019.

There were no repurchases made during the six months ended January 31, 2021 or 2020.

Since September 2010, we have paid quarterly dividends pursuant to an annual targeted dividend amount that was established by our Board of Directors.

On September 29, 2020, our Board of Directors declared a dividend of $ 0.10 per common share, which was paid on October 27, 2020.

On December 9, 2020, our Board of Directors declared a dividend of $ 0.10 per common share, payable on February 19, 2021 to stockholders of record at the close of business on January 20, 2021.

On September 29, 2020 and December 9, 2020, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on October 27, 2020 and February 19, 2021, respectively.

On March 11, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, payable on May 21, 2021 to stockholders of record at the close of business on April 21, 2021.

Future dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval.

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During the first quarter of fiscal 2021, we devoted significant efforts to litigate both cases and spent several million dollars related to these matters.

These cases have been consolidated for purposes of a trial which is now set to commence in February 2021.

As such, we anticipate spending several million dollars of legal and professional fees in our second quarter of fiscal 2021.

These cases have been consolidated for purposes of a trial which is now set to commence on May 10, 2021.

As such, we anticipate spending several million dollars of legal and professional fees through trial.

We believe we have meritorious claims against this former employee and her new employer.

Additionally, as we believe the claims made against us are without merit, we intend to vigorously defend ourselves in these matters and pursue our own damages claims valued at several million dollars.

Additionally, as we believe the claims made against us are without merit, we intend to vigorously defend ourselves in these matters.

The ultimate resolution of this litigation is not expected to have any material negative impact on our consolidated results of operations or financial position.

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Administrative penalties under the EAR are currently determined pursuant to the International Emergency Economic Powers Act ("IEEPA"), which can reach the greater of twice the amount of the transaction that is the basis of the violation or approximately $300,000 per violation.

We continue to work cooperatively with the OEE and Xicom entered a Tolling Agreement with DoC, which extended the statute of limitations in this matter through February 1, 2021.

On September 17, 2020, we reached an agreement with OFAC resolving a previously disclosed investigation pending since 2014.

Pursuant to the agreement, we made a payment to OFAC of $ 894,000 and agreed to implement enhancements to our trade compliance controls and hire a Chief Trade Compliance Officer which occurred in September 2020.

We continue to work cooperatively with the OEE and Xicom entered a Tolling Agreement with DoC, which extended the statute of limitations in this matter most recently through April 1, 2021.

In the ordinary course of business, we include indemnification provisions in certain of our customer contracts to indemnify, hold harmless and reimburse such customers for certain losses, including but not limited to losses related to third-party claims of intellectual property infringement arising from the customer’s use of our products or services.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements