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Item 1. Financial Statements

2022-03-10 compared with 2021-12-09 · 349 added, 217 removed, 792 unchanged (42% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

Assets October 31, 2021 July 31, 2021

Assets January 31, 2022 July 31, 2021

Current assets:

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authorized 125,000 shares;

issued 100,000 at October 31, 2021 (includes accrued dividends of $ 235,000 )

issued 100,000 at January 31, 2022 (includes accrued dividends of $ 549,000 )

101,867,000 —

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authorized 100,000,000 shares;

issued 41,380,241 and 41,281,812 shares at October 31, 2021 and July 31, 2021, respectively

issued 41,553,244 and 41,281,812 shares at January 31, 2022 and July 31, 2021, respectively

4,155,000 4,128,000

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909,713,000 942,568,000

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

Treasury stock, at cost ( 15,033,317 shares at January 31, 2022 and July 31, 2021)

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

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended October 31,

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

2022 2021 2022 2021

Net sales $ 120,381,000 161,292,000 $ 237,140,000 296,510,000

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Amortization of intangibles 5,349,000 4,795,000 10,698,000 10,361,000

CEO transition costs 13,554,000 — 13,554,000 —

Proxy solicitation costs 9,086,000 — 11,248,000 —

1 unchanged sentence

70,448,000 50,278,000 118,698,000 186,202,000

Operating loss ( 6,515,000 ) ( 85,716,000 )

Operating (loss) income ( 24,590,000 ) 5,402,000 ( 31,105,000 ) ( 80,314,000 )

Other expenses (income):

1 unchanged sentence

Interest (income) and other ( 30,000 ) ( 66,000 ) 189,000 —

Change in fair value of convertible preferred stock

purchase option liability ( 304,000 ) —

Loss before benefit from income taxes ( 8,037,000 ) ( 88,079,000 )

Change in fair value of convertible preferred

stock purchase option liability ( 398,000 ) — ( 702,000 ) —

(Loss) income before benefit from income taxes ( 25,150,000 ) 4,050,000 ( 33,187,000 ) ( 84,029,000 )

Benefit from income taxes ( 3,276,000 ) ( 155,000 ) ( 5,329,000 ) ( 2,394,000 )

Net loss $ ( 5,984,000 ) ( 85,840,000 )

Net (loss) income $ ( 21,874,000 ) 4,205,000 $ ( 27,858,000 ) ( 81,635,000 )

Adjustments to reflect redemption value of convertible preferred stock:

Convertible preferred stock issuance costs — — ( 4,007,000 ) —

Establishment of initial convertible preferred stock

purchase option liability ( 1,005,000 ) —

Establishment of initial convertible

preferred stock purchase option liability — — ( 1,005,000 ) —

Dividend on convertible preferred stock ( 1,632,000 ) — ( 1,867,000 ) —

Net loss attributable to common stockholders $ ( 11,231,000 ) ( 85,840,000 )

Net loss per common share (See Note 6):

Net (loss) income attributable to common stockholders $ ( 23,506,000 ) 4,205,000 $ ( 34,737,000 ) ( 81,635,000 )

Net (loss) income per common share (See Note 6):

Basic $ ( 0.89 ) 0.17 $ ( 1.31 ) ( 3.22 )

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Weighted average number of common shares outstanding – basic 26,472,000 25,337,000 26,449,000 25,321,000

Weighted average number of common and common equivalent

shares outstanding – diluted 26,426,000 25,305,000

Weighted average number of common and common equivalent shares outstanding – diluted 26,472,000 25,420,000 26,449,000 25,321,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Three months ended October 31, 2021 and 2020

Three months ended January 31, 2022 and 2021

Series A Convertible Preferred Stock Common Stock Additional

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Shares Amount Shares Amount Shares Amount

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

Equity-classified stock award compensation

— — — — 1,287,000 — — — 1,287,000

Proceeds from issuance of employee stock purchase plan shares

— — 15,857 2,000 185,000 — — — 187,000

Net settlement of stock-based awards

— — 367 — ( 3,000 ) — — — ( 3,000 )

Cash dividends declared, net ($ 0.10 per share)

— — — — — ( 2,495,000 ) — — ( 2,495,000 )

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

— — — — — ( 49,000 ) — — ( 49,000 )

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

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

Balance as of October 31, 2021 100,000 $ 100,235,000 41,380,241 $ 4,138,000 $ 604,452,000 $ 319,053,000 15,033,317 $ ( 441,849,000 ) $ 485,794,000

Equity-classified stock award compensation

— — — — 1,983,000 — — — 1,983,000

CEO transition costs related to equity-classified stock-based awards (See Note 1) — — — — 7,388,000 — — — 7,388,000

Proceeds from issuance of employee stock purchase plan shares

— — 11,136 1,000 224,000 — — — 225,000

Issuance of restricted stock — — 119,426 12,000 ( 12,000 ) — — — —

Net settlement of stock-based awards

— — 42,441 4,000 ( 1,255,000 ) — — — ( 1,251,000 )

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 1,632,000 — — — ( 1,632,000 ) — — ( 1,632,000 )

Cash dividends declared, net ($ 0.10 per share)

— — — — — ( 2,640,000 ) — — ( 2,640,000 )

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

— — — — — ( 129,000 ) — — ( 129,000 )

Net loss — — — — — ( 21,874,000 ) — — ( 21,874,000 )

Balance as of January 31, 2022 100,000 $ 101,867,000 41,553,244 $ 4,155,000 $ 612,780,000 $ 292,778,000 15,033,317 $ ( 441,849,000 ) $ 467,864,000

See accompanying notes to condensed consolidated financial statements.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Six months ended January 31, 2022 and 2021

Series A Convertible Preferred Stock Common Stock Additional

Paid-in Capital Retained Earnings Treasury Stock Stockholders'

Shares Amount Shares Amount Shares Amount

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

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

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

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

Balance as of July 31, 2021 — $ — 41,281,812 $ 4,128,000 $ 605,439,000 $ 333,001,000 15,033,317 $ ( 441,849,000 ) $ 500,719,000

1 unchanged sentence

— — — — 2,904,000 — — — 2,904,000

CEO transition costs related to equity-classified stock-based awards (See Note 1) — — — — 7,388,000 — — — 7,388,000

Proceeds from issuance of employee stock purchase plan shares

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Net loss — — — — — ( 27,858,000 ) — — ( 27,858,000 )

Balance as of October 31, 2021 100,000 $ 100,235,000 41,380,241 $ 4,138,000 $ 604,452,000 $ 319,053,000 15,033,317 $ ( 441,849,000 ) $ 485,794,000

Balance as of January 31, 2022 100,000 $ 101,867,000 41,553,244 $ 4,155,000 $ 612,780,000 $ 292,778,000 15,033,317 $ ( 441,849,000 ) $ 467,864,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended October 31,

Six months ended January 31,

Cash flows from operating activities:

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Amortization of stock-based compensation 2,904,000 1,986,000

CEO transition costs related to equity-classified stock-based awards 7,388,000 —

Amortization of deferred financing costs 405,000 368,000

1 unchanged sentence

Changes in other liabilities ( 2,066,000 ) ( 3,756,000 )

(Benefit from) provision for allowance for doubtful accounts ( 156,000 ) 110,000

(Gain) / loss on disposal of property, plant and equipment ( 147,000 ) 29,000

Provision for allowance for doubtful accounts 12,000 204,000

Provision for excess and obsolete inventory 2,241,000 2,444,000

Deferred income tax expense 175,000 816,000

Deferred income tax benefit ( 2,049,000 ) ( 287,000 )

Other — ( 225,000 )

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Cash flows from investing activities:

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

Purchases of property, plant and equipment ( 8,811,000 ) ( 3,686,000 )

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three months ended October 31,

Six months ended January 31,

Supplemental cash flow disclosures:

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dividend equivalents) $ 2,857,000 2,686,000

Unpaid convertible preferred stock issuance costs $ 3,477,000 —

Issuance of restricted stock $ 13,000 4,000

Accrued remittance of employees' statutory tax withholdings $ 1,250,000 —

Establishment of initial convertible preferred stock purchase option liability $ 1,005,000 —

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The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp.

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

and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and six months ended January 31, 2022 and 2021 are unaudited.

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

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Impact of Coronavirus Disease 2019 Pandemic ("COVID-19") and Global Supply Chain Constraints on Our Business

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.

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

Both COVID-19 and the related global supply chain constraints have impacted our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve.

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

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

Our long-term fundamentals remain strong and we continue to believe our business is well-positioned for growth.

We have experienced order and production delays, disruptions in component availability and pricing, lower levels of factory utilization and higher logistics and operational costs.

Although such business conditions are expected to persist for most of our fiscal 2022, and may carry into fiscal 2023, we believe that our long-term fundamentals remain strong and that our business is well-positioned for growth once the aftershocks of the pandemic subside.

CEO Transition Costs

On December 31, 2021, our Board of Directors appointed Michael D.

Porcelain as Chief Executive Officer (“CEO”).

Prior to that, Mr.

Porcelain served as our President and Chief Operating Officer (“COO”).

Also, on January 3, 2022, Mr.

Porcelain was appointed to our Board of Directors, along with Wendi Carpenter and Mark Quinlan.

CEO transition costs were $ 13,554,000 and all expensed in the three and six months ended January 31, 2022.

Of such amount, $ 10,304,000 related to Mr.

Kornberg's severance payments and benefits upon termination of his employment;

the remainder related to Mr.

Kornberg agreeing to serve as a Senior Technology Advisor for a minimum of two years.

Of the total CEO transition costs of $ 13,554,000 , $ 7,388,000 relates to the amortization of equity-classified stock-based awards.

COMTECH TELECOMMUNICATIONS CORP.

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

Our condensed consolidated statements of operations for the three months ended October 31, 2021 include a nominal amount of revenue contribution from the acquisition.

Our condensed consolidated statements of operations for the three and six months ended January 31, 2022 include a nominal amount of revenue contribution from the acquisition.

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

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Price Allocation (1)

Measurement Period Adjustments Purchase Price Allocation

(As adjusted)

Initial upfront payment $ 23,979,000

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Preliminary allocation of aggregate purchase price $ 37,470,000

(1) As reported in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2021.

(1) As reported in the Company's Quarterly Report on Form 10-Q for the three months ended October 31, 2021.

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

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

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

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

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

The preliminary estimated fair value of contingent earn-out consideration represents the present value of the estimated amount payable, based on a probability-weighted amount of net sales, as defined, during the earn-out period, which reflects significant management estimates and assumptions using unobservable Level 3 inputs, including:

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and (vi) discount rate reflecting the credit risk of the Company.

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

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

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

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Acquisition Plan Expenses

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

Of this amount, $ 88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd.

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

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

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

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

Additionally, during the three months ended October 31, 2020, we recorded $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter.

Additionally, during the six months ended January 31, 2021, we recorded $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter.

(3) Adoption of Accounting Standards and Updates

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

During the three months ended October 31, 2021, we adopted:

During the six months ended January 31, 2022, we adopted:

• FASB ASU No.

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

Three months ended October 31,

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

2022 2021 2022 2021

United States

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Included in domestic sales are sales to Verizon Communications Inc.

("Verizon"), which accounted for 11.7 % and 12.5 % of consolidated net sales for the three months ended October 31, 2021 and 2020, respectively.

("Verizon"), which accounted for 11.1 % and 11.4 % of consolidated net sales for the three and six months ended January 31, 2022, respectively, and 10.0 % and 11.1 % of consolidated net sales for the three and six months ended January 31, 2021, respectively.

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

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

The following tables summarize our disaggregation of revenue consistent with information reviewed by our Chief Operating Decision Maker ("CODM") for the three months ended October 31, 2021 and 2020.

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three and six months ended January 31, 2022 and 2021.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our Chief Operating Decision Maker ("CODM") for the three and six months ended January 31, 2022 and 2021.

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

Three months ended October 31, 2021

Commercial Solutions Government Solutions Total

Three months ended January 31, 2022 Six months ended January 31, 2022

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

Geographical region and customer type

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended October 31, 2020

Commercial Solutions Government Solutions Total

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

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

Geographical region and customer type

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Under ASC 606, unbilled receivables constitute contract assets.

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

There were no material impairment losses recognized on contract assets during the six months ended January 31, 2022 and 2021, respectively.

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

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

Of the contract liability balance at July 31, 2021 and July 31, 2020, $ 24,973,000 and $ 16,370,000 was recognized as revenue during the three months ended October 31, 2021 and 2020, respectively.

Of the contract liability balance at July 31, 2021 and July 31, 2020, $ 35,517,000 and $ 24,320,000 was recognized as revenue during the six months ended January 31, 2022 and 2021, respectively.

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

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

As of October 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 628,498,000 (which represents the amount of our consolidated funded backlog).

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

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

As of January 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 611,056,000 (which represents the amount of our consolidated funded backlog).

We estimate that a substantial portion of our remaining performance obligations at January 31, 2022 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During the three and six months ended January 31, 2022, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(5) Fair Value Measurements and Financial Instruments

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See Note (2) - " Acquisitions " for more information regarding the estimated fair value of the earn-out.

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

As of January 31, 2022 and July 31, 2021, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

(6) Earnings Per Share

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

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

There were no repurchases of our common stock during the three or six months ended January 31, 2022 or 2021.

See Note (18) - " Stockholders’ Equity " for more information.

Weighted average stock options, RSUs and restricted stock outstanding of 1,525,000 and 1,839,000 for the three months ended October 31, 2021 and 2020, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 239,000 and 232,000 weighted average performance shares outstanding for the three months ended October 31, 2021 and 2020, respectively, as the performance conditions have not yet been satisfied.

Weighted average stock options, RSUs and restricted stock outstanding of 1,467,000 and 1,496,000 for the three months ended January 31, 2022 and 2021, respectively, and 1,498,000 and 1,515,000 for the six months ended January 31, 2022 and 2021, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 273,000 and 237,000 weighted average performance shares outstanding for the three months ended January 31, 2022 and 2021, respectively, and 258,000 and 235,000 for the six months ended January 31, 2022 and 2021, respectively, as the performance conditions have not yet been satisfied.

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

Weighted average common shares of 340,000 related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation for the three months ended October 31, 2021 because their effect would have been anti-dilutive.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Weighted average common shares of 577,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for the three months ended October 31, 2021 because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for the three months ended October 31, 2021 is our net loss attributable to common stockholders.

Weighted average common shares of 477,000 and 409,000 related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation for the three and six months ended January 31, 2022, respectively, because their effect would have been anti-dilutive.

Weighted average common shares of 4,158,000 and 2,358,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for the three and six months ended January 31, 2022, respectively, because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for the three and six months ended January 31, 2022 is the respective net loss attributable to common stockholders.

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

Three months ended October 31,

Net loss $ ( 5,984,000 ) ( 85,840,000 )

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

2022 2021 2022 2021

Net (loss) income $ ( 21,874,000 ) 4,205,000 $ ( 27,858,000 ) ( 81,635,000 )

Convertible preferred stock issuance costs — — ( 4,007,000 ) —

2 unchanged sentences

Net loss attributable to common stockholders $ ( 23,506,000 ) 4,205,000 $ ( 34,737,000 ) ( 81,635,000 )

Denominator for basic and diluted calculation 26,426,000 25,305,000

Denominator for basic calculation 26,472,000 25,337,000 26,449,000 25,321,000

Effect of dilutive securities:

Stock-based awards — 83,000 — —

Denominator for diluted calculation 26,472,000 25,420,000 26,449,000 25,321,000

As discussed further in Note (17) - " Convertible Preferred Stock ," the Convertible Preferred Stock issued in October 2021 represents a "participating security" as defined in ASC 260.

As a result, our EPS calculations for the three months ended October 31, 2021 were based on the two-class method.

Given the net loss attributable to common stockholders for the three months ended October 31, 2021, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

As a result, our EPS calculations for the three and six months ended January 31, 2022 were based on the two-class method.

Given the net loss attributable to common stockholders for the three and six months ended January 31, 2022, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

(7) Accounts Receivable

Accounts receivable consist of the following at:

October 31, 2021 July 31, 2021

January 31, 2022 July 31, 2021

Receivables from commercial and international customers $ 75,095,000 86,890,000

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Accounts receivable, net $ 138,767,000 158,110,000

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unbilled receivables as of January 31, 2022 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

Under ASC 606, unbilled receivables constitute contract assets.

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

As of October 31, 2021, 23.0 %, 14.8 % and 12.8 % of total accounts receivable related to the U.S.

Management estimates that a substantial portion of the amounts not yet billed at January 31, 2022 will be billed and collected within one year.

As of January 31, 2022, 21.7 %, 15.2 % and 14.7 % of total accounts receivable related to the U.S.

government (and its agencies), AT&T, Inc.

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and Verizon, respectively.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(8) Inventories

Inventories consist of the following at:

October 31, 2021 July 31, 2021

January 31, 2022 July 31, 2021

Raw materials and components $ 66,162,000 62,249,000

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Inventories, net $ 90,274,000 80,358,000

As of October 31, 2021 and July 31, 2021, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 7,392,000 and $ 7,028,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 1,632,000 and $ 1,509,000 , respectively.

As of January 31, 2022 and July 31, 2021, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 8,567,000 and $ 7,028,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 1,700,000 and $ 1,509,000 , respectively.

(9) Accrued Expenses and Other Current Liabilities

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

October 31, 2021 July 31, 2021

January 31, 2022 July 31, 2021

Accrued wages and benefits $ 31,774,000 26,367,000

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Accrued expenses and other current liabilities $ 96,899,000 89,601,000

Accrued wages and benefits as of January 31, 2022 include $ 6,015,000 of CEO transition costs, of which $ 5,054,000 was paid in February 2022, with the remainder payable in equal monthly installments through December 31, 2023.

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

Accrued acquisition-related costs as of October 31, 2021 and July 31, 2021 include $ 8,830,000 and $ 8,705,000 , respectively, of contingent earn-out consideration related to our acquisition of UHP.

See Note ( 2 ) - “ Acquisitions - UHP Networks Inc.

” for further discussion.

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

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

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

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

Accrued acquisition-related costs as of January 31, 2022 and July 31, 2021 include $ 9,000,000 and $ 8,705,000 , respectively, of contingent earn-out consideration related to our acquisition of UHP.

See Note (2) - “Acquisitions - UHP Networks Inc.” for further discussion.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three months ended October 31,

Other current liabilities as of January 31, 2022 include $ 5,768,000 of proxy solicitation costs (including legal and advisory fees) as a result of a now settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022.

The majority of such amount is expected to be settled over the remainder of fiscal 2022.

Accrued warranty obligations as of January 31, 2022 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

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

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

Changes in our accrued warranty obligations during the six months ended January 31, 2022 and 2021 were as follows:

Six months ended January 31,

Balance at beginning of period $ 17,600,000 15,200,000

Provision for warranty obligations 587,000 2,329,000

Adjustments for changes in estimates ( 2,500,000 ) —

Charges incurred ( 1,956,000 ) ( 1,355,000 )

Additions (in connection with acquisitions) — 500,000

Balance at end of period $ 13,731,000 16,674,000

During the six months ended January 31, 2022, we recorded a $ 2,500,000 benefit to cost of sales in our Commercial Solutions segment due to lower than expected warranty claims associated with previously acquired NG-911 technologies.

(10) Credit Facility

7 unchanged sentences

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

As of October 31, 2021, the amount outstanding under our Credit Facility was $ 108,000,000 , which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At October 31, 2021, we had $ 1,503,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the three months ended October 31, 2021, we had outstanding balances under the Credit Facility ranging from $ 100,000,000 to $ 212,000,000 .

As of October 31, 2021, total net deferred financing costs related to the Credit Facility were $ 1,622,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended October 31, 2021 and 2020 was $ 1,493,000 and $ 1,111,000 , respectively.

Our blended interest rate approximated 2.94 % and 2.70 %, respectively, for the three months ended October 31, 2021 and 2020.

Borrowings under the Credit Facility shall be either:

(i) Alternate Base Rate borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the greatest of (a) the Prime Rate (as defined) in effect on such day, (b) the Federal Funds Effective Rate (as defined) in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate (as defined) on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00 % per annum, plus (y) the Applicable Rate (as defined), or (ii) Eurodollar borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted LIBO Rate for such interest period plus (y) the Applicable Rate.

Determination of the Applicable Rate is based on a pricing grid that is dependent upon our Secured Leverage Ratio (as defined) as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

As of January 31, 2022, the amount outstanding under our Credit Facility was $ 114,500,000 , which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At January 31, 2022, we had $ 1,007,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the six months ended January 31, 2022, we had outstanding balances under the Credit Facility ranging from $ 100,000,000 to $ 212,000,000 .

As of January 31, 2022, total net deferred financing costs related to the Credit Facility were $ 1,419,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended January 31, 2022 and 2021 was $ 981,000 and $ 1,414,000 , respectively.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the six months ended January 31, 2022 and 2021 was $ 2,474,000 and $ 2,525,000 , respectively.

Our blended interest rate approximated 3.40 % and 2.73 %, respectively, for the three months ended January 31, 2022 and 2021 and approximated 3.10 % and 2.71 %, respectively, for the six months ended January 31, 2022 and 2021.

Borrowings under the Credit Facility shall be either:

The Credit Facility contains customary representations, warranties and affirmative covenants.

7 unchanged sentences

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

As of October 31, 2021, our Secured Leverage Ratio was 1.57 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of October 31, 2021 was 12.78 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

As of January 31, 2022, our Secured Leverage Ratio was 1.95 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of January 31, 2022 was 11.91 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

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

5 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our leases historically relate to the leasing of facilities and equipment.

7 unchanged sentences

Such IBR represents our estimated rate of interest to borrow on a collateralized basis over a term commensurate with the expected lease term.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Some of our leases include payments that are based on the Consumer Price Index ("CPI") or other similar indices.

5 unchanged sentences

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

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

As of January 31, 2022, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The components of lease expense are as follows:

Three months ended October 31,

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

2022 2021 2022 2021

Finance lease expense:

7 unchanged sentences

Additional information related to leases is as follows:

Three months ended October 31,

Six months ended January 31,

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

4 unchanged sentences

Operating leases $ 14,812,000 $ 25,663,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of January 31, 2022:

Operating Finance Total

10 unchanged sentences

Weighted-average discount rate 3.40 % 6.68 %

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

Lease payments made during the three months ended October 31, 2021 and 2020 were $ 166,000 and $ 163,000 , respectively.

We lease our Melville, New York production facility from a partnership controlled by the non-executive Chairman of our Board of Directors.

Lease payments made during the six months ended January 31, 2022 and 2021 were $ 333,000 and $ 329,000 , respectively.

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

1 unchanged sentence

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

As of October 31, 2021, we do not have any material rental commitments that have not commenced.

As of January 31, 2022, we do not have any material rental commitments that have not commenced.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(12) Income Taxes

At October 31, 2021 and July 31, 2021, total unrecognized tax benefits were $ 9,393,000 and $ 9,172,000 , respectively, including interest of $ 193,000 and $ 163,000 , respectively.

At October 31, 2021 and July 31, 2021, $ 3,105,000 and $ 2,717,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 6,288,000 and $ 6,455,000 at October 31, 2021 and July 31, 2021, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 8,589,000 and $ 8,408,000 at October 31, 2021 and July 31, 2021, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

At January 31, 2022 and July 31, 2021, total unrecognized tax benefits were $ 9,521,000 and $ 9,172,000 , respectively, including interest of $ 223,000 and $ 163,000 , respectively.

At January 31, 2022 and July 31, 2021, $ 3,204,000 and $ 2,717,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 6,317,000 and $ 6,455,000 at January 31, 2022 and July 31, 2021, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 8,679,000 and $ 8,408,000 at January 31, 2022 and July 31, 2021, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

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

3 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(13) Stock-Based Compensation

2 unchanged sentences

(i) incentive and non-qualified stock options, (ii) restricted stock units ("RSUs"), (iii) RSUs with performance measures (which we refer to as "performance shares"), (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, "share units") and (vi) stock appreciation rights ("SARs"), among other types of awards.

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

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

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

As of January 31, 2022, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500 .

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

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

As of October 31, 2021, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,481,727 shares (net of 4,813,779 expired and canceled awards), of which an aggregate of 7,400,421 have been exercised or settled.

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

October 31, 2021

As of January 31, 2022, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,644,199 shares (net of 4,838,965 expired and canceled awards), of which an aggregate of 7,591,659 have been exercised or settled.

As of January 31, 2022, the following stock-based awards, by award type, were outstanding:

January 31, 2022

Stock options 1,005,935

Performance shares 341,652

RSUs and restricted stock 566,270

Share units 237,741

RSUs, restricted stock and share units 704,953

Total 2,052,540

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Through October 31, 2021, we have cumulatively issued 905,311 shares of our common stock to participating employees in connection with our ESPP.

Through January 31, 2022, we have cumulatively issued 916,447 shares of our common stock to participating employees in connection with our ESPP.

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

Three months ended October 31,

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

2022 2021 2022 2021

Cost of sales $ 76,000 59,000 $ 149,000 132,000

1 unchanged sentence

Research and development expenses 71,000 70,000 147,000 154,000

Stock-based compensation expense before income tax benefit

921,000 699,000

Stock-based compensation expense 1,983,000 1,287,000 2,904,000 1,986,000

CEO transition costs related to equity-classified stock-based awards 7,388,000 — 7,388,000 —

Total stock-based compensation expense before income tax benefit 9,371,000 1,287,000 10,292,000 1,986,000

Estimated income tax benefit ( 1,030,000 ) ( 280,000 ) ( 1,223,000 ) ( 424,000 )

Net stock-based compensation expense $ 8,341,000 1,007,000 $ 9,069,000 1,562,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

At October 31, 2021, unrecognized stock-based compensation of $ 13,766,000 , net of estimated forfeitures of $ 1,217,000 , is expected to be recognized over a weighted average period of 3.4 years.

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

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

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

Three months ended October 31,

At January 31, 2022, unrecognized stock-based compensation of $ 10,024,000 , net of estimated forfeitures of $ 895,000 , is expected to be recognized over a weighted average period of 3.3 years.

Total stock-based compensation capitalized and included in ending inventory at both January 31, 2022 and July 31, 2021 was $ 48,000 .

There are no liability-classified stock-based awards outstanding as of January 31, 2022 or July 31, 2021.

Of the selling, general and administrative expenses included in the table above, for both the three and six months ended January 31, 2022, $ 827,000 represents the amortization of stock-based compensation related to the retirement, in December 2021, of three , long-standing members of our Board of Directors.

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

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

2022 2021 2022 2021

Stock options $ 364,000 97,000 $ 442,000 217,000

Performance shares 364,000 443,000 713,000 665,000

RSUs and restricted stock 856,000 922,000

RSUs, restricted stock and share units 1,200,000 699,000 1,639,000 1,005,000

ESPP 55,000 48,000 110,000 99,000

Share units ( 417,000 ) ( 616,000 )

Stock-based compensation expense before income tax benefit

921,000 699,000

Stock-based compensation expense 1,983,000 1,287,000 2,904,000 1,986,000

CEO transition costs related to equity-classified stock-based awards 7,388,000 — 7,388,000 —

Total stock-based compensation expense before income tax benefit 9,371,000 1,287,000 10,292,000 1,986,000

Estimated income tax benefit ( 1,030,000 ) ( 280,000 ) ( 1,223,000 ) ( 424,000 )

1 unchanged sentence

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

During the three months ended October 31, 2021 and 2020, we recorded benefits of $ 417,000 and $ 616,000 , respectively, which primarily represents the recoupment of certain share units.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of January 31, 2022 and July 31, 2021.

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

10 unchanged sentences

Outstanding at October 31, 2021 1,015,965 25.66

Exercisable at October 31, 2021 780,525 $ 28.01 2.87 $ 218,000

Vested and expected to vest at October 31, 2021 1,003,360 $ 25.76 4.13 $ 1,041,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The total intrinsic value relating to stock options exercised during the three months ended October 31, 2021 was $ 7,000 .

There were no stock options exercised during the three months ended October 31, 2020.

Expired/canceled ( 10,030 ) 27.14

Outstanding at January 31, 2022 1,005,935 $ 25.65 2.46 $ 716,000

Exercisable at January 31, 2022 888,575 $ 26.68 1.68 $ 429,000

Vested and expected to vest at January 31, 2022 999,147 $ 25.70 2.42 $ 699,000

Stock options outstanding as of January 31, 2022 have exercise prices ranging from $ 17.88 - $ 33.94 , representing the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years .

The total intrinsic value relating to stock options exercised during the six months ended January 31, 2022 was $ 7,000 .

There were no stock options exercised during the six months ended January 31, 2021.

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

8 unchanged sentences

Outstanding at October 31, 2021 1,065,341 22.56

Vested at October 31, 2021 353,816 $ 21.94 $ 7,632,000

Vested and expected to vest at October 31, 2021 1,015,655 $ 22.54 $ 21,908,000

The total intrinsic value relating to fully-vested awards settled during the three months ended October 31, 2021 and 2020 was $ 4,895,000 and $ 2,896,000 , respectively.

Granted 187,658 23.35

Settled ( 191,238 ) 22.47

Canceled/Forfeited ( 15,156 ) 21.88

Outstanding at January 31, 2022 1,046,605 $ 22.73 $ 21,277,000

Vested at January 31, 2022 444,490 $ 22.12 $ 9,036,000

Vested and expected to vest at January 31, 2022 1,009,648 $ 22.71 $ 20,526,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2022 was $ 4,569,000 and $ 9,464,000 , respectively.

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

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

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

RSUs and restricted stock granted to non-employee directors prior to July 31, 2019 have a vesting period of three years and are convertible into shares of our common stock generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

RSUs and restricted stock granted to non-employee directors after July 31, 2019 have a vesting period of five years .

As of January 31, 2022, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

RSUs and restricted stock granted to non-employee directors prior to July 31, 2019 had a vesting period of three years and are convertible into shares of our common stock generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

After July 31, 2019, such awards have a vesting period of five years .

Also, restricted stock granted to our non-executive Chairman of the Board of Directors, pursuant to his Senior Technology Advisor consulting agreement, vests 1/12 on the date of grant and in eleven equal monthly installments thereafter.

RSUs granted to employees have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one -for-one basis for no cash consideration.

Also, certain RSUs granted to our newly appointed CEO, pursuant to his employment agreement, vest over three years .

Share units granted prior to July 31, 2017 were vested when issued and are convertible into shares of our common stock, generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

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

Cumulatively, through October 31, 2021, 956,576 share units granted have been settled.

Cumulatively, through January 31, 2022, 956,576 share units granted have been settled.

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

1 unchanged sentence

Share units granted since fiscal 2014 are entitled to dividend equivalents while the underlying shares are unissued.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

During the three months ended October 31, 2021 and 2020, we accrued $ 88,000 and $ 142,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 315,000 and $ 275,000 , respectively.

During the three and six months ended January 31, 2022, we accrued $ 129,000 and $ 217,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 210,000 and $ 525,000 , respectively.

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

As of October 31, 2021 and July 31, 2021, accrued dividend equivalents were $ 657,000 and $ 884,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three months ended October 31, 2021 and 2020, we recorded an income tax benefit of $ 53,000 and an income tax expense of $ 199,000 , respectively.

As of January 31, 2022 and July 31, 2021, accrued dividend equivalents were $ 577,000 and $ 884,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and six months ended January 31, 2022, we recorded an income tax benefit of $ 86,000 and $ 139,000 , respectively, and during the three and six months ended January 31, 2021 we recorded income tax expense of $ 8,000 and $ 207,000 , respectively.

(14) Segment Information

1 unchanged sentence

The management approach, as defined by FASB ASC 280 - "Segment Reporting" is based on the way that the CODM organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance.

Our CODM, for purposes of FASB ASC 280, is our current Chief Executive Officer.

We currently manage our business through the following reportable operating segments:

Our CODM, for purposes of FASB ASC 280, is our Chief Executive Officer.

In connection with our CEO leadership transition, our new CEO is currently evaluating his management approach to the business.

At the moment, we are currently managing our business through the following reportable operating segments:

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our Commercial Solutions segment offers satellite ground station technologies (such as 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.

4 unchanged sentences

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

income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, 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, proxy solicitation costs, strategic alternatives analysis expenses and other.

income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, 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, CEO transition costs, proxy solicitation costs, strategic alternatives analysis expenses and other.

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

6 unchanged sentences

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

Three months ended October 31, 2021

Three months ended January 31, 2022

Commercial Solutions Government Solutions Unallocated Total

3 unchanged sentences

$ 4,565,000 ( 108,000 ) ( 26,331,000 ) $ ( 21,874,000 )

Benefit from income taxes ( 127,000 ) — ( 3,149,000 ) ( 3,276,000 )

Interest (income) and other

108,000 ( 88,000 ) ( 50,000 ) ( 30,000 )

Change in fair value of convertible preferred stock purchase option liability

— — ( 398,000 ) ( 398,000 )

Interest expense 6,000 — 982,000 988,000

Amortization of stock-based compensation

— — 1,983,000 1,983,000

Amortization of intangibles

4,260,000 1,089,000 — 5,349,000

1,944,000 339,000 51,000 2,334,000

CEO transition costs — — 13,554,000 13,554,000

Proxy solicitation costs — — 9,086,000 9,086,000

Restructuring costs 1,696,000 30,000 — 1,726,000

COVID-19 related costs — 355,000 — 355,000

Adjusted EBITDA

$ 12,452,000 1,617,000 ( 4,272,000 ) $ 9,797,000

Purchases of property, plant and equipment

$ 4,073,000 1,100,000 — $ 5,173,000

Total assets at January 31, 2022

$ 740,126,000 228,018,000 26,710,000 $ 994,854,000

Three months ended January 31, 2021

Commercial Solutions Government Solutions Unallocated Total

Net sales $ 87,825,000 73,467,000 — $ 161,292,000

Operating income (loss) $ 9,371,000 5,460,000 ( 9,429,000 ) $ 5,402,000

Net income (loss)

$ 9,283,000 5,695,000 ( 10,773,000 ) $ 4,205,000

Provision for (benefit from) income taxes

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( 129,000 ) 47,000 16,000 ( 66,000 )

Interest expense — 4,000 1,414,000 1,418,000

Amortization of stock-based compensation

— — 1,287,000 1,287,000

Amortization of intangibles

4,286,000 509,000 — 4,795,000

1,934,000 443,000 80,000 2,457,000

Acquisition plan expenses

— — 3,357,000 3,357,000

Restructuring costs 601,000 — — 601,000

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

Adjusted EBITDA

$ 16,192,000 6,572,000 ( 4,705,000 ) $ 18,059,000

Purchases of property, plant and equipment

$ 1,575,000 1,221,000 — $ 2,796,000

Total assets at January 31, 2021

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six months ended January 31, 2022

Commercial Solutions Government Solutions Unallocated Total

Net sales $ 160,211,000 76,929,000 — $ 237,140,000

Operating income (loss) $ 6,755,000 ( 1,610,000 ) ( 36,250,000 ) $ ( 31,105,000 )

Net income (loss)

$ 6,620,000 ( 1,259,000 ) ( 33,219,000 ) $ ( 27,858,000 )

Provision for (benefit from) income taxes

46,000 ( 631,000 ) ( 4,744,000 ) ( 5,329,000 )

Interest (income) and other

83,000 166,000 ( 60,000 ) 189,000

Change in fair value of convertible preferred stock purchase option liability

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3,752,000 720,000 103,000 4,575,000

CEO transition costs — — 13,554,000 13,554,000

Proxy solicitation costs — 11,248,000 11,248,000

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$ 6,768,000 2,043,000 — $ 8,811,000

Total assets at October 31, 2021

Total assets at January 31, 2022

$ 740,126,000 228,018,000 26,710,000 $ 994,854,000

Three months ended October 31, 2020

Six months ended January 31, 2021

Commercial Solutions Government Solutions Unallocated Total

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( 1,052,000 ) — 95,592,000 94,540,000

Restructuring costs 601,000 — 601,000

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

Adjusted EBITDA

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

Total assets at October 31, 2020

Total assets at January 31, 2021

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

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

During the three months ended October 31, 2020, we recorded $ 91,183,000 of acquisition plan expenses, most of which were recorded in our unallocated expenses.

During the three and six months ended January 31, 2021, we recorded $ 3,357,000 and $ 94,540,000 , respectively of acquisition plan expenses, most of which were recorded in our unallocated expenses.

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

There were no such charges recorded in the three months ended October 31, 2021.

During the three months ended October 31, 2021, we incurred $ 2,162,000 of proxy solicitation costs (including legal and advisory fees) as a result of a proxy contest initiated by a shareholder during the most recently completed fiscal quarter.

There were no similar costs in the comparable period of the prior year.

During the three months ended October 31, 2021, our Commercial Solutions segment recorded $ 813,000 of restructuring costs incurred to shift production of our key satellite earth station products to a new 146,000 square foot facility in Chandler, Arizona.

In addition, during the three months ended October 31, 2021, our Government Solutions segment recorded $ 674,000 of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

There were no such charges recorded in the three months ended October 31, 2020.

There were no such charges recorded in the three and six months ended January 31, 2022.

During the three and six months ended January 31, 2022, we incurred $ 9,086,000 and $ 11,248,000 , respectively, of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) as a result of a now settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022.

Also, during the three and six months ended January 31, 2022, we expensed $ 13,554,000 of CEO transition costs.

See Note (1) - " General - CEO Transition Costs " for a further discussion.

During the three and six months ended January 31, 2022, our Commercial Solutions segment recorded $ 1,696,000 and $ 2,509,000 , respectively, of restructuring costs to streamline our operations, including costs 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.

Similar restructuring costs of $ 601,000 were incurred during three and six months ended January 31, 2021.

In addition, during the three and six months ended January 31, 2022, our Government Solutions segment recorded $ 355,000 and $ 1,029,000 , respectively of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

Similar incremental operating costs of $ 160,000 were incurred during three and six months ended January 31, 2021.

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

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

Interest expense for the three months ended October 31, 2020 includes $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter, as discussed in more detail in Note (2) - " Acquisitions ."

Intersegment sales for the three months ended October 31, 2021 and 2020 by the Commercial Solutions segment to the Government Solutions segment were $ 1,132,000 and $ 851,000 , respectively.

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

Intersegment sales for the three months ended January 31, 2022 and 2021 by the Commercial Solutions segment to the Government Solutions segment were $ 934,000 and $ 944,000 , respectively.

Intersegment sales for the six months ended January 31, 2022 and 2021 by the Commercial Solutions segment to the Government Solutions segment were $ 2,066,000 and $ 1,795,000 , respectively.

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

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

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

Unallocated assets at January 31, 2022 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

The large majority of our long-lived assets are located in the U.S.

(15) Goodwill

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

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill during the six months ended January 31, 2022:

Commercial Solutions Government Solutions Total

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UHP acquisition ( 6,000 ) — ( 6,000 )

Balance as of October 31, 2021

Balance as of January 31, 2022

$ 270,383,000 77,309,000 $ 347,692,000

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

On August 1, 2021 (the first day of our fiscal 2022), we performed our annual quantitative assessment using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.

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.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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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In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2022 (the start of our fiscal 2023).

Also, as disclosed in Note (14) - "Segment Information," our new CEO is currently evaluating his management approach to the business.

If our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record impairment charges when we perform these tests, or in other future periods.

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Intangible assets with finite lives are as follows:

October 31, 2021

January 31, 2022

Weighted Average

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

Amortization expense for the three months ended October 31, 2021 and 2020 was $ 5,349,000 and $ 5,566,000 , respectively.

Amortization expense for the three months ended January 31, 2022 and 2021 was $ 5,349,000 and $ 4,795,000 , respectively.

Amortization expense for the six months ended January 31, 2022 and 2021 was $ 10,698,000 and $ 10,361,000 , respectively.

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

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

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

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of January 31, 2022.

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

1 unchanged sentence

(17) Convertible Preferred Stock

On October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the Company’s Convertible Preferred Stock, par value $ 0.10 per share (the “Convertible Preferred Stock”), for an aggregate purchase price of up to $ 125,000,000 , or $ 1,000 per share.

On October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value $ 0.10 per share (the “Convertible Preferred Stock”), for an aggregate purchase price of up to $ 125,000,000 , or $ 1,000 per share.

On October 19, 2021 (the “Initial Closing Date”), pursuant to the terms of the Subscription Agreement, the Investors purchased an aggregate of 100,000 shares of Convertible Preferred Stock (the “Initial Issuance”) for an aggregate purchase price of $ 100,000,000 .

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At any time after October 19, 2024, we have the right to mandate the conversion of the Convertible Preferred Stock, subject to certain restrictions, based on the price of the common stock in the preceding thirty trading days.

Holders of the Convertible Preferred Stock are entitled to vote with the holder's of the common stock on an as-converted basis, as well as are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Convertible Preferred Stock, authorizations or issuances of securities of the Company, the payment of dividends other than dividends on common stock in the ordinary course consistent with past practice on a quarterly basis in an amount not to exceed our current dividend rate of $ 0.10 per share per quarter, related party transactions, repurchases or redemptions of securities of the Company (other than the repurchase of up to $ 25,000,000 of shares of common stock), dispositions of businesses or assets, the incurrence of certain indebtedness and certain amendments or extensions of our existing Credit Facility.

Holders of the Convertible Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis, as well as are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Convertible Preferred Stock, authorizations or issuances of securities of the Company, the payment of dividends other than dividends on common stock in the ordinary course consistent with past practice on a quarterly basis in an amount not to exceed our current dividend rate of $ 0.10 per share per quarter, related party transactions, repurchases or redemptions of securities of the Company (other than the repurchase of up to $ 25,000,000 of shares of common stock), dispositions of businesses or assets, the incurrence of certain indebtedness and certain amendments or extensions of our existing Credit Facility.

Holders will have the right to require the Company to repurchase such holder's Convertible Preferred Stock on a date occurring either (a) on or after October 19, 2026 (the “Optional Repurchase Trigger Date”) at a price equal to the liquidation preference or (b) in connection with a conversion of Convertible Preferred Stock, pursuant to which the number of shares of common stock issuable upon such conversion would exceed 19.99 % of the issued and outstanding shares of common stock as of October 18, 2021 (such excess shares, "Excess Conversion Shares"), at any time after the date that is 91 days after the maturity date of the Company's existing Credit Facility, at a price per share equal to the number of Excess Conversion Shares multiplied by the Last Reported Sales Price (as defined) of common stock on the applicable conversion date.

4 unchanged sentences

Changes in its estimated fair value are recognized as a non-cash charge or benefit and presented on the condensed consolidated statement of operations.

As the estimated fair value of the convertible preferred stock purchase option liability was $ 701,000 as of October 31, 2021, we recorded a $ 304,000 benefit from the remeasurement in the three months ended October 31, 2021.

The estimated fair value of the convertible preferred stock purchase option liability was $ 303,000 as of January 31, 2022.

During the three and six months ended January 31, 2022, we recorded benefits of $ 398,000 and $ 702,000 , respectively for the remeasurement of the convertible preferred stock purchase option liability.

COMTECH TELECOMMUNICATIONS CORP.

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Upon the Initial Issuance, we recorded the Convertible Preferred Stock, net of issuance costs of $ 4,007,000 and net of the portion of such proceeds allocated to the convertible preferred stock purchase option liability described above, which resulted in an initial carrying value of the Convertible Preferred Stock less than its initial redemption value of $ 100,000,000 .

We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 100,235,000 , which includes $ 235,000 of accumulated and unpaid dividends.

As such, an adjustment of $ 5,247,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings in the three months ended October 31, 2021.

We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 101,867,000 , which includes $ 1,318,000 of dividends paid in kind and $ 549,000 of accumulated and unpaid dividends.

As such, an adjustment of $ 6,879,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings during the six months ended January 31, 2022.

(18) Stockholders’ Equity

Sale of Common Stock

In December 2018, we filed a $ 400,000,000 shelf registration statement with the SEC for the sale of various types of securities, including debt.

The shelf registration was declared effective by the SEC as of December 14, 2018.

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

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

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

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

There were no repurchases of our common stock during the six months ended January 31, 2022 or 2021.

Common Stock Dividends

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

On October 4, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, which was paid on November 12, 2021.

On December 9, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, payable on February 18, 2022 to stockholders of record at the close of business on January 19, 2022.

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

On October 4, 2021 and December 9, 2021, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on November 12, 2021 and February 18, 2022, respectively.

On March 10, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, payable on May 20, 2022 to stockholders of record at the close of business on April 20, 2022.

Future dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval and certain voting rights of holders of our Series A Convertible Preferred Stock.

(19) Legal Proceedings and Other Matters

Settled Litigation Related to the Convertible Preferred Stock Issuance

On October 25, 2021, Anthony Franchi (the “Plaintiff”) brought a putative class action in the Court of Chancery of the State of Delaware against the Company's current directors, the Company, White Hat Capital Partners LP (“White Hat”) and Magnetar Capital LLC (“Magnetar”), which was amended on November 1, 2021.

On November 10, 2021, the parties filed a Stipulation and Proposed Order in the Franchi matter, pursuant to which, among other things, the parties agreed, and the court approved, that the Plaintiff’s claims that the Company's preliminary proxy omitted material information regarding the White Hat and Magnetar investments would be dismissed with prejudice and plaintiff’s claims that such investments included an implied voting agreement in connection with the 2021 Annual Stockholder Meeting would be dismissed without prejudice.

While we disputed all of Plaintiff’s allegations and believed them to be without merit, we believed that entering into the aforementioned Stipulation and Proposed Order would avoid unnecessary litigation and is in the best interests of the Company's stockholders.

The Company remains subject to certain pending liabilities and obligations in connection with the Stipulation and Proposed Order, which if not agreed to or resolved with Plaintiff, may result in future litigation.

We do not believe the ultimate resolution of these matters will result in a material adverse effect on our consolidated results of operations and financial condition.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(19) Legal Proceedings and Other Matters

Settled Litigation Related to the Convertible Preferred Stock Issuance

On October 25, 2021, Anthony Franchi (the “Plaintiff”) brought a putative class action in the Court of Chancery of the State of Delaware against the Company’s current directors, the Company (as nominal defendant), White Hat Capital Partners LP (“White Hat”) and Magnetar Capital LLC (“Magnetar”), which was amended on November 1, 2021.

On November 10, 2021, the parties filed a Stipulation and Proposed Order in the Franchi matter, pursuant to which, among other things, the parties agreed, that:

(a) Plaintiff’s claims that Comtech's preliminary proxy statement omitted material information regarding the White Hat and Magnetar investments would be dismissed with prejudice and claim that such investments included an implied voting agreement in connection with the 2021 Annual Meeting would be dismissed without prejudice;

(b) Plaintiff withdrew his motion seeking expedited proceedings and an order directing the parties to negotiate a schedule leading to a preliminary injunction hearing;

(c) Comtech agreed to make additional disclosures about the preferred stock transaction and Plaintiff’s lawsuit in its definitive proxy statement for the 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”);

(d) Comtech agreed that the voting obligations imposed by the voting agreements with White Hat and Magnetar will not apply with respect to director elections during the terms of the voting agreements;

(e) if White Hat and or Magnetar’s votes of the Convertible Preferred Stock are outcome-determinative in the director elections at the 2021 Annual Meeting and if Plaintiff thereafter brings an action containing a claim challenging the election of the directors at the 2021 Annual Meeting, the Defendants agreed to accept service of such a complaint and agreed to ask the court to schedule a final merits-based hearing within 60 days of the filing of the complaint;

(f) Plaintiff reserved the right to pursue claims for money damages or other, non-expedited equitable remedies relating to the Convertible Preferred Stock transaction after the 2021 Annual Meeting;

and (g) Comtech agreed to provide Plaintiff with certain agreed-upon document discovery.

While we disputed all Plaintiff’s allegations and believed them to be without merit, we believed that entering into the aforementioned Stipulation and Proposed Order would avoid unnecessary litigation and is in the best interests of Comtech’s stockholders.

Other Matters

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Employment Change of Control and Indemnification Agreements

We have an employment agreement and change of control agreement with Fred Kornberg, our Chief Executive Officer ("CEO") and Chairman of the Board.

The employment agreement generally provides for an annual salary and bonus award.

We have an employment agreement and change of control agreement with Mr.

Porcelain, our CEO and President, and member of our Board of Directors.

We have also entered into change of control agreements with certain of our executive officers and certain key employees.

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 a termination of the employee.

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

Porcelain, our President and Chief Operating Officer, to be CEO 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 and is expected to take on a technology advisory role.

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

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

What changed 10-Q

Item 1. Financial Statements