What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-10-04 compared with 2020-09-29 · 365 added, 387 removed, 555 unchanged (58% of the section changed)

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a leading provider of advanced communications solutions for both commercial and government customers worldwide.

We are a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers around the world.

Our solutions fulfill our customers' needs for secure wireless communications in some of the most demanding environments, including those where traditional communications are unavailable or cost-prohibitive, and in mission-critical and other scenarios where performance is crucial.

We manage our business through two reportable operating segments:

• Commercial Solutions - offers satellite ground station technologies (such as modems and amplifiers), public safety and location technologies (such as 911 call routing and mapping solutions) to commercial customers and smaller government customers, such as state and local governments.

• Commercial Solutions - offers satellite ground station technologies (such as Single Channel per Carrier ("SCPC") and time division multiple access ("TDMA") modems and amplifiers) and public safety and location technologies (such as 911 call routing, 911 call handling and mapping solutions) to commercial customers and smaller government customers, such as state and local governments.

This segment also serves certain large government customers (including the U.S.

government) that have requirements for off-the-shelf commercial equipment.

• Government Solutions - provides mission-critical technologies (such as tactical satellite-based networks and ongoing support for complicated communication networks) and high-performance transmission technologies (such as troposcatter systems and solid-state, high-power amplifiers) to large government end-users (including those of foreign countries), large international customers and domestic prime contractors.

• Government Solutions - provides tactical satellite-based networks and ongoing support for complicated communications networks, troposcatter systems and solid-state, high-power amplifiers to large government end-users (including those of foreign countries), large international customers and domestic prime contractors.

Our Quarterly Financial Information

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

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.

For service-based contracts in our public safety and location technologies product line, we recognize revenue over time.

The cost-to-cost method is principally used to account for contracts in our Government Solutions segment and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line within our Commercial Solutions segment.

For service-based contracts in our public safety and location technologies product line, we also recognize revenue over time.

These services are typically recognized as a series of services performed over the contract term using the straight-line method, or based on our customers’ actual usage of the networks and platforms which we provide.

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Modifications to such contracts and or purchase orders, which typically provide for additional quantities or services, are accounted for as a new contract because the pricing for these additional quantities or services are based on standalone selling prices.

Point in time accounting is principally applied to contracts in our satellite ground station technologies product line (which includes satellite modems, solid-state and traveling wave tube amplifiers) and certain contracts for our solid-state, high-power amplifiers in our high-performance transmission technologies product line.

Point in time accounting is also applied to certain contracts in our mission-critical technologies product line.

The contracts related to these product lines do not meet the requirements for over time revenue recognition because our customers cannot utilize the equipment for its intended purpose during any phase of our manufacturing process;

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If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions, including geographic or regional specific factors, competitive positioning, internal costs, profit objectives and internally approved pricing guidelines related to the performance obligations.

Almost all of our contracts with customers are denominated in U.S.

Most of our contracts with customers are denominated in U.S.

dollars and typically are either firm fixed-price or cost reimbursable type contracts (including fixed-fee, incentive-fee and time-and-material type contracts).

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As commissions payable to our internal sales and marketing employees or contractors are contingent upon multiple factors, such commissions are not considered direct costs to obtain or fulfill a contract with a customer and are expensed as incurred in selling, general and administrative expenses on our Consolidated Statements of Operations.

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

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

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In making this assessment, we considered, among other things, expectations of projected net sales and cash flows, assumptions impacting the weighted average cost of capital, trends in trading multiples of comparable companies, changes in our stock price and changes in the carrying values of our reporting units with goodwill.

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

We also considered overall business conditions.

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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It is possible that, during fiscal 2022 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.

Such fluctuation could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global 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 2022 or beyond.

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The development of valuation allowances for deferred tax assets and reserves for income tax positions requires consideration of timing and judgments about future taxable income, tax issues and potential outcomes, and are subjective critical estimates.

A portion of our deferred tax assets consist of federal research and experimentation tax credit carryforwards, most of which was acquired in connection with our acquisition of TCS.

A portion of our deferred tax assets consist of federal research and experimentation tax credit carryforwards, some of which was acquired in connection with our acquisition of TCS.

No valuation allowance has been established on these deferred tax assets based on our evaluation that our ability to realize such assets has met the criteria of "more likely than not." We continuously evaluate additional facts representing positive and negative evidence in determining our ability to realize these deferred tax assets.

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If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations and financial condition.

Our federal income tax returns for fiscal 2017 through 2019 are subject to potential future Internal Revenue Service ("IRS") audit.

federal income tax returns for fiscal 2018 through 2020 are subject to potential future Internal Revenue Service ("IRS") audit.

None of our state income tax returns prior to fiscal 2017 are subject to audit.

None of TCS' state income tax returns prior to calendar year 2015 are subject to audit.

Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

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We continue to monitor our accounts receivable credit portfolio.

To-date, there has been no material changes in our credit portfolio as a result of the COVID-19 pandemic and related worldwide restrictions on business activities.

To-date, there has been no material changes in our credit portfolio as a result of the COVID-19 pandemic on worldwide business activities.

Although our overall credit losses have historically been within the allowances we established, we cannot accurately predict our future credit loss experience, given the current poor business environment.

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Amortization of intangibles 3.6 % 3.5 % 2.7 %

Operating income 2.5 % 6.2 % 6.2 %

Operating (loss) income (11.7) % 2.5 % 6.2 %

Interest expense (income) and other 1.2 % 1.0 % 1.4 %

Write-off of deferred financing costs — % — % 0.5 %

Income before provision for income taxes 1.5 % 4.3 % 4.3 %

Net income 1.1 % 3.7 % 5.2 %

(Loss) income before (benefit from) provision for income taxes (12.9) % 1.5 % 4.3 %

Net (loss) income (12.6) % 1.1 % 3.7 %

Adjusted EBITDA (a Non-GAAP measure) 13.2 % 12.6 % 13.9 %

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Impact of COVID-19 and Business Outlook for Fiscal 2022

Fiscal 2020 was a challenging year.

Although we got off to a good start, during our second half of fiscal 2020, the outbreak of the coronavirus disease 2019 (“COVID-19”) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

Attempts to contain the COVID-19 pandemic resulted in worldwide restrictions on many business activities, which in turn caused global economic conditions to rapidly deteriorate, resulting for us in lower net sales and Adjusted EBITDA as compared to our original business outlook for fiscal 2020.

For the fiscal year, we generated consolidated:

For the fiscal year ended July 31, 2021, we achieved solid operating performance and generated consolidated:

• Net sales of $581.7 million;

• GAAP operating income of $15.2 million, or Non-GAAP operating income of $36.4 million, excluding $20.8 million of acquisition plan expenses and a $0.4 million charge related to estimated contract settlement costs;

• GAAP net income of $7.0 million, or Non-GAAP net income of $19.2 million, excluding acquisition plan expenses of $13.1 million (net of tax), a $0.3 million charge related to estimated contract settlement costs (net of tax) and a net discrete tax benefit of $1.2 million;

• Cash flows from operating activities of $52.8 million;

• GAAP operating loss of $68.3 million and GAAP net loss of $73.5 million (including $70.0 million paid in cash to Gilat in October 2020);

• Non-GAAP operating income of $36.1 million and Non-GAAP net income of $22.4 million.

These Non-GAAP financial measures are reconciled to the most directly comparable GAAP financial measures in the table included in the below section " Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2021 and 2020 ;"

• GAAP net cash used in operating activities of $40.6 million (including the aforementioned $70.0 million Gilat payment);

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $76.5 million.

We achieved a fiscal 2020 consolidated book-to-bill ratio (a measure defined as bookings divided by net sales) of 0.95 and ended the year with consolidated backlog of $620.9 million.

As of July 31, 2021, our cash and cash equivalents were $30.9 million and our total debt outstanding was $201.0 million.

We achieved a fiscal 2021 consolidated book-to-bill ratio (a measure defined as bookings divided by net sales) of 1.07 and ended the year with consolidated backlog of $658.9 million, which represent substantial improvements as compared to our fiscal 2020.

During fiscal 2021, we were awarded several multi-year contracts to deploy and operate next generation 911 ("NG-911") services for the states of Arizona, Iowa, Pennsylvania and South Carolina, collectively valued over $200.0 million.

In addition, in connection with a multi-year contract award, we received an initial $13.0 million order from a large new customer to customize our next-generation broadband satellite technology that can be used with the thousands of Low Earth Orbit (“LEO”) satellites reportedly being launched over the next several years.

Our backlog (sometimes referred to herein as orders or bookings) are more fully defined in " Part I - Item 1.

Business " included in this Annual Report on Form 10-K and the total value of multi-year contracts that we have received is substantially higher than our reported backlog.

As of July 31, 2020, our cash and cash equivalents were $47.9 million and our total debt outstanding (including finance lease and other obligations) was $149.6 million, which represents a $16.2 million reduction from our total debt outstanding as of July 31, 2019.

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 will remain in effect as long as government advisories recommend.

Additionally, we have experienced minor supply chain disruptions, a lower level of factory utilization and higher logistics and operational costs.

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

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

As we enter fiscal 2021, we believe our business is slowly rebounding, customers appear to be adjusting to new ways of doing business and our pipeline of opportunities looks like it is growing.

Despite the ongoing impact of COVID-19, our diverse business is expected to support net sales and Adjusted EBITDA growth in fiscal 2021 as compared to the amounts we achieved in fiscal 2020.

Our ability to achieve improved results in fiscal 2021 will depend, in large part, on improvement in the global economy, no worsening of the ongoing COVID-19 pandemic, and the timely receipt of, and our performance on, new orders from our customers.

During fiscal 2021, we expect to relocate production of our satellite earth station product line to a new 146,000 square foot facility in Chandler, Arizona.

This new facility is located less than 10 miles from our existing facility, and we anticipate that we will be fully relocated by February 2021.

Our Business Outlook for Fiscal 2021 does not consider the financial impact of the pending Gilat or UHP acquisitions or other expenses related to future actions we may take in order to achieve our strategic objectives.

The UHP and Gilat acquisitions are discussed in the below section entitled “Acquisition Plan Update”.

On September 29, 2020, our Board of Directors declared a dividend of $0.10 per common share, payable on October 27, 2020 to stockholders of record at the close of business on October 14, 2020.

When adding our backlog and the total unfunded value of multi-year contracts that we have received and for which we expect future orders, our revenue visibility approximates $1.1 billion, excluding potential future orders from this large new customer that could amount to hundreds of millions of dollars.

With COVID-19 continuing to impact global markets and supply chains, reliable forecasting remains challenging.

Against that background, Comtech is targeting to achieve fiscal 2022 net sales within a range of $580.0 million to $600.0 million and Adjusted EBITDA between $70.0 million and $76.0 million.

These targets reflect the strength of our backlog and a strong sales pipeline, offset by the lingering impacts of COVID-19, timing considerations associated with tightening global supply chain constraints and start-up costs associated with the opening of two new high-volume technology manufacturing facilities.

In addition, our fiscal 2022 financial targets reflect the impact of the recently completed withdrawal of U.S.

troops from Afghanistan and other U.S.

government program changes.

Our consolidated net sales in fiscal 2022 are anticipated to reflect a higher percentage of total Commercial Solutions segment sales due to strong demand for our public safety and location technology solutions, including work on our recent contracts to design, deploy and operate NG-911 services for the states of South Carolina and Pennsylvania, and a higher level of annual sales in our satellite earth station product line as compared to fiscal 2021, including incremental contributions from our recently acquired TDMA modem technologies.

In addition, our consolidated net sales in fiscal 2022 are anticipated to reflect strong demand for:

(i) high reliability Electrical, Electronic and Electromechanical (“EEE”) satellite-based space components and X/Y steerable antennas;

(ii) ongoing sustainment services to the U.S.

Army for the AN/TSC-198A SNAP terminal;

(iii) Joint Cyber Analysis Course (“JCAC”) training solutions;

and (iv) sustainment services for the U.S.

Army’s Project Manager Mission Command (“PM MC”) Blue Force Tracking (“BFT-1”) program.

Also, we expect additional orders for the newly introduced Comtech COMET TM , the world’s smallest deployable troposcatter terminal, and our next generation troposcatter system used by the U.S.

Marine Corps.

Our GAAP operating income in fiscal 2022 will be impacted by both start-up manufacturing expenses and restructuring costs associated with the opening of our two new high-volume technology manufacturing centers, as well as COVID-19 related costs.

Global supply chain issues make the amount and timing of these expenses difficult to predict.

In addition, GAAP operating income in fiscal 2022 is likely to be impacted by greater than normal proxy solicitation related costs, as well as expenses associated with the appointment of a new CEO, as further discussed below.

Because the amount and timing of these costs remain largely unpredictable, we are not providing GAAP operating income, GAAP net income or any GAAP EPS guidance or a reconciliation of our projected results to the most comparable GAAP measure, as such a reconciliation cannot be prepared without unreasonable effort.

For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.

On October 4, 2021, we announced that our Board of Directors has appointed Michael D.

Porcelain, our President and Chief Operating Officer, to be Chief Executive Officer, taking over from Fred Kornberg after a short transition period.

The change of leadership is expected to occur by the end of calendar 2021, at which point Mr.

Porcelain will also join our Board of Directors and continue as President.

Kornberg will serve as non-executive Chairman of the Board and is expect to take on a technology advisory role.

Costs associated with this leadership transition will be announced once they are finalized.

On October 4, 2021, our Board of Directors declared a dividend of $0.10 per common share, payable on November 12, 2021 to stockholders of record at the close of business on October 13, 2021.

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

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Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2021 and 2020."

Acquisition Plan Update

The UHP Acquisition.

On November 21, 2019, we announced that 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 we believe 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 $50.0 million to $38.0 million (of which $5.0 million 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.

The Gilat Acquisition.

On January 29, 2020, we entered into a highly strategic agreement to acquire Gilat Satellite Networks Ltd.

Gilat is a worldwide leader in satellite networking technology, solutions and services, with market leading positions in the satellite ground station and in-flight connectivity solutions markets and deep expertise in operating large network infrastructures.

The acquisition, if consummated, would provide several strategic benefits to us including:

strengthening our position as a leading supplier of advanced communications solutions, uniquely capable of servicing the expanding need for ground infrastructure to support both existing and emerging satellite networks;

expanding our product portfolio with highly complementary technologies including Gilat’s high-performance TDMA-based satellite modems and its next generation amplifiers;

facilitating adoption of our satellite technologies into the 4G and 5G cellular backhaul ecosystems;

bolstering our world-class research and development capabilities, enabling us to offer customers more complete end-to-end technology solutions;

enhancing our ability to accelerate shareholder value creation by contributing to our ongoing strategy to move toward higher margin solutions and by increasing customer diversification geographically and by market.

Pursuant to the agreement, each Gilat ordinary share would be converted into the right to receive consideration of (i) $7.18 in cash, without interest, plus (ii) 0.08425 of a share of Comtech common stock (worth approximately $1.12 per Gilat ordinary share as of September 24, 2020), with cash payable in lieu of fractional shares.

Based on the terms agreed to on January 29, 2020 and the September 24, 2020 closing price of Comtech Common Stock of $13.32, the total amount payable to Gilat shareholders would have been approximately $465.8 million (consisting of approximately $402.9 million in cash with the remainder in Comtech Common Stock) or $8.30 per Gilat ordinary share.

Our intention would be to fund the $402.9 million cash portion of the amount payable by redeploying a large portion of both our and Gilat's unrestricted cash and cash equivalents, with the remaining funds provided by a new Gilat Acquisition Related Credit Facility that would replace our existing Credit Facility, allow us to refinance our existing debt of approximately $149.5 million as of July 31, 2020 and fund the $5.0 million minimum cash portion of the purchase price for UHP.

Our acquisition of Gilat remains subject to certain conditions to closing, including regulatory approval in Russia required to purchase Gilat’s Russian subsidiary.

In July 2020, we commenced litigation in the Delaware Court of Chancery (the “Delaware Court”) seeking certain declaratory judgments, including a declaratory judgment that Gilat has suffered a Material Adverse Effect (as defined in the Merger Agreement) and that, as a result, we are not obligated to complete the acquisition of Gilat.

The amended complaint also seeks a declaratory judgment that certain actions, if taken by Gilat, relating to Comtech’s application for Russian regulatory approval, would breach Gilat’s obligations under the Merger Agreement.

Gilat subsequently sued in the Delaware Court for declaratory judgments, including that it has not suffered a Material Adverse Effect and that Comtech has not used reasonable best efforts to obtain Russian regulatory approval for the transaction.

To-date, we incurred significant amounts of legal expenses and professional fees in connection with the litigation and a trial is scheduled for October 5, 2020.

The Delaware Court has indicated that it intends to render a judgment prior to October 29, 2020, the date that we or Gilat may terminate the Merger Agreement.

If we are required to close the Gilat acquisition, total net debt of the combined companies would be expected to approximate $525.0 million.

Litigation related to these matters is further discussed in "Notes to Consolidated Financial Statements - Note (13)(a) - Commitments and Contingencies - Legal Proceedings and Other Matters" included in "Part II - Item 8.- Financial Statements and Supplementary Data," included in this Annual Report on Form 10-K.

Comparison of Fiscal 2021 and 2020

Consolidated net sales were $581.7 million and $616.7 million for fiscal 2021 and 2020, respectively, representing a decrease of $35.0 million, or 5.7%.

The period-over-period decrease in net sales reflects lower net sales in both our Government Solutions and Commercial Solutions segments.

The period-over-period decrease in net sales reflects lower net sales in our Government Solutions segment, partially offset by higher net sales in our Commercial Solutions segment.

Net sales by operating segment are discussed below.

Commercial Solutions

Net sales in our Commercial Solutions segment were $353.7 million for fiscal 2020, as compared to $357.3 million for fiscal 2019, a decrease of $3.6 million, or 1.0%.

Net sales in our Commercial Solutions segment were $360.1 million for fiscal 2021, as compared to $353.7 million for fiscal 2020, an increase of $6.4 million, or 1.8%.

Our Commercial Solutions segment represented 61.9% of consolidated net sales for fiscal 2021 as compared to 57.4% for fiscal 2020.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 1.23.

Period-to-period fluctuations in bookings is normal for this segment.

As further discussed below, long-term demand for our Commercial Solutions products and technologies appears strong and we believe fiscal 2021 net sales for this segment will be slightly higher than the amount we achieved in fiscal 2020.

Although the business impact of COVID-19 resulted in significantly lower net sales of our satellite ground station technologies during fiscal 2020 as compared to fiscal 2019, bookings began to rebound in the fourth quarter of our fiscal 2020.

We were awarded a number of important orders including:

(i) contracts valued at more than $2.2 million for Ka-band high-power traveling wave tube amplifiers (“TWTAs”) for trailer-based satellite communications terminals;

(ii) a contract valued at more than $1.5 million for 500W Ka-band TWTAs for a tracking, telemetry and command application to be deployed globally by a major satellite service provider;

(iii) $1.3 million in orders for advanced satellite modems, WAN optimization and redundancy switches to support cellular LTE backhaul for a service provider in the Middle East;

and (iv) a $1.1 million order for satellite ground station equipment from a South East Asia Ministry of Defense for a network upgrade, which could expand to more than 2,000 units.

In addition, we received additional orders on our contract valued at $4.7 million to support a critical U.S.

Air Force and U.S.

Army Anti-jam Modem (“A3M”) program which is intended to provide the U.S.

Air Force and U.S.

Army with a secure, wideband, anti-jam satellite communications terminal modem for tactical satellite communication operations.

Despite the ongoing impact of the COVID-19 pandemic, based on the anticipated increase in the number of high-throughput satellites and low earth orbit and medium earth orbit satellites expected to be launched, and the migration of networks from 3G to 4G and ultimately 5G technologies in emerging countries, we believe that we are in the early stages of a multi-year period of growing demand for satellite ground station technologies which are used to backhaul cellular traffic.

Also, we continue to focus efforts on expanding sales of our Heights TM solutions and believe the pipeline for this product line is growing.

Net sales of our public safety and location technology solutions were higher in fiscal 2020 as compared to fiscal 2019.

Sales in fiscal 2020 of these products included an insignificant amount of sales from our February 2020 acquisition of NG-911.

To-date, the business impact of COVID-19 on our public safety and location technology solutions has been relatively muted and demand for our products appears strong.

For example, we were awarded and began work on close to $30.0 million of multi-year contracts from two U.S.

tier-one mobile network operators for 5G virtual mobile location-based technology solutions, including public safety applications.

Also, we secured several multi-year contracts valued at more than $15.0 million to deploy new call-handling solutions in the Midwest region of the United States.

Although COVID-19 has resulted in the cancellation of several key public safety trade shows and some states and municipalities have announced budget constraints, other existing and potential customers are increasing their funding for next-generation 911 solutions, recognizing the critical importance of upgrading their 911 systems.

For example, during the fourth quarter of fiscal 2020, we were awarded a contract valued at up to $54.0 million to design, deploy, and operate next generation 911 services for the State of South Carolina.

Additionally, we are working with two other states for multi-million dollar contracts to upgrade certain components of their 911 networks.

Although public safety and location technology solutions have long sales cycles and are subject to difficult-to-predict changes in the overall procurement strategies of wireless carrier customers, we believe we are well positioned for long-term growth in this market.

Period-to-period fluctuations in bookings are normal for this segment.

As further discussed below, long-term demand for our Commercial Solutions segment's products and technologies appears strong and we believe fiscal 2022 net sales for this segment will be higher than the amount we achieved in fiscal 2021.

Net sales of our satellite ground station technologies for fiscal 2021 were higher than fiscal 2020.

Fiscal 2021 benefited from a nominal amount of sales related to our acquisition of UHP Networks Inc.

("UHP") on March 2, 2021, which extended our product offerings to include TDMA satellite modems.

We believe UHP developed revolutionary technology, which has the potential to transform the growing Very Small Aperture Terminal ("VSAT") market, as demand for high-speed satellite-based networks are projected to grow significantly.

As a result of the acquisition, we believe we are well positioned for long-term growth in this market.

While our satellite ground station product line continues to be impacted by COVID-19's effect on customer demand, particularly in international markets, which historically represents a large majority of end-users for this product line, we benefited during fiscal 2021 from a number of awards, including:

(i) $11.4 million in delivery orders from the U.S.

Naval Information Warfare Systems Command for our latest generation SLM-5650B satellite modems and firmware;

(ii) multiple contracts aggregating $6.3 million for 500W Ka-band traveling wave tube amplifiers ("TWTAs") for both military and commercial high throughput satellite systems;

(iii) multiple contracts aggregating $3.6 million from a U.S.

system integrator for X-band solid-state power amplifiers ("SSPAs") and block up converters for transportable satellite communication terminals;

(iv) a contract valued at more than $3.0 million for QV-band TWTAs to support a new high-speed satellite network;

(v) an order valued at more than $2.0 million for state-of-the-art 500W Ka-band high power amplifiers supporting a leading high throughput satellite customer;

and (vi) a $2.0 million order for rugged Ka-band high power TWTAs for a U.S.

military communications system, among others.

We expect sales of our satellite earth station products in fiscal 2022 to grow as compared to fiscal 2021 due to increased demand.

This product line will also benefit from a full twelve months of sales of our new TDMA satellite network platform that we acquired in March 2021.

At the same time, recent spikes in COVID-19 infection rates have curtailed travel and business in many parts of the world.

In addition, global supply chain constraints have become more prevalent in recent months, with lead times for certain parts extending meaningfully.

We believe these issues are suppressing orders from many of our satellite earth station product line customers and impacting the timing of deliveries and installations.

Although we are closely monitoring our inventory needs and supplier base, these constraints represent a significant performance headwind as we enter fiscal 2022.

Net sales in fiscal 2021 of our public safety and location technology solutions were slightly higher than fiscal 2020, reflecting increased sales of our NG-911 services and location-based technology solutions, offset in part by the absence of 911 wireless call routing sales to AT&T.

During fiscal 2021, we were awarded several important statewide NG-911 contracts and our strong momentum was acknowledged by Frost & Sullivan, who recognized Comtech for registering the most significant year-over-year market share increase among all NG-911 primary contract holders, growing our market share from an estimated 17.3% in 2019 to 26.2% in 2020, as calculated by Frost & Sullivan.

During fiscal 2021, we were awarded and began work on a statewide contract valued at up to $175.1 million to design, deploy, and operate NG-911 services for the Commonwealth of Pennsylvania.

The total contract value includes multi-year contract extension options and was initially funded at $137.4 million, of which $111.6 million was booked in fiscal 2021.

This contract was awarded to us shortly after we announced the receipt of a $54.0 million contract to design, deploy and operate NG-911 services for the State of South Carolina, for which we received over $7.5 million of additional funding in fiscal 2021.

In addition to these contracts, we were awarded a multi-year statewide contract valued at $35.8 million to design, deploy and operate NG-911 services for the State of Arizona, which includes a multi-year extension option.

Excluding such option, the contract is valued at $23.5 million.

Also, in fiscal 2021, we were awarded a statewide contract to provide NG-911 services for the State of Iowa.

This multi-year contract includes contract extension options, is valued up to $48.5 million and was initially funded $23.0 million.

Lastly, although not yet funded, we have also been notified that we were selected as the winner of a multi-year NG-911 contract for the State of Ohio.

We anticipate that such contract will be initially funded in fiscal 2022.

Other notable orders received for our public safety and location technology solutions during fiscal 2021 include:

(i) a $9.8 million contract with a major tier-one mobile network operator ("MNO") for a broad suite of new capabilities and services centered around virtualized applications and 5G products;

(ii) a $7.1 million contract for the deployment of a cellular-based Wireless Emergency Alerts ("WEA") solution with a tier-one MNO, which was our first major award for a WEA solution;

(iii) a $5.0 million NG-911 modernization project for a U.S.

government end customer;

(iv) a contract valued at up to $4.7 million with a channel partner to supply new releases to messaging application software for a U.S.

tier-one MNO;

(v) a contract renewal worth $4.2 million for location and mapping technologies for a tier-one MNO;

(vi) a $4.0 million maintenance agreement with a channel partner to continue providing messaging application support for a U.S.

tier-one MNO;

(vii) orders exceeding $3.8 million with a tier-one MNO for additional capabilities related to our Virtual Mobility Location Center platform;

and (viii) multiple contracts valued over $6.5 million to provide NG-911 services, including our Solacom Guardian Intelligent 911 Workstations, to various police and fire rescue services in Canada, among others.

We are continuing to work on other opportunities and believe there is strong interest in our public safety and location technology solutions.

To-date, the business impact of COVID-19 on our public safety and location technology solutions has been relatively muted and long-term demand for our products and services appears strong.

Although COVID-19 has resulted in the cancellation of some key public safety trade shows and some states and municipalities have announced budget constraints, we believe that other potential customers are increasing their funding for NG-911 solutions, recognizing the critical importance of upgrading their 911 systems.

Although public safety and location technology solutions have long sales cycles and are subject to difficult-to-predict changes in the overall procurement strategies of wireless carrier customers, we believe that sales of our NG-911 solutions will be higher than the amount we achieved in fiscal 2022.

Further, we believe we are well positioned for long-term growth in this market.

Overall, we remain optimistic that fiscal 2022 net sales for this segment will be higher than the amount we achieved in fiscal 2021.

Bookings, sales and profitability in our Commercial Solutions segment can fluctuate from period-to-period due to many factors, including changes in the general business environment.

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Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2021 was 0.82.

Period-to-period fluctuations in bookings is normal for this segment.

As further discussed below, despite the year-over-year decline in net sales, long-term demand for our Government Solutions products and technologies remains strong.

Looking forward, and despite the lingering impact of COVID-19, we believe fiscal 2021 net sales for this segment will be slightly higher than the amount we achieved in fiscal 2020.

Net sales of our mission-critical technologies during fiscal 2020 were significantly lower as compared to fiscal 2019, due primarily to the timing of and performance on orders related to our $98.6 million U.S.

Army global field support contract and lower sales for high reliability Electrical, Electronic and Electromechanical (“EEE”) satellite based space components.

While fiscal 2020 benefited from a nominal amount of sales related to our new X/Y satellite tracking antenna product line acquired in connection with our January 2020 acquisition of CGC, it also reflected the absence of sales of our next generation MT-2025 mobile satellite transceivers.

In fiscal 2019, we sold $11.7 million of such transceivers.

Although we believe that COVID-19 did cause fielding and order delays for our customers which also impacted the timing and receipt of awards in fiscal 2020 for our mission-critical technologies, it was a solid year for bookings.

Receipt of new orders in fiscal 2020 include:

(i) over $37.1 million of orders to supply Manpack Satellite Terminals, networking equipment and other advanced VSAT products to the U.S.

Army (which were booked pursuant to our $223.4 million Global Tactical Advanced Communication Systems ("GTACS") contract with the U.S.

Army's PM Tactical Network, which has a remaining unfunded contract value of $8.4 million as of July 31, 2020);

(ii) $28.2 million of orders to provide ongoing sustainment services to the U.S.

Army for the AN/TSC-198A SNAP (Secret Internet Protocol Router ("SIPR") and Non-classified Internet Protocol Router ("NIPR") Access Point), Very Small Aperture Terminals ("VSATs");

(iii) $10.7 million of additional orders from the U.S.

government for our Joint Cyber Analysis Course (“JCAC”) training solutions;

(iv) over $7.7 million of additional funding related to sustaining the U.S.

Army's Project Manager Mission Command (“PM MC”) Blue Force Tracking (“BFT-1”) program;

and (v) $6.3 million of initial funding on a $12.6 million contract from a major U.S.

subcontractor for the supply of high reliability EEE space components to be utilized on NASA's Artemis missions.

Net sales of our high-performance transmission technologies in fiscal 2020 were slightly lower as compared to fiscal 2019 with increased sales of solid-state, high-power amplifiers and related switching technologies being offset by lower sales of our over-the-horizon microwave system technologies.

Bookings for our high-performance transmission technologies were lower in fiscal 2020 as compared to fiscal 2019 as the business impact of COVID-19 resulted in some of our international customers delaying awards for certain large over-the-horizon microwave system technology projects.

However, demand from the U.S.

military for these products remains strong.

In fiscal 2020, we were awarded several contracts for our recently introduced Comtech COMET terminals to be used by a U.S.

Army Special Operations Command and received $13.4 million of initial funding related to a 10-year, $211.0 million IDIQ contract awarded to us by a prime contractor to provide next generation troposcatter systems in support of the U.S.

Period-to-period fluctuations in bookings are normal for this segment.

Fiscal 2021 net sales primarily reflect lower sales of global field support services, advanced VSAT products and other programs for the U.S.

Army, offset in part by higher sales of our high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components (including incremental sales of X/Y antenna products that we now offer as a result of our January 2020 acquisition of CGC).

Fiscal 2021 net sales also included performance on our 10-year, $211.0 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of the U.S.

Marine Corps.

We believe this multi-year opportunity validates Comtech’s market leading troposcatter technologies and expertise.

During fiscal 2021, we were awarded $27.0 million of orders related to a new contract to provide system refurbishment, sustainment services and baseband equipment to the U.S Army.

Such orders support the sustainment of the U.S.

Army's AN/TSC-198 SNAP family of ground satellite terminals.

This multi-year contract, valued at up to $235.7 million, includes a base year award and three one-year option periods exercisable by the U.S.

We expect that additional funding will be authorized over the remaining contract period.

Other notable orders awarded in fiscal 2021 include:

(i) $16.3 million of orders from the U.S.

government for our JCAC training solutions;

(ii) a $10.4 million contract from the U.S.

military for the first phase of a full-motion large aperture antenna tracking system;

(iii) $7.2 million of funding to support the U.S.

Army’s PM MC's BFT-1 program;

(iv) $5.5 million of funding on our contract to provide the U.S.

Army with global field support services for military satellite communication (“SATCOM”) terminals around the world;

(v) a $3.5 million contract for solid-state, high-power RF amplifiers from a major domestic medical instrumentation provider;

(vi) a $3.2 million follow-on contract from the Brazilian military to supply additional satellite equipment and services for its Air Traffic Control network;

(vii) a $3.0 million order from an overseas agency for maintenance of down range tracking stations;

(viii) $3.0 million of additional funding for a 12-month extension on an existing contract to provide the State of Maryland’s Department of Human Services with statewide information technology (“IT”) services;

and (ix) $2.9 million of funding on our contract to provide ongoing sustainment services and baseband equipment, among others.

We are seeing strong interest across the board for our Comtech COMET TM terminals and other new solutions we are discussing with our customers.

During fiscal 2021, we conducted successful in-field demonstrations including our industry leading troposcatter solution that we are currently providing to the U.S.

Marine Corps.

Other military commands have also shown strong interest and recently, in fiscal 2021, we were awarded a $1.7 million contract by a non-U.S.

NATO family customer for multiple COMET TM terminals.

This represents the second procurement of COMET TM terminals by a non-U.S.

NATO family customer, in addition to the multiple COMET TM terminals already procured by the U.S.

Special Operations Command.

In April 2021, the U.S.

government announced that it intended to fully withdraw troops from Afghanistan.

This change resulted in lower revenues than previously anticipated for certain programs that we currently participate in.

In addition, the U.S.

presidential administration released its fiscal 2022 budget request.

This budget request includes less money for certain legacy programs but additional funding for modernization and new programs.

We believe these budget changes will benefit us over the longer-term, but will result in a decline in overall revenues in our Government Solutions segment in fiscal 2022, as compared to fiscal 2021.

Although still difficult to predict, we expect that revenues in this segment for each of the first three quarters of fiscal 2022 will be slightly lower than the $46.6 million achieved during the fourth quarter of fiscal 2021.

Thereafter, this segment is expected to benefit from higher margin programs, including the receipt of new orders for the Comtech COMET TM and other troposcatter solutions.

Bookings, sales and profitability in our Government Solutions segment can fluctuate dramatically from period-to-period due to many factors, including unpredictable funding, deployment and technology decisions by our U.S.

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state and local governments.

Included in domestic sales are sales to Verizon Communications Inc.

("Verizon"), which accounted for 10.7% of consolidated net sales for fiscal 2021.

Except for the U.S.

government, there were no customers that represented more than 10.0% of consolidated net sales for fiscal 2020 and 2019.

government, there were no customers that represented more than 10.0% of consolidated net sales for fiscal 2020.

International sales for fiscal 2021 and 2020 (which include sales to U.S.

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The decrease of $12.8 million primarily reflects the decline in consolidated net sales, as discussed above.

Gross profit, as a percentage of consolidated net sales, for both fiscal 2020 and fiscal 2019 was 36.8%.

Although fiscal 2020 reflects a higher percentage of consolidated net sales in our Commercial Solutions segment, which historically achieves higher gross margins than our Government Solutions segment, this benefit was offset by overall company-wide product mix changes.

Our gross profit in fiscal 2020 reflects minor increases in costs due to a lower level of factory utilization and higher logistics and operational costs resulting from COVID-19.

Gross profit as a percentage of consolidated net sales was 36.8% for both fiscal periods.

Our gross profit in fiscal 2021 reflects a higher percentage of consolidated net sales generated from our Commercial Solutions segment (which historically achieves higher gross margins than our Government Solutions segment), offset by increased costs due to production delays, supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs resulting from the COVID-19 pandemic.

In addition, our gross profit reflects start-up costs associated with the opening of our two new high-volume technology manufacturing centers.

Our gross profit for fiscal 2021 also reflects a $2.0 million benefit from the refund of historical excise tax paid, which was recorded in our Unallocated segment.

Gross profit, as a percentage of related segment net sales, is further discussed below.

Our Commercial Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2021 decreased in comparison to fiscal 2020.

The decrease in gross profit percentage in fiscal 2020 primarily reflects changes in products and services mix, primarily lower net sales of our satellite ground station technologies.

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2020 increased slightly in comparison to fiscal 2019.

The slight increase in gross profit percentage primarily reflects a more favorable mix of mission-critical technology solutions, despite lower fiscal 2020 sales of such solutions.

The decrease in gross profit percentage in fiscal 2021 primarily reflects changes in products and services mix, including the cessation of sales to AT&T for 911 wireless call routing services and an increase in sales related to a recently awarded statewide NG-911 deployment (which has lower margins than our 911 wireless call routing services).

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2021 decreased in comparison to fiscal 2020.

The decrease in gross profit percentage primarily reflects lower segment net sales and changes in products and services mix, as discussed above.

Also, during fiscal 2021, we incurred $1.0 million of incremental operating costs for our antenna facility in the United Kingdom due to the impact of the COVID-19 pandemic.

Although operations in the United Kingdom have largely resumed, we continue to experience lingering impacts from COVID-19 and the shut-down.

Included in consolidated cost of sales for fiscal 2021 and 2020 are provisions for excess and obsolete inventory of $4.4 million and $1.6 million, respectively.

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As a percentage of consolidated net sales, selling, general and administrative expenses were 19.2% and 19.0% for fiscal 2021 and 2020, respectively.

Our selling, general and administrative expenses in fiscal 2020 reflect certain cost reduction actions taken in response to lower levels of business activity resulting from COVID-19.

These cost savings measures included reducing global headcount, temporarily reducing salaries, suspending merit increases and eliminating certain discretionary expenses.

Severance costs related to these actions were not material.

Additionally, during most of the second half of fiscal 2020, we have conducted most of our non-production related operations through remote working arrangements, curtailed most business travel, and have established social distancing safeguards.

These precautions and business practices will remain in effect as long as government advisories recommend.

Although we have incurred lower travel expenses in fiscal 2020 than we did in fiscal 2019, there has been a corresponding increase in information technology cost and COVID-19 safety related expenses.

In fiscal 2020, we incurred estimated contract settlement costs of $0.4 million related to the repositioning of our location technologies solutions offerings in our Commercial Solutions segment.

In fiscal 2019, we incurred $6.4 million of such costs and also incurred $1.4 million of facility exit costs in our Government Solutions segment.

Excluding all of these costs in both periods, our selling, general and administrative expenses would have been $116.7 million, or 18.9% of consolidated net sales for fiscal 2020 and $120.8 million, or 18.0% of consolidated net sales for fiscal 2019.

In fiscal 2021, we incurred $2.8 million of restructuring costs to streamline our operations, including $1.8 million related to the ongoing relocation of certain of our satellite earth station production facilities to a new 146,000 square foot facility in Chandler, Arizona, and $1.0 million for the consolidation of certain administrative and operating functions in our tactical communications technologies product line.

In addition, we received $3.1 million of legal expense recoveries from insurance in fiscal 2021.

In fiscal 2020, we incurred estimated contract settlement costs of $0.4 million principally related to the repositioning of our location technologies solutions offerings in our Commercial Solutions segment.

Excluding these costs in both periods, our selling, general and administrative expenses would have been $112.1 million, or 19.3% of consolidated net sales in fiscal 2021 and $116.7 million, or 18.9% of consolidated net sales in fiscal 2020.

The decrease in our selling, general and administrative expenses, in dollars, is largely attributable to the benefit from our efforts to streamline business operations in both of our segments.

Selling, general and administrative expenses in fiscal 2022 will likely be impacted by greater than normal proxy solicitation costs as well expenses associated with the CEO change that was announced on October 4, 2021.

Amortization of stock-based compensation expenses recorded as selling, general and administrative expenses was $8.1 million in fiscal 2021 as compared to $7.5 million in fiscal 2020.

This year-over-year decrease largely occurred due to the temporary suspension of stock-based awards for certain employees to reduce expenses as a response to COVID-19.

Stock-based awards for these employees are expected to resume in fiscal 2021.

Amortization of stock-based compensation is not allocated to our two reportable operating segments.

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The remaining research and development expenses of $1.0 million and $0.9 million in fiscal 2021 and 2020, respectively, related to the amortization of stock-based compensation expense.

During fiscal 2021, our Government Solutions segment incurred $0.3 million of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

We are evaluating this new market in relation to our long-term business strategies, and we may incur additional costs in fiscal 2022.

Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements.

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Amortization relating to intangible assets with finite lives was $21.0 million (of which $17.1 million was for the Commercial Solutions segment and $4.0 million was for the Government Solutions segment) for fiscal 2021 and $21.6 million (of which $17.3 million was for the Commercial Solutions segment and $4.3 million was for the Government Solutions segment) for fiscal 2020.

The increase of $3.3 million was primarily due to our 2019 acquisitions of Solacom and the GD NG-911 business and our 2020 acquisition of CGC.

Excluding the impact of any increased amortization from our pending acquisitions of Gilat and UHP, our Business Outlook for Fiscal 2021 assumes total annual amortization of intangible assets of approximately $21.3 million.

Settlement of Intellectual Property Litigation.

In fiscal 2019, we recorded a $3.2 million benefit in our Unallocated segment as a result of a favorable ruling issued by the U.S.

Court of Appeals for the Federal Circuit related to a legacy TCS intellectual property matter.

There was no comparable adjustment in fiscal 2020.

Our Business Outlook for Fiscal 2022 assumes total annual amortization of intangible assets of approximately $21.8 million.

Acquisition Plan Expenses.

During fiscal 2020, we incurred acquisition plan expenses of $20.8 million, primarily related to our pending acquisitions of Gilat (including significant litigation expenses) and UHP.

Fiscal 2020 acquisition plan expenses also include costs associated with our completed acquisitions of CGC and NG-911.

In fiscal 2019, our acquisition plan expenses of $5.9 million primarily related to our acquisitions of Solacom and the GD NG-911 business.

Except for $0.8 million of fiscal 2020 costs which are reflected in our Commercial Solutions segment, all of these expenses are primarily recorded in our Unallocated segment.

We expect to incur a significant amount of acquisition plan expenses (including a large amount of litigation expenses) in fiscal 2021.

Acquisition related litigation expenses incurred so far during our first quarter of fiscal 2021 approximate $14.2 million and will increase during the trial period.

If we are required to close the Gilat acquisition, we expect to incur additional acquisition plan expenses of approximately $38.0 million related to additional litigation expenses, debt commitment and issuance costs, advisory fees and other expenses.

Operating Income.

Operating income for fiscal 2020 was $15.2 million as compared $41.4 million for fiscal 2019.

Operating income by reportable segment is shown in the table below:

During fiscal 2021 and 2020, we incurred acquisition plan expenses of $100.3 million and $20.8 million, respectively.

For fiscal 2021, $88.3 million related to the previously announced litigation and merger termination with Gilat, including $70.0 million paid in cash to Gilat.

The remaining costs in fiscal 2021 primarily related to the April 2021 settlement of litigation associated with our 2019 acquisition of GD NG-911 as well as the March 2021 closing of our acquisition of UHP.

These expenses are primarily recorded in our Unallocated segment.

Operating (Loss) Income.

Operating loss for fiscal 2021 was $68.3 million as compared to operating income of $15.2 million for fiscal 2020.

Operating income (loss) by reportable segment is shown in the table below:

Fiscal Years Ended July 31,

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Percentage of related

net sales 9.8 % 10.1 % 7.6 % 9.2 % NA NA 2.5 % 6.2 %

The Commercial Solutions segment's operating income for fiscal 2020 and fiscal 2019 reflects $0.4 million and $6.4 million of estimated contract settlement costs, as discussed above.

The segment's operating income for fiscal 2020 also reflects $0.8 million of the total acquisition plan expenses, as discussed above.

Excluding such charges, operating income in our Commercial Solutions segment would have been $36.0 million, or 10.2% of related segment net sales for fiscal 2020, and $42.5 million, or 11.9% of related segment net sales for fiscal 2019.

The decrease in operating income, both in dollars and as a percentage of related segment net sales, was driven primarily by lower net sales and a lower gross profit percentage and increased amortization of intangibles, as discussed above.

The Government Solutions segment’s operating income for fiscal 2019 included $1.4 million of facility exit costs, as discussed above.

Excluding such facility exist costs, operating income in our Government Solutions segment for fiscal 2019 would have been $30.4 million, or 9.7% of related segment net sales as compared to fiscal 2020 operating income of $20.0 million, or 7.6% of related segment net sales.

The decrease in our Government Solutions segment’s operating income, both in dollars and as a percentage of related segment net sales, in fiscal 2020 was driven primarily by lower net sales and increased amortization of intangibles, as discussed above.

The increase in unallocated expenses in fiscal 2020 as compared to fiscal 2019 is primarily due to higher acquisition plan expenses and the absence of the $3.2 million benefit related to the fiscal 2019 favorable ruling issued by the U.S.

Court of Appeals for the Federal Circuit for a legacy TCS intellectual property matter, as discussed above.

net sales 11.4 % 9.8 % 3.8 % 7.6 % NA NA NA 2.5 %

The increase in our Commercial Solutions segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2021 was driven primarily by higher net sales, lower research and development expenses and lower amortization of intangibles, offset in part by a lower gross profit percentage and $1.8 million of restructuring costs, as discussed above.

The decrease in our Government Solutions segment operating income, both in dollars and as a percentage of related segment net sales, for fiscal 2021 was driven primarily by lower net sales, a lower gross profit percentage, higher research and development expenses and $1.0 million of restructuring costs, partially offset by lower amortization of intangibles, as discussed above.

The increase in unallocated expenses for fiscal 2021 as compared to fiscal 2020 is primarily due to acquisition plan expenses, as discussed above.

Amortization of stock-based compensation was $10.0 million and $9.3 million, respectively, for fiscal 2021 and 2020.

Excluding the $20.8 million of acquisition plan expenses and $0.4 million of estimated contract settlement costs, consolidated operating income for fiscal 2020 would have been $36.4 million, or 5.9% of consolidated net sales.

Excluding net costs of $10.5 million, consisting of $6.4 million of estimated contract settlement costs, $1.4 million of facility exit costs, $5.9 million of acquisition plan expenses and a $3.2 million benefit related to a legacy TCS intellectual property matter (all of which are discussed above), consolidated operating income for fiscal 2019 would have been $51.8 million, or 7.7% of consolidated net sales.

The decrease in dollars, and as a percentage of consolidated net sales, was due primarily to lower consolidated net sales and increased amortization of intangibles, as discussed above.

Unallocated expenses in fiscal 2021 will be impacted by ongoing acquisition plan expenses, discussed above.

Excluding (i) $100.3 million of acquisition plan expenses;

(ii) $2.8 million of restructuring costs;

(iii) $1.0 million of incremental operating costs due to the impact of COVID-19;

and (iv) $0.3 million of strategic emerging technology costs, consolidated operating income for fiscal 2021 would have been $36.1 million, or 6.2% of consolidated net sales.

Excluding $20.8 million of acquisition plan expenses and $0.4 million of estimated contract settlement costs, consolidated operating income for fiscal 2020 would have been $36.4 million, or 5.9% of consolidated net sales.

The increase, as a percentage of consolidated net sales, was due primarily to lower selling, general and administrative expenses and lower research and development expenses, offset in part by lower consolidated net sales, as discussed above.

GAAP operating income in fiscal 2022 will be impacted by both start-up expenses and restructuring costs associated with the opening of Comtech’s new high-volume technology manufacturing centers, as well as COVID-19 related costs.

In addition, as discussed above, we will likely incur greater than normal proxy solicitation costs in fiscal 2022 as well expenses associated with the CEO change that was announced on October 4, 2021.

Interest Expense and Other.

Interest expense was $6.8 million and $6.1 million for fiscal 2021 and 2020, respectively.

The decrease is attributable to lower interest rates and lower outstanding indebtedness under our existing Credit Facility.

Our effective interest rate (including amortization of deferred financing costs) in fiscal 2020 was approximately 3.9%.

Interest expense for fiscal 2021 includes $1.2 million of incremental interest expense related to a now terminated financing commitment letter.

Excluding the $1.2 million, our effective interest rate (including amortization of deferred financing costs) in fiscal 2021 was approximately 2.8%.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility approximates 2.4%.

Excluding the impact of our pending acquisitions, interest expense in fiscal 2021, is expected to approximate $5.9 million.

Write-off of Deferred Financing Costs.

In connection with the establishment of a new Credit Facility in fiscal 2019, we wrote-off $3.2 million of deferred financing costs which primarily related to the term loan portion of our prior credit facility.

See " Notes to Consolidated Financial Statements - Note (8) - Credit Facility " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Annual Report on Form 10-K, for further information.

There was no comparable charge in fiscal 2020.

Interest (Income) and Other.

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All of our available cash and cash equivalents are currently invested in bank deposits and money market deposit accounts which, at this time, are currently yielding an immaterial interest rate.

Provision for Income Taxes.

The provision for income taxes for fiscal 2020 and 2019 was $2.3 million and $3.9 million, respectively.

Our effective tax rate (excluding discrete tax items) for fiscal 2020 and 2019 was 37.0% and 23.25%, respectively.

The increase from 23.25% to 37.0% is primarily due to the decrease in fiscal 2020 consolidated net sales.

During fiscal 2020, we recorded a net discrete tax benefit of $1.2 million, primarily related to the finalization of certain tax accounts in connection with the filing of our fiscal 2019 federal and state income tax returns.

These benefits were offset, in part, by (i) the remeasurement of certain foreign deferred taxes resulting from the passage of legislation that increased the statutory tax rate in the United Kingdom from 17.0% to 19.0% and (ii) the settlement of certain stock-based awards during fiscal 2020.

(Benefit from) Provision for Income Taxes.

For fiscal 2021, we recorded a tax benefit of $1.5 million as compared to a tax provision of $2.3 million for fiscal 2020.

Our effective tax rate for fiscal 2021 (excluding discrete tax items) was nominal, as compared to 37.0% for fiscal 2020.

The decrease from 37.0% is primarily due to the exclusion of the $70.0 million of acquisition plan expense paid to Gilat during our first quarter of fiscal 2021, as such amount was considered an unusual and infrequently occurring item.

In addition, given the nature of such item, no financial statement benefit was recorded for the $70.0 million payment to Gilat.

During fiscal 2021, we recorded a net discrete tax benefit of $1.6 million, primarily related to:

(i) the favorable resolution of the IRS' audit of our fiscal 2016 federal income tax return;

(ii) discrete tax benefits for stock-based awards that were settled during fiscal 2019;

and (iii) the reversal of tax contingencies no longer required due to the expiration of applicable statutes of limitation.

(i) the release of valuation allowances previously established on deferred tax assets of one of our Canadian subsidiaries;

(ii) the finalization of certain tax accounts in connection with the filing of our fiscal 2020 federal, state and foreign income tax returns;

and (iii) the settlement of certain stock-based awards during fiscal 2021.

These benefits were offset, in part, by:

(i) the remeasurement of certain foreign deferred taxes resulting from the passage of legislation that increased the statutory tax rate in the United Kingdom from 17.0% to 19.0%;

and (ii) the settlement of certain stock-based awards during fiscal 2020.

Our federal income tax returns for fiscal 2018 through 2020 are subject to potential future IRS audit.

None of our state income tax returns prior to fiscal 2017 are subject to audit.

None of TCS' state income tax returns prior to calendar year 2015 are subject to audit.

Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

During fiscal 2020, consolidated net income was $7.0 million as compared to $25.0 million during fiscal 2019.

Net (Loss) Income.

During fiscal 2021, our consolidated net loss was $73.5 million as compared to net income of $7.0 million during fiscal 2020.

Adjusted EBITDA.

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0.1 — 0.2 (0.2) (0.4) — (0.1) (0.2)

Write-off of deferred financing costs

— — — — — 3.2 — 3.2

Interest expense — — 0.1 — 6.8 6.0 6.8 6.1

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— 0.4 — — — — — 0.4

Settlement of intellectual property litigation

— — — — — (3.2) — (3.2)

Acquisition plan expenses

(1.1) 0.8 — — 101.3 20.0 100.3 20.8

Facility exit costs

— — — 1.4 — — — 1.4

Restructuring costs 1.8 — 1.0 — — — 2.8 —

COVID-19 related costs — — 1.0 — — — 1.0 —

Strategic emerging technology costs — — 0.3 — — — 0.3 —

Adjusted EBITDA $ 66.3 61.7 16.3 25.7 (6.1) (9.6) $ 76.5 77.8

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18.4 % 17.4 % 7.4 % 9.8 % NA NA 13.2 % 12.6 %

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for fiscal 2020 as compared to fiscal 2019 is primarily attributable to lower consolidated net sales, as discussed above.

The decrease in our Commercial Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is due to lower net sales and a lower gross profit percentage, as discussed above.

The decrease in our Government Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, was primarily driven by lower net sales, as discussed above.

The increase in consolidated Adjusted EBITDA, as a percentage of consolidated net sales, for fiscal 2021 as compared to fiscal 2020 is primarily attributable to a higher percentage of consolidated net sales in our Commercial Solutions segment, as well as lower consolidated selling, general and administrative expenses and research and development expenses, as discussed above.

The increase in our Commercial Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is due to higher segment net sales, lower research and development expense and the benefit from cost savings measures previously implemented, partially offset by a lower gross profit percentage, as discussed above.

The decrease in our Government Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, was driven primarily by lower segment net sales, a lower gross profit percentage and higher research and development expenses, as discussed above.

Because our consolidated Adjusted EBITDA, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and related gross profit for each individual segment as well as unallocated spending, it is inherently difficult to forecast.

Reconciliations of our GAAP consolidated operating income, net income and net income per diluted share for fiscal 2020 and 2019 to the corresponding non-GAAP measures are shown in the tables below (numbers and per share amounts in the table may not foot due to rounding):

($ in millions, except for per share amount) Operating Income Net Income Net Income per

Reconciliations of our GAAP consolidated operating income (loss), net income (loss) and net income (loss) per diluted share for fiscal 2021 and 2020 to the corresponding non-GAAP measures are shown in the tables below (numbers and per share amounts in the table may not foot due to rounding).

Non-GAAP net income and EPS reflect non-GAAP provisions for income taxes based on full year results, as adjusted for the non-GAAP reconciling items included in the tables below.

We evaluate our non-GAAP effective income tax rate on an ongoing basis, and it can change from time to time.

Our non-GAAP effective income tax rate can differ materially from our GAAP effective income tax rate.

In addition, due to the GAAP net loss for the period, non-GAAP income per diluted share adjustments for fiscal 2021 were computed using 25,885,000 weighted average diluted shares outstanding during the respective period:

($ in millions, except for per share amount) Operating (Loss) Income Net (Loss) Income Net (Loss) Income per

Diluted Share

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$ (68.3) $ (73.5) $ (2.86)

Estimated contract settlement costs

Acquisition plan expenses

100.3 93.3 3.60

Restructuring costs

COVID-19 related costs 1.0 0.8 0.03

Strategic emerging technology costs 0.3 0.3 0.01

Interest expense

Net discrete tax benefit

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Estimated contract settlement costs

Settlement of intellectual property litigation

(3.2) (2.5) (0.10)

Facility exit costs

Acquisition plan expenses

Write-off of deferred financing costs

20.8 13.1 0.53

Net discrete tax benefit

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Non-GAAP measures $ 36.4 $ 19.2 $ 0.77

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, facility exit costs and strategic alternatives analysis expenses and other.

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, strategic alternatives analysis expenses and other.

Our definition of Adjusted EBITDA 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.

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Investors are advised to carefully review the GAAP financial results that are disclosed in our SEC filings.

We have not quantitatively reconciled our fiscal 2022 Adjusted EBITDA target to the most directly comparable GAAP measure because items such as stock-based compensation, adjustments to the provision for income taxes, amortization of intangibles, interest expense and estimated proxy solicitation related costs, which are specific items that impact these measures, have not yet occurred, are out of our control, or cannot be predicted.

For example, quantification of stock-based compensation expense requires inputs such as the number of shares granted and market price that are not currently ascertainable.

Accordingly, reconciliations to the Non-GAAP forward looking metrics are not available without unreasonable effort and such unavailable reconciling items could significantly impact our financial results.

Comparison of Fiscal 2020 and 2019

Consolidated net sales were $671.8 million and $570.6 million for fiscal 2019 and 2018, respectively, representing a significant increase of $101.2 million, or 17.7%.

The significant period-over-period increase in net sales reflects higher net sales in both our Commercial and Government Solutions segments.

Consolidated net sales were $616.7 million and $671.8 million for fiscal 2020 and 2019, respectively, representing a decrease of $55.1 million, or 8.2%.

The period-over-period decrease in net sales reflects lower net sales in both our Government Solutions and Commercial Solutions segments.

Net sales by operating segment are discussed below.

Commercial Solutions

Net sales in our Commercial Solutions segment were $357.3 million for fiscal 2019, as compared to $345.1 million for fiscal 2018, an increase of $12.2 million, or 3.5%.

Net sales in our Commercial Solutions segment were $353.7 million for fiscal 2020, as compared to $357.3 million for fiscal 2019, a decrease of $3.6 million, or 1.0%.

Our Commercial Solutions segment represented 57.4% of consolidated net sales for fiscal 2020 as compared to 53.2% for fiscal 2019.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment for fiscal 2019 was 1.25.

Period-to-period fluctuations in bookings is normal for this segment.

Net sales of our satellite ground station technologies during fiscal 2019 were slightly lower than fiscal 2018.

In fiscal 2019, we experienced significant growth in sales to international customers as well as incremental demand from U.S.

government customers.

This strength was offset by order delays and lower sales for inflight communication amplifiers sold primarily to a U.S.

domestic customer.

Our Heights TM solutions bookings and sales were significantly higher than the amounts achieved in fiscal 2018.

Net sales for fiscal 2019 of our public safety and location technology solutions were significantly higher as compared to the net sales we achieved in fiscal 2018.

During fiscal 2019, we benefited from incremental sales to key wireless customers for 911 call routing and incremental sales to state and local agencies for our next-generation 911 products.

The impact of the February 28, 2019 acquisition of Solacom on fiscal 2019 sales was nominal.

Sales of our location technology solutions were significantly lower in fiscal 2019 as we repositioned this product line to focus on providing higher margin solutions offerings to our customers, ceased offering certain solutions and have not renewed certain contracts.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.91.

Period-to-period fluctuations in bookings are normal for this segment.

Net sales of our satellite ground station technologies in fiscal 2020 were significantly lower than fiscal 2019, primarily due to the business impact of COVID-19 pandemic.

Net sales of our public safety and location technology solutions were higher in fiscal 2020 as compared to fiscal 2019.

Sales in fiscal 2020 of these products included an insignificant amount of sales from our February 2020 acquisition of NG-911.

During fiscal 2020, the business impact of COVID-19 on our public safety and location technology solutions was relatively muted.

Bookings, sales and profitability in our Commercial Solutions segment can fluctuate from period-to-period due to many factors, including changes in the general business environment.

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Government Solutions

Net sales in our Government Solutions segment were $314.5 million for fiscal 2019 as compared to $225.5 million for fiscal 2018, a significant increase of $89.0 million or 39.5%.

Net sales in our Government Solutions segment were $263.0 million for fiscal 2020 as compared to $314.5 million for fiscal 2019, a decrease of $51.5 million or 16.4%.

Our Government Solutions segment represented 42.6% of consolidated net sales for fiscal 2020 as compared to 46.8% for fiscal 2019.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2020 was 1.0.

Period-to-period fluctuations in bookings is normal for this segment.

Net sales of our mission-critical technologies during fiscal 2019 were significantly higher as compared to fiscal 2018.

Net sales of our high-performance transmission technologies in fiscal 2019 were significantly higher than fiscal 2018 driven by increased deliveries in fiscal 2019 of troposcatter technologies (including our Modular Transportable Transmission System ("MTTS") troposcatter terminals to two foreign militaries) and an increase in both orders and sales of solid-state, high-power amplifiers and related switching technologies.

Period-to-period fluctuations in bookings are normal for this segment.

Net sales of our tactical communications technologies during fiscal 2020 were significantly lower as compared to fiscal 2019, due primarily to the timing of and performance on orders related to our $98.6 million U.S.

Army global field support contract and lower sales for high reliability Electrical, Electronic and Electromechanical (“EEE”) satellite based space components.

In fiscal 2019, we sold $11.7 million of such transceivers.

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Sales to U.S.

government customers include sales to the U.S.

Department of Defense ("DoD"), intelligence and civilian agencies, as well as sales directly to or through prime contractors.

government customers include sales to the DoD, intelligence and civilian agencies, as well as sales directly to or through prime contractors.

Domestic sales include sales to commercial customers, as well as to U.S.

state and local governments.

Included in domestic sales, are sales to Verizon Communications Inc.

Sales to Verizon were 10.0% of consolidated net sales for fiscal 2018.

Except for the U.S.

government, there were no customers that represented more than 10.0% of consolidated net sales for fiscal 2020 and 2019.

International sales for fiscal 2020 and 2019 (which include sales to U.S.

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Gross profit was $226.8 million and $247.4 million for fiscal 2020 and 2019, respectively.

The increase of $23.5 million reflects higher sales in both of our segments, as discussed above.

Gross profit, as a percentage of consolidated net sales, for fiscal 2019 was 36.8% as compared to 39.2% for fiscal 2018.

This decrease was almost entirely driven by product mix changes as a result of the significant year-to-year increase in net sales in our Government Solutions segment.

This segment historically achieves lower gross margins than our Commercial Solutions segment.

Gross profit in fiscal 2018 also reflects a benefit from a $0.7 million favorable warranty settlement and a $1.0 million favorable sales and use tax settlement, both of which are reflected in our unallocated segment.

The decrease of $20.6 million primarily reflects the decline in consolidated net sales, as discussed above.

Gross profit, as a percentage of consolidated net sales, for both fiscal 2020 and fiscal 2019 was 36.8%.

Our gross profit in fiscal 2020 reflects minor increases in costs due to a lower level of factory utilization and higher logistics and operational costs resulting from COVID-19.

Gross profit, as a percentage of related segment net sales, is further discussed below.

Our Commercial Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2019 declined in comparison to fiscal 2018.

The decrease in gross profit percentage in fiscal 2019 primarily reflects changes in products and services mix, including a significant increase in fiscal 2019 net sales of our Heights TM solutions which had lower gross margins than our traditional satellite ground station technologies.

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2019 declined slightly in comparison to fiscal 2018.

In fiscal 2019, we completed shipments of relatively lower margin MT-2025 satellite transceivers to the U.S.

Our Commercial Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2020 decreased in comparison to fiscal 2019.

The decrease in gross profit percentage in fiscal 2020 primarily reflects changes in products and services mix, primarily lower net sales of our satellite ground station technologies.

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for fiscal 2020 increased slightly in comparison to fiscal 2019.

The slight increase in gross profit percentage primarily reflects a more favorable mix of mission-critical technology solutions, despite lower fiscal 2020 sales of such solutions.

Included in consolidated cost of sales for fiscal 2020 and 2019 are provisions for excess and obsolete inventory of $1.6 million and $6.0 million, respectively.

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Selling, General and Administrative Expenses .

Selling, general and administrative expenses were $128.6 million and $113.9 million for fiscal 2019 and 2018, respectively, representing an increase of $14.7 million, or 12.9%.

Selling, general and administrative expenses were $117.1 million and $128.6 million for fiscal 2020 and 2019, respectively, representing a decrease of $11.5 million, or 8.9%.

As a percentage of consolidated net sales, selling, general and administrative expenses were 19.0% and 19.1% for fiscal 2020 and 2019, respectively.

The decrease, as a percentage of consolidated net sales, is primarily attributable to the significant increase in our consolidated net sales.

In fiscal 2019, we began a repositioning in our Commercial Solutions segment of certain of our location technology solutions to increase our penetration into the public safety space.

In connection with this repositioning, we ceased offering certain solutions, have worked with customers to wind-down certain legacy contracts and have not renewed certain contracts;

and in doing so, we incurred $6.4 million of estimated contract settlement costs that were recorded as selling, general and administrative expenses.

Additionally, we took steps to reduce our facility footprint and incurred $1.4 million of facility exit costs in our Government Solutions segment.

Excluding such costs, our selling, general and administrative expenses for fiscal 2019 would have been $120.8 million, or 18.0% of consolidated net sales.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $9.3 million in fiscal 2019 as compared to $6.9 million in fiscal 2018.

Amortization in fiscal 2018 includes the benefit of a $0.4 million reversal of stock-based compensation expense related to certain performance shares previously expected to be earned.

Our selling, general and administrative expenses in fiscal 2020 reflect certain cost reduction actions taken in response to lower levels of business activity resulting from COVID-19.

These cost savings measures included reducing global headcount, temporarily reducing salaries, suspending merit increases and eliminating certain discretionary expenses.

Severance costs related to these actions were not material.

Although we incurred lower travel expenses in fiscal 2020 than we did in fiscal 2019, there was a corresponding increase in information technology costs and COVID-19 safety related expenses.

In fiscal 2020, we incurred estimated contract settlement costs of $0.4 million related to the repositioning of our location technologies solutions offerings in our Commercial Solutions segment.

In fiscal 2019, we incurred $6.4 million of such costs and also incurred $1.4 million of facility exit costs in our Government Solutions segment.

Amortization of stock-based compensation expenses recorded as selling, general and administrative expenses was $7.5 million in fiscal 2020 as compared to $9.3 million in fiscal 2019.

This year-over-year decrease largely occurred due to the temporary suspension of stock-based awards for certain employees to reduce expenses as a response to COVID-19.

Amortization of stock-based compensation is not allocated to our two reportable operating segments.

Research and Development Expenses.

Research and development expenses were $56.4 million and $53.9 million for fiscal 2019 and 2018, respectively, representing an increase of $2.5 million, or 4.6%.

Research and development expenses were $52.2 million and $56.4 million for fiscal 2020 and 2019, respectively, representing a decrease of $4.2 million, or 7.4%.

As a percentage of consolidated net sales, research and development expenses were 8.5% and 8.4% for fiscal 2020 and 2019, respectively.

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Amortization relating to intangible assets with finite lives was $21.6 million (of which $17.3 million was for the Commercial Solutions segment and $4.3 million was for the Government Solutions segment) for fiscal 2020 and $18.3 million (of which $14.9 million was for the Commercial Solutions segment and $3.4 million was for the Government Solutions segment) for fiscal 2019.

The decrease from $21.1 million to $18.3 million was largely the result of certain intangible assets in our Commercial Solutions segment that became fully amortized in fiscal 2018.

The increase of $3.3 million was primarily due to our 2019 acquisitions of Solacom and the GD NG-911 business and our 2020 acquisition of CGC.

Settlement of Intellectual Property Litigation.

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Acquisition Plan Expenses.

During fiscal 2019, we incurred $5.9 million of total acquisition plan expenses.

These expenses are recorded in our Unallocated segment and primarily related to our fiscal 2019 acquisitions of Solacom and the GD NG-911 business, as discussed above.

During fiscal 2020, we incurred acquisition plan expenses of $20.8 million, primarily related to the now terminated acquisition of Gilat (including significant litigation expenses) and our acquisition of UHP, which was completed in March 2021.

Fiscal 2020 acquisition plan expenses also include costs associated with our completed acquisitions of CGC and NG-911.

In fiscal 2019, our acquisition plan expenses of $5.9 million primarily related to our acquisitions of Solacom and the GD NG-911 business.

Except for $0.8 million of fiscal 2020 costs which are reflected in our Commercial Solutions segment, all of these expenses are primarily recorded in our Unallocated segment.

Operating Income.

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Operating income (loss) $ 34.8 $ 36.1 $ 20.0 $ 29.0 $ (39.6) $ (23.6) $ 15.2 $ 41.4

Percentage of related net sales 10.1 % 11.8 % 9.2 % 4.9 % NA NA 6.2 % 6.2 %

The decrease in our Commercial Solutions segment’s operating income for fiscal 2019, both in dollars and as a percentage of related segment net sales, was driven by the $6.4 million of estimated contract settlement costs, as discussed above.

Excluding such charge, operating income in our Commercial Solutions segment for fiscal 2019 would have been $42.5 million, or 11.9% of related segment net sales which was slightly higher than the amount we achieved in fiscal 2018.

The significant increase in our Government Solutions segment’s operating income for fiscal 2019, both in dollars and as a percentage of related segment net sales, was primarily due to significantly higher net sales in this segment, offset in part by $1.4 million of facility exit costs, as discussed above.

Excluding such costs, operating income in our Government Solutions segment for fiscal 2019 would have been $30.4 million, or 9.7% of related segment net sales, which was significantly higher than the amount we achieved in fiscal 2018.

The increase in unallocated expenses in fiscal 2019 as compared to fiscal 2018 is primarily due to increased business and sales activity, acquisition plan expenses and an increase in amortization of stock-based compensation, offset in part by the benefit related to a legacy TCS intellectual property matter, as discussed above.

In addition, unallocated operating expenses for fiscal 2018 include the benefit of the warranty settlement and the sales and use tax settlement, as discussed above.

Percentage of related

net sales 9.8 % 10.1 % 7.6 % 9.2 % NA NA 2.5 % 6.2 %

The Commercial Solutions segment's operating income for fiscal 2020 and fiscal 2019 reflects $0.4 million and $6.4 million of estimated contract settlement costs, as discussed above.

The segment's operating income for fiscal 2020 also reflects $0.8 million of the total acquisition plan expenses, as discussed above.

The Government Solutions segment’s operating income for fiscal 2019 included $1.4 million of facility exit costs, as discussed above.

Court of Appeals for the Federal Circuit for a legacy TCS intellectual property matter, as discussed above.

Amortization of stock-based compensation was $9.3 million and $11.4 million, respectively, for fiscal 2020 and 2019.

Amortization of stock-based compensation for fiscal 2018 reflects a reversal of $0.4 million of stock-based compensation expense related to certain performance shares that were previously expected to be earned.

Excluding the aforementioned $1.7 million of favorable adjustments in fiscal 2018, consolidated operating income for fiscal 2018 would have been $33.4 million, or 5.9% of consolidated net sales.

The increase from 5.9% to 7.7% reflects the benefit of incremental sales growth and changes in overall spending, as discussed above.

The decrease in dollars, and as a percentage of consolidated net sales, was due primarily to lower consolidated net sales and increased amortization of intangibles, as discussed above.

Interest Expense and Other.

Interest expense was $6.1 million and $9.2 million for fiscal 2020 and 2019, respectively.

The decrease is attributable to lower interest rates and lower outstanding indebtedness under our existing Credit Facility.

Our effective interest rate (including amortization of deferred financing costs) in fiscal 2020 was approximately 3.9%.

Write-off of Deferred Financing Costs.

In connection with the establishment of our new Credit Facility in fiscal 2019, we wrote-off $3.2 million of deferred financing costs which primarily related to the term loan portion of our prior credit facility.

There was no comparable charge in fiscal 2020.

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Interest (income) and other for both fiscal 2020 and 2019 was nominal.

Provision for (Benefit from) Income Taxes.

The provision for income taxes was $3.9 million for fiscal 2019 as compared to a benefit of $5.1 million for fiscal 2018.

Our effective tax rate (excluding discrete tax items) for fiscal 2019 was 23.25% and for 2018 was 27.0%.

Provision for Income Taxes.

The provision for income taxes for fiscal 2020 and 2019 was $2.3 million and $3.9 million, respectively.

Our effective tax rate (excluding discrete tax items) for fiscal 2020 and 2019 was 37.0% and 23.25%, respectively.

The increase from 23.25% to 37.0% is primarily due to the decrease in fiscal 2020 consolidated net sales.

During fiscal 2019, we recorded a net discrete tax benefit of $2.9 million, primarily related to:

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and (iii) the reversal of tax contingencies no longer required due to the expiration of applicable statutes of limitation.

During fiscal 2018, we recorded a net discrete tax benefit of $11.8 million which, as a result of Tax Reform, primarily related to the remeasurement of deferred tax liabilities associated with non-deductible amortization related to intangible assets and discrete tax benefits associated with stock-based awards that were settled in fiscal 2018.

These benefits were offset, in part, by the finalization of certain tax deductions in connection with the filing of our federal and state tax returns for fiscal 2017.

The decrease from 27.0% to 23.25% is principally attributable to the passage of Tax Reform which reduced the statutory income tax rate from 35.0% to 21.0%.

Such decrease was partially offset by non-deductible transaction costs related to the acquisition of Solacom and lower tax deductions for certain executive compensation expenses as a result of Tax Reform.

During fiscal 2020, consolidated net income was $7.0 million as compared to $25.0 million during fiscal 2019.

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17.4 % 18.6 % 9.8 % 11.3 % NA NA 12.6 % 13.9 %

The increase in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, during fiscal 2019 as compared to fiscal 2018 is primarily attributable to higher consolidated net sales and operating income, as discussed above.

The decrease in our Commercial Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, primarily reflects the lower gross profit percentage we achieved in fiscal 2019 and higher research and development expenses, as discussed above.

The significant increase in our Government Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, was primarily driven by significantly higher net sales, as discussed above.

The decrease in our Government Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, was primarily driven by lower net sales, as discussed above.

Non-GAAP net income and EPS reflect non-GAAP provisions for income taxes based on full year results, as adjusted for the non-GAAP reconciling items included in the tables below.

We evaluate our non-GAAP effective income tax rate on an ongoing basis, and it can change from time to time.

Our non-GAAP effective income tax rate can differ materially from our GAAP effective income tax rate:

($ in millions, except for per share amount) Operating Income Net Income Net Income per

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Estimated contract settlement costs

Settlement of intellectual property litigation

(3.2) (2.5) (0.10)

Facility exit costs

Acquisition plan expenses

Write-off of deferred financing costs

20.8 13.1 0.53

Net discrete tax benefit

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$ 41.4 $ 25.0 $ 1.03

Estimated contract settlement costs

Settlement of intellectual property litigation

(3.2) (2.5) (0.10)

Facility exit costs

Acquisition plan expenses

Write-off of deferred financing costs

Net discrete tax benefit

— (2.9) (0.12)

Non-GAAP measures $ 51.8 $ 32.6 $ 1.34

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses and facility exit costs and strategic alternative analysis expenses and other.

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, strategic alternatives analysis expenses, proxy solicitation related costs and other.

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Liquidity and Capital Resources

Our cash and cash equivalents were $47.9 million at July 31, 2020 as compared to $45.6 million at July 31, 2019, an increase of $2.3 million.

The increase in cash and cash equivalents during fiscal 2020 was driven by the following:

• Net cash provided by operating activities was $52.8 million and $68.0 million for fiscal 2020 and 2019, respectively.

The period-over-period decrease in cash flow from operating activities reflects lower net sales and overall changes in net working capital requirements, principally the timing of shipments, billings and payments.

Cash flow from operating activities in fiscal 2020 reflects higher outflows for acquisition plan expenses.

Our cash and cash equivalents were $30.9 million at July 31, 2021 as compared to $47.9 million at July 31, 2020, a decrease of $17.0 million.

The decrease in cash and cash equivalents during fiscal 2021 was driven by the following:

• Net cash used in operating activities was $40.6 million for fiscal 2021 as compared to net cash provided by operating activities of $52.8 million for fiscal 2020.

During fiscal 2021, in connection with an agreement to terminate our acquisition of Gilat, we made a $70.0 million payment to Gilat.

Excluding such payment, net cash provided by operating activities would have been $29.4 million.

The period-over-period decrease in cash flow from operating activities (excluding the $70.0 million payment to Gilat) reflects lower consolidated net sales and overall changes in net working capital requirements, principally the timing of shipments, billings and payments.

• Net cash used in investing activities for fiscal 2021 was $15.5 million as compared to $20.2 million for fiscal 2020.

During fiscal 2020, we paid $13.0 million of cash primarily related to our acquisitions of CGC and NG-911, net of cash acquired.

In fiscal 2019, we paid $35.9 million of cash in connection with our acquisitions of Solacom and the GD NG-911 business, net of cash acquired.

The remaining portion of net cash used in both periods primarily relates to expenditures for property, plant and equipment upgrades and enhancements.

• Net cash used in financing activities was $30.3 million and $21.3 million, respectively, for fiscal 2020 and 2019.

During fiscal 2019, we entered into a Credit Facility and repaid in full the outstanding borrowings under our Prior Credit Facility.

During fiscal 2020, we made net payments under our Credit Facility of $15.5 million.

During fiscal 2021, we paid $0.8 million in connection with our acquisition of CGC Technology Limited ("CGC").

During fiscal 2020, we paid $13.0 million in connection with our acquisitions of CGC and NG-911, net of cash acquired.

The remaining portion of net cash used in both periods relates to expenditures for property, plant and equipment upgrades and enhancements.

Also, offsetting cash used during the most recent period is $1.3 million of net cash acquired from our acquisition of UHP, as discussed further in " Notes to Consolidated Financial Statements - Note (2) - Acquisitions - UHP Networks Inc.

" included in " Part II - Item 8.

- Financial Statements and Supplementary Data " included in this Annual Report on Form 10-K.

• Net cash provided by financing activities was $39.1 million for fiscal 2021 as compared to net cash used in financing activities of $30.3 million for fiscal 2020.

During fiscal 2021, we had net borrowings under our Credit Facility of $51.5 million, primarily due to the $70.0 million payment we made to Gilat.

During fiscal 2021 and 2020, we paid $10.3 million and $10.0 million, respectively, in cash dividends to our stockholders.

We also made $5.3 million and $5.0 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during fiscal 2020 and 2019, respectively.

We also made $2.8 million and $5.3 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during the fiscal 2021 and 2020, respectively.

The Credit Facility is discussed below and in "Notes to Consolidated Financial Statements - Note (7) - Credit Facility" included in "Part II - Item 8.

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As of July 31, 2021, our material short-term cash requirements primarily consist of:

(i) interest payments under our Credit Facility;

(ii) payments related to lease commitments;

(iii) our ongoing working capital needs, including income tax payments;

and (iv) payment of accrued quarterly dividends.

As discussed further below, we have other material short-term cash requirements related to our pending acquisitions of Gilat and UHP.

(i) capital investments and tenant improvements in connection with the opening of our two new high-volume technology manufacturing centers, (ii) interest payments under our Credit Facility;

(iii) payments related to lease commitments;

(iv) our ongoing working capital needs, including income tax payments and other capital expenditures;

and (v) payment of accrued quarterly dividends.

In addition to making fiscal 2022 capital investments for our two new high-volume manufacturing centers, we plan to make significant capital expenditures to build-out cloud-based computer networks to support our NG-911 contract wins for the states of Pennsylvania, South Carolina and Arizona.

Aggregate capital investments for these and other initiatives in fiscal 2022 are expected to approximate $30.0 million.

As discussed further in " Notes to Consolidated Financial Statements - Note (2) - Acquisitions - UHP Networks Inc.

" included in " Part II - Item 8.

- Financial Statements and Supplementary Data " included in this Annual Report on Form 10-K, we completed our acquisition of UHP on March 2, 2021.

Pursuant to the stock purchase agreement, the initial upfront payment of approximately $24.0 million was paid mostly in shares of our common stock, with a nominal amount paid in cash.

In August 2021, approximately $4.0 million of the $5.0 million hold back amount previously placed into escrow at closing, was paid to the seller in shares of our common stock, as the conditions pursuant to the stock purchase agreement were met.

The stock purchase agreement also provides for an earn-out payment of up to $9.0 million, also payable at our option in cash and or shares of our common stock, if specified sales milestones are reached during the eighteen-month period ending September 30, 2022.

On March 3, 2021, we filed a shelf registration statement with the SEC for the sale of 1,381,567 shares of our common stock by the selling shareholder of UHP.

The shelf registration statement was declared effective by the SEC as of March 15, 2021.

To-date, we issued 1,026,567 shares pursuant to this shelf registration statement to satisfy initial payment and escrow arrangements under the terms of the stock purchase agreement.

In December 2018, we filed a $400.0 million shelf registration statement with the SEC for the sale of various types of securities, including debt.

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As of July 31, 2021, we were authorized to repurchase up to an additional $100.0 million of our common stock, pursuant to a $100.0 million stock repurchase program.

On September 29, 2020, our Board of Directors authorized a new $100.0 million stock repurchase program, which replaced our prior program.

The new $100.0 million 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 of our common stock during fiscal 2021 and 2020.

On September 24, 2019, December 4, 2019, March 4, 2020 and June 3, 2020, our Board of Directors declared a dividend of $0.10 per common share, which was paid on November 15, 2019, February 14, 2020, May 15, 2020 and August 14, 2020, respectively.

On September 29, 2020, our Board of Directors declared a dividend of $0.10 per common share, payable on October 27, 2020 to stockholders of record at the close of business on October 14, 2020.

On September 29, 2020, December 9, 2020, March 11, 2021 and June 8, 2021, our Board of Directors declared a dividend of $0.10 per common share, which was paid on October 27, 2020, February 19, 2021, May 21, 2021 and August 20, 2021, respectively.

On October 4, 2021, our Board of Directors declared a dividend of $0.10 per common share, payable on November 12, 2021 to stockholders of record at the close of business on October 13, 2021.

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

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Although it is difficult to predict the terms and conditions of financing that may be available in the future, should our short-term or long-term cash requirements increase beyond our current expectations, we believe that we would have sufficient access to credit from financial institutions and/or financing from public and private debt and equity markets.

Impact of Pending Acquisitions of Gilat and UHP on our Liquidity

As discussed throughout this Annual Report on Form 10-K, we may have short-term cash requirements of approximately $402.9 million and $5.0 million, respectively, related to our pending acquisitions of Gilat and UHP.

If we are required to complete these acquisitions, we anticipate funding these acquisitions by redeploying a portion of the combined companies existing unrestricted cash and cash equivalents, and by drawing on a new Gilat Acquisition Related Credit Facility to be provided by Citibank, N.A., Manufacturers and Traders Trust Company (“M&T Bank”), Santander Bank, N.A., BMO Harris Bank, N.A.

(“Bank of Montreal”), Regions Bank, Israel Discount Bank of New York and Goldman Sachs Bank USA.

This new facility would replace our existing Credit Facility (which is discussed below) and allow us to refinance our existing debt of approximately $149.5 million as of July 31, 2020.

The exact terms of this facility are expected to be finalized upon completion of the Gilat acquisition, if it occurs.

If we are required to close the Gilat acquisition, total net debt of the combined companies would be expected to approximate $525.0 million as compared to Comtech's net debt of $101.7 million as of July 31, 2020.

We believe that Gilat’s business has been materially impacted by COVID-19 and in August 2020 Gilat publicly reported a net loss of $16.0 million and negative Adjusted EBITDA (as Gilat defines it) of $4.9 million for the six-months ended June 30, 2020.

If the pending acquisition of Gilat is completed and Gilat continues to experience net losses and negative Adjusted EBITDA we may be unable to meet future debt service obligations.

Credit Facility

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders, replacing our prior Credit Agreement dated as of February 23, 2016 (as amended by that certain First Amendment, dated as of June 6, 2017 (the "Prior Credit Facility")).

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders.

The Credit Facility provides a senior secured loan facility of up to $550.0 million consisting of:

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If we issue new unsecured debt in excess of $5.0 million 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.

The proceeds of the Credit Facility were used, in part, to repay in full the outstanding borrowings under the Prior Credit Facility, and additional proceeds of the Credit Facility are expected to be used by us for working capital and other general corporate purposes.

As of July 31, 2021, the amount outstanding under our Credit Facility was $201.0 million, which is reflected in the non-current portion of long-term debt on our Consolidated Balance Sheet.

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Our Interest Expense Coverage Ratio as of July 31, 2021 was 13.05x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

The obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries (the "Guarantors").

The obligations under the Credit Facility are guaranteed by certain of our domestic and foreign subsidiaries (the "Guarantors").

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 is 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.

Off-Balance Sheet Arrangements

As of July 31, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

As of July 31, 2021, we did not have any off-balance sheet arrangements within the meaning of Item 303 of Regulation S-K.

In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment.

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Credit Facility - interest payments 11,537 5,133 6,404 — —

Operating lease liabilities, finance lease and other obligations 35,507 9,433 14,180 9,096 2,798

Operating and finance lease obligations 56,705 10,408 14,689 10,798 20,810

Contractual cash obligations $ 269,242 15,541 222,093 10,798 20,810

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In addition, if we issue new unsecured debt in excess of $5.0 million 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 discussed further in " Notes to Consolidated Financial Statements - Note (9) - Leases " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Annual Report on Form 10-K, 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 by February 2021.

At July 31, 2021, we have approximately $1.5 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts.

Such amounts are not included in the above table.

As discussed further in " Notes to Consolidated Financial Statements - Note (15) - Stockholders’ Equity " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Annual Report on Form 10-K, on September 29, 2020, our Board of Directors declared a dividend of $0.10 per common share, payable on October 27, 2020 to stockholders of record at the close of business on October 14, 2020.

- Financial Statements and Supplementary Data, " included in this Annual Report on Form 10-K, on October 4, 2021, our Board of Directors declared a dividend of $0.10 per common share, payable on November 12, 2021 to stockholders of record at the close of business on October 13, 2021.

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

At July 31, 2020, we have approximately $3.1 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts.

Such amounts are not included in the above table.

As discussed further in the above section entitled " Impact of Pending Acquisitions of Gilat and UHP on our Liquidity, " we have short-term cash commitments of $402.9 million and $5.0 million, respectively to fund the acquisitions of Gilat and UHP.

These cash commitments and related transaction expenses are not included in the above table.

As discussed further in " Notes to Consolidated Financial Statements - Note (2) - Acquisitions - UHP Networks Inc.

" included in " Part II - Item 8.

- Financial Statements and Supplementary Data " included in this Annual Report on Form 10-K, we completed our acquisition of UHP on March 2, 2021.

Pursuant to the stock purchase agreement, the initial upfront payment of approximately $24.0 million was paid mostly in shares of our common stock, with a nominal amount paid in cash.

In the ordinary course of business, we include indemnification provisions in certain of our customer contracts.

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It is not possible to determine the maximum potential amount under these agreements due to a history of nominal claims in the Comtech legacy business and the unique facts and circumstances involved in each particular agreement.

As discussed further in " Notes to Consolidated Financial Statements - Note (13) - Commitments and Contingencies, " included in " Part II - Item 8.- Financial Statements and Supplementary Data ," included in this Annual Report on Form 10-K, TCS is subject to a number of indemnification demands and we are incurring ongoing legal expenses in connection with these matters.

As discussed further in " Notes to Consolidated Financial Statements - Note (12) - Commitments and Contingencies, " included in " Part II - Item 8.- Financial Statements and Supplementary Data ," included in this Annual Report on Form 10-K, we are subject to a number of indemnification demands and we are incurring ongoing legal expenses in connection with these matters.

Our insurance policies may not cover the cost of defending indemnification claims or providing indemnification.

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All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of our Company or an involuntary termination of employment without cause.

These costs are not included in the above table.

Our Consolidated Balance Sheet at July 31, 2021 includes total liabilities of $9.2 million for uncertain tax positions, including interest, any or all of which may result in a cash payment.

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

As further discussed in " Notes to Consolidated Financial Statements – Note (1)(o) - Adoption of Accounting Standards and Updates " included in " Part II - Item 8.

As further discussed in " Notes to Consolidated Financial Statements – Note (1)(n) - Adoption of Accounting Standards and Updates " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Annual Report on Form 10-K, during fiscal 2021, we adopted:

• FASB ASU No.

2016-02 Leases (Topic 842).

See " Notes to Consolidated Financial Statements – Note (9) - Leases" included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Annual Report on Form 10-K for further information.

• FASB ASU No.

2017-11, which provides guidance on the accounting for certain financial instruments with embedded features that result in the strike price of the instrument or embedded conversion option being reduced on the basis of the pricing of future equity offerings (commonly referred to as "down round" features).

On August 1, 2019, we adopted this ASU.

Our adoption did not have any impact on our consolidated financial statements and disclosures, as we did not have any financial instruments with such "down round" features.

• FASB ASU No.

2017-12, which expands and refines hedge accounting for both non-financial and financial risk components and simplifies and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.

On August 1, 2019, we adopted this ASU.

Our adoption did not have any impact on our consolidated financial statements and disclosures, as we are not a party to any such hedging transactions.

• FASB ASU No.

2018-07, which expands the scope of ASC 718 to include certain share-based payment transactions for acquiring goods and services from nonemployees.

On August 1, 2019, we adopted this ASU.

Our adoption did not have any impact on our consolidated financial statements and disclosures, as we did not have any outstanding share-based awards with nonemployees that required remeasurement.

• FASB ASU No.

2018-16, which expands the list of eligible U.S.

benchmark interest rates permitted in the application of hedge accounting due to broad concerns about the long-term sustainability of the LIBO Rate.

This ASU adds the Overnight Index Swap ("OIS") rate, based on the Secured Overnight Financing Rate ("SOFR"), as an eligible U.S.

benchmark interest rate.

On August 1, 2019, we adopted this ASU.

Our adoption did not have any impact on our consolidated financial statements and disclosures, as we are not a party to any such hedging transactions.

In addition, the following FASB ASUs have been issued and incorporated into the FASB ASC and have not yet been adopted by us as of July 31, 2020:

• FASB ASU No.

2016-13 issued in June 2016 and ASU No.

2018-19 issued in November 2018, which require the measurement of expected credit losses for financial assets held at the reporting date to be based on historical experience, current conditions and reasonable and supportable forecasts.

In April 2019, FASB ASU No.

2019-04 was issued to provide clarification guidance in the following areas:

(i) accrued interest;

(ii) recoveries;

(iii) projections of the interest rate environment;

(iv) consideration of prepayments;

and (v) other topics.

In May 2019, FASB ASU No.

2019-05 was issued to provide entities with an option to irrevocably elect the fair value option applied on an instrument by instrument basis for eligible instruments.

In November 2019, FASB ASU No.

2019-11 was issued to provide clarification guidance in the following areas:

(i) expected recoveries for purchased financial assets with credit deterioration;

(ii) transition relief for troubled debt restructurings;

(iii) disclosures related to accrued interest receivables;

(iv) financial assets secured by collateral maintenance provisions;

and (v) conforming amendment to subtopic 805-20.

In February 2020, FASB ASU No.

2020-02 was issued to address questions primarily regarding documentation and company policies.

In March 2020, FASB ASU No.

2020-03 was issued to provide clarification guidance in the following areas:

(i) the contractual term of a net investment in a lease should be the contractual term used to measure expected credit losses;

and (ii) when an entity regains control of financial assets sold, an allowance for credit losses should be recorded.

On August 1, 2020, we adopted these ASUs on a modified-retrospective basis.

Such adoption did not have a material impact on our consolidated financial statements or disclosures.

2016-13, which requires companies to utilize an impairment model (current expected credit loss ("CECL")) for most financial assets measured at amortized cost and certain other financial instruments, which include, but are not limited to trade receivables and contract assets.

This accounting standard replaced the incurred loss model with a model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate those losses.

On August 1, 2020, we adopted this ASU on a modified-retrospective basis and recorded a $0.2 million decrease to opening retained earnings.

• FASB ASU No.

2018-13, issued in August 2018, which modifies the disclosure requirements for fair value measurements in Topic 820.

2018-13, which modifies the disclosure requirements for fair value measurements in Topic 820.

On August 1, 2020, we adopted this ASU.

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• FASB ASU No.

2018-15, issued in August 2018, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal use software license).

2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal use software license).

The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU.

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• FASB ASU No.

2018-17, issued in October 2018, which requires entities to consider indirect interests held through related parties under common control on a proportional basis, rather than as the equivalent of a direct interest in its entirety when determining whether a decision-making fee is a variable interest.

2018-17, which requires entities to consider indirect interests held through related parties under common control on a proportional basis, rather than as the equivalent of a direct interest in its entirety, when determining whether a decision-making fee is a variable interest.

On August 1, 2020, we adopted this ASU.

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• FASB ASU No.

2018-18, issued in November 2018, which clarifies when certain transactions between collaborative arrangement participants should be accounted for under ASC 606 and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination.

2018-18, which clarifies when certain transactions between collaborative arrangement participants should be accounted for under ASC 606 and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination.

The ASU also precludes entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers.

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• FASB ASU No.

2019-08, issued in November 2019, which requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718.

2019-08, which requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718.

The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award.

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

In addition, the following FASB ASUs have been issued and incorporated into the FASB ASC and have not yet been adopted by us as of July 31, 2021:

• FASB ASU No.

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ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This ASU is effective for fiscal years beginning after December 15, 2020 (our fiscal year beginning on August 1, 2021) and interim periods therein, with early adoption permitted.

We are evaluating the impact of this ASU on our consolidated financial statements and disclosures.

This ASU is effective for fiscal years beginning after December 15, 2020.

Our adoption of this ASU on August 1, 2021 did not have a material impact on our consolidated financial statements or disclosures.

• FASB ASU No.

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In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815.

This ASU is effective for fiscal years beginning after December 15, 2020 (our fiscal year beginning on August 1, 2021) and interim periods therein.

We are evaluating the impact of this ASU on our consolidated financial statements and disclosures;

however, we do not expect the adoption to have any effect given that we have not historically had equity method investments or purchased options and forward contracts to acquire investments.

This ASU is effective for fiscal years beginning after December 15, 2020.

Our adoption of this ASU on August 1, 2021 did not impact our consolidated financial statements or disclosures.

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-K

Item 7. Management’s Discussion and Analysis