What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-03-10 compared with 2021-12-09 · 486 added, 238 removed, 456 unchanged (61% of the section changed)

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changing customer demands and or procurement strategies;

changes in prevailing economic and political conditions;

changes in prevailing economic and political conditions, including as a result of Russia's military incursion into Ukraine;

changes in the price of oil in global markets;

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Impairment of Goodwill and Other Intangible Assets .

As of October 31, 2021, total goodwill recorded on our Condensed Consolidated Balance Sheet aggregated $347.7 million (of which $270.4 million relates to our Commercial Solutions segment and $77.3 million relates to our Government Solutions segment).

Additionally, as of October 31, 2021, net intangibles recorded on our Condensed Consolidated Balance Sheet aggregated $263.4 million (of which $218.4 million relates to our Commercial Solutions segment and $45.0 million relates to our Government Solutions segment).

As of January 31, 2022, total goodwill recorded on our Condensed Consolidated Balance Sheet aggregated $347.7 million (of which $270.4 million relates to our Commercial Solutions segment and $77.3 million relates to our Government Solutions segment).

Additionally, as of January 31, 2022, net intangibles recorded on our Condensed Consolidated Balance Sheet aggregated $258.0 million (of which $214.1 million relates to our Commercial Solutions segment and $43.9 million relates to our Government Solutions segment).

Each of our two operating segments constitutes a reporting unit and we must make various assumptions in determining their estimated fair values.

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In addition to our impairment analysis of goodwill, we also review net intangible assets with finite lives when an event occurs indicating the potential for impairment.

We believe that the carrying values of our net intangible assets were recoverable as of October 31, 2021.

We believe that the carrying values of our net intangible assets were recoverable as of January 31, 2022.

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

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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, some 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 prior acquisitions.

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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Business Outlook for Fiscal 2022

Despite the ongoing impact of COVID-19 and global supply chain constraints on our business, our first quarter net sales and Adjusted EBITDA exceeded our expectations.

We generated consolidated:

• Net sales of $116.8 million;

• GAAP operating loss of $6.5 million and a GAAP net loss per diluted common share of $0.43.

These results reflect:

(i) $5.2 million for adjustments to reflect the redemption value of convertible preferred stock;

(ii) a $0.3 million benefit for the change in fair value of the convertible preferred stock purchase option liability;

(iii) $2.2 million of proxy solicitation costs;

(iv) $0.7 million of restructuring costs associated with the opening of Comtech’s new high volume technology manufacturing centers;

and (v) $0.7 million of COVID-19 related costs.

In addition, we recorded a $0.01 per diluted common share discrete tax benefit.

Excluding such items, Non-GAAP operating loss was $3.0 million and Non-GAAP net loss per diluted common share was $0.15;

• GAAP net cash provided by operating activities of $4.8 million;

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $5.5 million.

Second quarter highlights include:

• Consolidated net sales were $120.4 million, up 3.1% sequentially from the first quarter;

• GAAP net loss attributable to common stockholders was $23.5 million, and included $13.6 million of CEO leadership transition charges (of which $7.4 million related to amortization of stock-based awards) and $9.1 million related to our settled proxy contest, as discussed below;

• GAAP EPS loss of $0.89 and Non-GAAP EPS loss of $0.03;

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $9.8 million, a 76.7% sequential increase;

• New bookings (also referred to as orders) of $102.9 million, a 19.2% sequential increase, resulting in a quarterly book-to-bill ratio of 0.86x (a measure defined as bookings divided by net sales);

• Backlog of $611.1 million as of January 31, 2022, compared to $628.5 million as of October 31, 2021;

• Revenue visibility of approximately $1.2 billion.

We measure this revenue visibility as the sum of our $611.1 million backlog plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders;

• Cash flows from operating activities of $4.8 million despite making $2.8 million of cash payments for our settled proxy contest.

Non-GAAP financial measures discussed above are reconciled to the most directly comparable GAAP financial measures in the table included in the below section " Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended October 31, 2021 and 2020.

In October 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.

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 expected to take on a technology advisory role.

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

Shortly after this leadership change announcement, we secured a $100.0 million strategic growth investment from current stockholder White Hat Capital Partners, LP and Magnetar Capital LLC.

This investment, which is in the form of Series A Convertible Preferred Stock, significantly enhances our financial flexibility and strengthens our ability to capitalize on recent large contract awards and growing customer demand by making crucial investments in our satellite technologies and next-generation 911 public safety solutions.

As of October 31, 2021, our cash and cash equivalents were $30.9 million, our total debt outstanding was $108.0 million and our Secured Leverage Ratio (as calculated under our existing Credit Facility) was 1.57x, and reflects a substantial reduction from 2.53x as of July 31, 2021 due to our receipt of a $100.0 million strategic growth investment.

New bookings for the first quarter of fiscal 2022 were $86.4 million, enabling us to achieve a quarterly book-to-bill ratio (a measure defined as bookings divided by net sales) of 0.74x.

Based on expected new order flow, we expect to achieve a book-to-bill ratio in excess of 1.00x for fiscal 2022.

Key contract awards and bookings received during the first quarter include:

a $125.0 million contract from the U.S.

government for our Joint Cyber Analysis Course ("JCAC") Training solutions (for which $4.9 million of orders is included in first quarter bookings);

a $5.6 million contract renewal with a U.S.

tier-one mobile network operator ("MNO");

$4.9 million of funding from the U.S.

Army to continue its sustainment of the U.S.

Army’s family of ground satellite terminals;

$3.7 million of funding to support the State of Maryland’s Department of Human Services;

a $2.2 million contract to provide next-generation 911 services to a U.S.

military customer;

and a $2.0 million order from a leading global maritime satellite communication antenna systems provider for C-Band and Ku-Band low power outdoor block up converters.

Backlog as of October 31, 2021 was $628.5 million, $23.0 million higher than the backlog that existed as of October 31, 2020.

Additionally, the total value of multi-year contracts that we have received is substantially higher than our reported backlog.

When adding our backlog and the total unfunded value of multi-year contracts that we have received and from which we expect future orders, our revenue visibility is over $1.2 billion.

Notably, this amount excludes potential future orders for our next-generation satellite earth station technology which is under development.

Our backlog (sometimes referred to herein as orders or bookings) is more fully defined in our most recent Annual Report on Form 10-K filed with the SEC.

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

Against that market backdrop, we continue to target fiscal 2022 net sales to be in 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 global supply chain constraints and start-up costs associated with the opening of two new high-volume technology manufacturing centers.

Our incoming CEO is continuing to develop new plans and initiatives including:

(i) conducting a strategic and financial assessment of all product lines;

(ii) revisiting and reviewing all acquisition opportunities to establish strategic priorities to optimally deploy proceeds from its recent $100.0 million strategic growth investment;

(iii) increase company-wide collaboration to exploit emerging opportunities;

(iv) the creation of a focused commercial satellite networking group based in the United States that will cater to the needs of certain U.S.

government customers;

(v) expanding the employee talent pool including adding a new COO and dedicated investor relations professional;

(vi) refreshing corporate branding including launching of a new company-wide web site and establishing a prominent social media presence;

(vii) finishing an ongoing evaluation of new segment reporting and revisiting our Non-GAAP EPS calculations.

Revenue enhancements or costs synergies associated with these new plans and initiatives are not included in our fiscal 2022 targets.

On a consolidated basis, financial performance in the first half of fiscal 2022 is expected to be significantly lower than the comparative period of fiscal 2021, with our second half of fiscal 2022 expected to be significantly higher than the comparative period of fiscal 2021.

Quarterly results are expected to build sequentially throughout the year, with the fourth quarter being the peak quarter by far.

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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended January 31, 2022 and 2021 " and " Comparison of the Results of Operations for the Six Months Ended January 31, 2022 and 2021."

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 $13.6 million and all expensed in the three and six months ended January 31, 2022.

Of such amount, $10.3 million 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 $13.6 million, $7.4 million relates to the amortization of equity-classified stock-based awards.

During the three and six months ended January 31, 2022, we also incurred $9.1 million and $11.2 million, respectively, of proxy solicitation costs.

The second quarter of fiscal year 2022 was transformative for Comtech.

We have new leadership, welcomed new independent members to our Board of Directors, furthered plans to deploy the proceeds of our $100.0 million strategic growth investment, and continued to solidify our position as a leading solutions provider in our two key end-markets:

Next Generation 911 Public Safety and Satellite and Space Communications.

Both are at the beginning of a long-term investment and upgrade cycle, and the demand environment, despite short-term headwinds, for our products remains strong.

Although we are optimistic about the future, we know that we face short-term challenges and continued uncertainties in the second half of our fiscal 2022.

The repercussions of the military conflict between Russia and Ukraine are significant.

For Comtech, the current conflict is directly impacting short-term elements of our sales pipelines.

Certain customers have paused procurement and deployment of satellite and troposcatter communication systems, and instead began purchasing war-fighting equipment, such as anti-tank missiles and other “lethal equipment.” The U.S.

defense budget, and defense budgets worldwide, are now being adjusted in real-time to reflect the priorities of war and changing European geopolitics.

Given the economic sanctions against Russia and the daily evolution of the situation on the ground, we are assuming no new sales to Russia for the remainder of fiscal 2022, which translates into roughly a $5.0 million reduction in order flow.

We are actively hiring new employees to replace certain support activities previously conducted in Russia.

In addition, we have asset exposure (primarily cash and accounts receivables) of approximately $1.5 million.

As indicated above, the Russia/Ukraine military conflict and geopolitical uncertainty in Europe have created a new set of pressures.

For us, we have specifically changed our expectations related to bookings and revenues associated with large orders for our Comtech COMET™ troposcatter systems that were originally going to be deployed in one European country, which we are now disclosing as Ukraine.

Funding was expected to be provided by the customer and the U.S.

Despite ongoing and intense efforts to obtain immediate funding to deploy COMET™ and other satellite related systems, it has now become impossible for us to predict the timing or dollar amount of these awards for the remainder of fiscal 2022.

Additionally, anticipated funding for other expected orders, including for our satellite and space communication products, has been shifted to other programs and/or temporarily delayed as a result of a change in defense spending priorities.

Like many other companies around the world, we are working around supply chain constraints that include component shortages and quality issues, as well as delays.

Additionally, we are dealing with inflation.

Freight costs were already impacted by COVID-19 issues and higher oil prices have not helped.

Component prices are up significantly and freight costs, in some cases, have doubled.

In light of these developments and resulting challenges we have lowered our financial targets for fiscal 2022 and are now targeting consolidated net sales to approximate $520.0 million with Adjusted EBITDA approximating $50.0 million or 9.6% of expected sales.

This compares to our prior financial targets which consisted of a revenue range of $580.0 million to $600.0 million and an Adjusted EBITDA range of $70.0 million to $76.0 million, respectively.

On a consolidated basis, financial performance during the second half of fiscal 2022 is still expected to improve versus the first half of fiscal 2022 with the fourth quarter still being the peak quarter of performance.

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 incremental contributions from our fiscal 2021 acquisition of TDMA modem technologies.

Sales in our Government Solutions segment are expected to decline year-over-year and reflect the impact of the recently completed withdrawal of U.S.

troops from Afghanistan and other U.S.

government program changes.

During the second half of fiscal 2022, we expect our Government Solutions segment to benefit from additional orders for the newly introduced Comtech COMET™, 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 will be impacted by greater than normal proxy solicitation costs, as well as leadership transition costs associated with the appointment of a new CEO.

government program changes, as well as the impact of the Russia/Ukraine military conflict and geopolitical uncertainty in Europe on previously anticipated orders.

As global supply chain constraints have extended lead times for certain parts, we are closely monitoring our inventory needs and supplier base.

We cautiously anticipate that supply chain constraints will begin to ease over the next several fiscal quarters;

however, such timing could be impacted by the Russia/Ukraine military conflict and geopolitical uncertainty in Europe.

While we have been judicious, we have been investing in our future and will continue to do so.

This includes making significant capital expenditures and building out cloud-based computer networks to support our previously announced NG-911 contract wins for the states of Pennsylvania, South Carolina and Arizona.

We will also continue investments in capital equipment and building improvements in connection with the opening of a new 146,000 square foot facility in Chandler, Arizona and the establishment of a new 56,000 square foot facility in Basingstoke, United Kingdom.

Although COVID-19 and supply chain issues have extended our original build-out schedule, both manufacturing centers are expected to support production of next-generation broadband satellite technology, and should be operational by early fiscal 2023.

With respect to capital investments for these and other initiatives, we expect to spend approximately $30.0 million in fiscal 2022.

In the first half of fiscal 2022, we have spent $8.8 million in property, plant and equipment.

GAAP operating income in fiscal 2022 will be impacted by greater than normal proxy solicitation costs, as well as CEO transition costs, as discussed above.

In addition, 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 cause the amount and timing of these expenses difficult to predict.

Because the amount and timing of these costs remains 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 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 common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval.

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 common stock 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.

Additional information related to our Business Outlook for Fiscal 2022 and a definition and explanation of Adjusted EBITDA is included in the below section " Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended October 31, 2021 and 2020 ."

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2021 AND 2020

Consolidated net sales were $116.8 million and $135.2 million for the three months ended October 31, 2021 and 2020, respectively, representing a decrease of $18.4 million, or 13.6%.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2022 AND 2021

Consolidated net sales were $120.4 million and $161.3 million for the three months ended January 31, 2022 and 2021, respectively, representing a decrease of $40.9 million, or 25.4%.

The period-over-period decrease in net sales reflects lower net sales in both of our segments, as further discussed below.

Commercial Solutions

Net sales in our Commercial Solutions segment were $78.9 million for the three months ended October 31, 2021, as compared to $81.8 million for the three months ended October 31, 2020, a decrease of $2.9 million, or 3.5%.

Our Commercial Solutions segment represented 67.6% of consolidated net sales for the three months ended October 31, 2021 as compared to 60.5% for the three months ended October 31, 2020.

Net sales in our Commercial Solutions segment were $81.3 million for the three months ended January 31, 2022, as compared to $87.8 million for the three months ended January 31, 2021, a decrease of $6.5 million, or 7.4%.

Our Commercial Solutions segment represented 67.5% of consolidated net sales for the three months ended January 31, 2022 as compared to 54.4% for the three months ended January 31, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.90x.

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 in the three months ended October 31, 2021 of our satellite ground station technologies were lower than the three months ended October 31, 2020.

Net sales in the three months ended January 31, 2022 of our satellite ground station technologies were lower than the three months ended January 31, 2021.

This product line continues to be impacted by the COVID-19 pandemic's effect on customer demand, particularly in international markets, which historically represents a large majority of end-users for this product line.

Our results for the first quarter of fiscal 2022 also reflect nominal sales of TDMA satellite networking platforms that we now offer as a result of our March 2, 2021 acquisition of UHP Networks Inc.

Although COVID-19 spikes and global supply chain issues represent a significant performance headwind, we continue to expect sales of our satellite earth station products in fiscal 2022 to grow as compared to fiscal 2021 due to increased demand.

During the three months ended October 31, 2021, we received (i) a $2.0 million order from a leading global maritime satellite communication antenna systems provider for 250 Watt C-Band and 125 Watt Ku-Band low power outdoor block up converters and (ii) $1.2 million follow-on order for Ka-band solid-state power amplifiers (“SSPAs”) that use state-of-the-art Gallium Nitride (“GaN”) technology for an in-flight connectivity (“IFC”) application.

In addition, we expect this product line to benefit from the inclusion of a full twelve months of sales of our TDMA satellite network platform that we now offer as a result of the UHP acquisition.

Our results for the second quarter of fiscal 2022 include nominal sales from our TDMA satellite networking technologies acquired on March 2, 2021.

We continue to monitor our inventory needs and navigate supply chain constraints which are impacting the timing of new orders, deliveries and installations.

Net sales in the three months ended October 31, 2021 of our public safety and location technology solutions were higher than the three months ended October 31, 2020, reflecting increased sales of our NG-911 services and location-based technology solutions.

Notable awards during the three months ended October 31, 2021 include:

(i) a $5.6 million contract renewal with a U.S.

tier-one MNO to continue providing messaging application support;

(ii) a $2.2 million contract to provide next-generation 911 services to a U.S.

military customer;

(iii) a $1.7 million renewal agreement with a U.S.

tier-one MNO for trusted location services;

and (iv) a $1.3 million contract renewal with a U.S.

tier-one MNO for precise location services.

To-date, the business impact of COVID-19 and global supply chain issues on our public safety and location technology solutions has been relatively muted.

We have a number of large opportunities in our pipeline and long-term demand for our products and services appears strong.

In addition, we expect to make no sales to Russian customers for the rest of fiscal 2022.

As such, we expect sales of our satellite earth station products in fiscal 2022 to decline as compared to fiscal 2021.

Net sales in the three months ended January 31, 2022 of our public safety and location technology solutions were higher than the three months ended January 31, 2021, reflecting increased sales of our NG-911 services and location-based technology solutions.

As a result of the Omicron surge across Europe and the U.S.

during the three months ended January 31, 2022, several opportunities were delayed.

Nevertheless, we have a number of large opportunities in our pipeline and long-term demand for our products and services appears strong.

We are awaiting funding on a large NG-911 contract that we have already been awarded (and which is not in our backlog) and remain in negotiations with several other potential customers.

Timing of these awards are difficult to predict.

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 2021.

Overall, based on expected new order flow, we remain optimistic that fiscal 2022 net sales for this segment will be higher than the amount we achieved in fiscal 2021.

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 and NG-911 customers, we believe that sales of our NG-911 solutions will be higher than the amount we achieved in fiscal 2021.

Overall, based on expected new order flow, we expect that fiscal 2022 net sales for this segment will be lower 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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Government Solutions

Net sales in our Government Solutions segment were $37.8 million for the three months ended October 31, 2021 as compared to $53.4 million for the three months ended October 31, 2020, a decrease of $15.6 million or 29.2%.

Our Government Solutions segment represented 32.4% of consolidated net sales for the three months ended October 31, 2021 as compared to 39.5% for the three months ended October 31, 2020.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended October 31, 2021 was 0.68x.

Net sales in our Government Solutions segment were $39.1 million for the three months ended January 31, 2022 as compared to $73.5 million for the three months ended January 31, 2021, a decrease of $34.4 million or 46.8%.

Our Government Solutions segment represented 32.5% of consolidated net sales for the three months ended January 31, 2022 as compared to 45.6% for the three months ended January 31, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended January 31, 2022 was 0.76x.

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

Net sales for the first quarter of fiscal 2022 primarily reflect lower sales of global field support services, advanced VSAT products and other programs to the U.S.

Army, offset in part by higher sales of our high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components and solid-state, high-power amplifiers.

Sales during the three months ended October 31, 2020 included ongoing 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.

Net sales for the second quarter of fiscal 2022 primarily reflect significantly lower sales of global field support services, advanced VSAT products and other programs to the U.S.

Army, offset in part by higher sales of our satellite-based mobile communications and tracking systems, high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components and solid-state, high-power amplifiers.

Net sales during the three months ended January 31, 2021 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.

There were no corresponding sales in the first quarter of fiscal 2022, as we continue to expect the next round of funding on this IDIQ contract to occur during the second half of fiscal 2022.

Notable orders awarded to us during the three months ended October 31, 2021 include:

(i) $4.9 million of orders related to a multi-year contract valued at up to $235.7 million 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);

(ii) a five-year single award IDIQ contract renewal with firm fixed price and time and materials delivery orders valued at approximately $125.0 million from the U.S.

government for our JCAC training solutions (initial delivery orders on the IDIQ contract have been received and funded $4.9 million to-date);

(iii) $3.7 million of funding to support the State of Maryland's Department of Human Services with technical operations support services;

(iv) a $1.8 million contract for high power solid-state amplifiers from a major domestic prime contractor;

and (v) $1.1 million of funding to continue to provide critical IT staffing and support to multiple agencies within the City of Baltimore, including, but not limited to the Baltimore City Information & Technology and the Baltimore City Police Department.

There were no corresponding sales in the second quarter of fiscal 2022, as we continue to expect the next round of funding on this IDIQ contract during the second half of fiscal 2022.

As result of the U.S.

government’s decision to fully withdraw troops from Afghanistan and make certain program changes, we are expecting a decline in overall revenues in our Government Solutions segment in fiscal 2022, as compared to fiscal 2021.

We continue to see strong interest for our Comtech COMET™ terminals and have conducted successful in-field demonstrations for a number of customers.

Although still difficult to predict, we expect that revenues in this segment for the second and third quarters of fiscal 2022 will approximate the amount we achieved during the first quarter of fiscal 2022.

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

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

In addition, as a direct result of the Russia/Ukraine military conflict, we no longer expect to receive and ship a previously expected order to Ukraine.

That customer had an immediate need for wireless communication services and has redirected procurement dollars to war-fighting equipment.

We have a number of other international troposcatter orders that we expect to close soon, and we are expecting the fourth quarter of fiscal 2022 to benefit from such sales.

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.

and international government customers.

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Geography and Customer Type

Sales by geography and customer type, as a percentage of related sales, for the three months ended October 31, 2021 and 2020 are as follows:

Three months ended October 31,

Sales by geography and customer type, as a percentage of related sales, for the three months ended January 31, 2022 and 2021 are as follows:

Three months ended January 31,

2022 2021 2022 2021 2022 2021

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state and local governments.

Included in domestic sales are sales to Verizon, which accounted for 11.7% and 12.5% of consolidated net sales for the three months ended October 31, 2021 and 2020, respectively.

International sales for the three months ended October 31, 2021 and 2020 (which include sales to U.S.

Included in domestic sales are sales to Verizon, which accounted for 11.1% and 10.0% of consolidated net sales for the three months ended January 31, 2022 and 2021, respectively.

International sales for the three months ended January 31, 2022 and 2021 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $30.5 million and $35.3 million, 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% of consolidated net sales 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% of consolidated net sales for the three months ended January 31, 2022 and 2021.

Gross Profit.

Gross profit was $41.7 million and $50.2 million for the three months ended October 31, 2021 and 2020, respectively, a decrease of $8.5 million.

Gross profit, as a percentage of consolidated net sales, for the three months ended October 31, 2021 was 35.7% as compared to 37.1% for the three months ended October 31, 2020.

Our gross profit (both in dollars and as a percentage of consolidated net sales) reflects the lower net sales this quarter as compared to the comparable period of the prior year and overall product mix changes, as discussed above.

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

Gross profit was $45.9 million and $55.7 million for the three months ended January 31, 2022 and 2021, respectively.

Gross profit, as a percentage of consolidated net sales, for the three months ended January 31, 2022 was 38.1% as compared to 34.5% for the three months ended January 31, 2021.

The increase in gross margins primarily relates to overall favorable product mix.

In addition, during the three months ended January 31, 2022, we recorded a $2.5 million benefit to cost of sales as we reduced a warranty accrual due to lower than expected warranty claims in our NG-911 product line.

Our gross profit in both periods also reflects start-up costs associated with the opening of our new high-volume technology manufacturing centers, as well as increased costs resulting from the ongoing impacts of the COVID-19 pandemic.

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 the three months ended October 31, 2021 decreased in comparison to the three months ended October 31, 2020.

The decrease primarily reflects lower levels of factory utilization, higher logistics and operational costs resulting from global supply chain constraints, and changes in products and services mix, including 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 the three months ended October 31, 2021 decreased in comparison to the three months ended October 31, 2020.

The decrease primarily reflects lower net sales and changes in products and services mix.

Also, during the three months ended October 31, 2021, we incurred $0.7 million of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

Our Commercial Solutions segment's gross profit, as a percentage of related segment net sales, for the three months ended January 31, 2022 was comparable to the three months ended January 31, 2021.

The gross profit percentage in the most recent quarter primarily reflects changes in products and services mix and lower than expected warranty claims, as discussed above, as well as lower levels of factory utilization and higher logistics and operational costs resulting from global supply chain constraints.

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for the three months ended January 31, 2022 increased in comparison to the three months ended January 31, 2021 and reflects changes in product and services mix in the most recent quarter, as discussed above.

Also, during the three months ended January 31, 2022 and 2021, we incurred $0.4 million and $0.2 million, respectively, of incremental operating costs related to our antenna facility located 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 in fiscal 2021.

Included in consolidated cost of sales for the three months ended October 31, 2021 and 2020 are provisions for excess and obsolete inventory of $1.2 million and $1.0 million, respectively.

Included in consolidated cost of sales for the three months ended January 31, 2022 and 2021 are provisions for excess and obsolete inventory of $1.1 million and $1.4 million, respectively.

As discussed in "Item 2.

2 unchanged sentences

Selling, General and Administrative Expenses .

Selling, general and administrative expenses were $28.2 million and $27.5 million for the three months ended October 31, 2021 and 2020, respectively, representing an increase of $0.7 million, or 2.5%.

As a percentage of consolidated net sales, selling, general and administrative expenses were 24.1% and 20.3% for the three months ended October 31, 2021 and 2020, respectively.

During the three months ended October 31, 2021, we incurred $0.7 million 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.

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

Excluding restructuring costs, selling, general and administrative expenses for the three months ended October 31, 2021 would have been $27.5 million, or 23.6% of consolidated net sales.

The increase in our selling, general and administration expenses, as a percentage of consolidated net sales, is due to lower consolidated net sales, as discussed above.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $0.8 million in the three months ended October 31, 2021 as compared to $0.5 million in the three months ended October 31, 2020.

Selling, general and administrative expenses were $29.8 million and $29.5 million for the three months ended January 31, 2022 and 2021, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 24.8% and 18.3% for the three months ended January 31, 2022 and 2021, respectively.

During the three months ended January 31, 2022 and 2021, we incurred $1.7 million and $0.6 million, 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.

Excluding restructuring costs, selling, general and administrative expenses for the three months ended January 31, 2022 and 2021 would have been $28.1 million, or 23.3% and $28.9 million, or 17.9%, respectively, of consolidated net sales.

The increase in our selling, general and administrative expenses, as a percentage of consolidated net sales, is primarily due to lower consolidated net sales.

Our selling, general and administrative expenses incurred during the three months ended January 31, 2022 reflect higher labor costs associated with a tight global labor market, increased investments in marketing, including new social media activities and other investments we are making to achieve our long term business goals.

Such spending is expected to continue during the second half of fiscal 2022.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $1.8 million in the three months ended January 31, 2022 as compared to $1.2 million in the three months ended January 31, 2021.

Such amortization for the most recent quarter includes $0.8 million related to the retirement, in December 2021, of three, long-standing members of the Board of Directors.

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

Research and Development Expenses.

Research and development expenses were $12.5 million and $11.6 million for the three months ended October 31, 2021 and 2020, respectively, representing an increase of $0.9 million, or 7.8%.

As a percentage of consolidated net sales, research and development expenses were 10.7% and 8.6% for the three months ended October 31, 2021 and 2020, respectively.

For the three months ended October 31, 2021 and 2020, research and development expenses of $11.3 million and $9.4 million, respectively, related to our Commercial Solutions segment, and $1.1 million and $2.1 million, respectively, related to our Government Solutions segment.

The remaining research and development expenses of $0.1 million in both the three months ended October 31, 2021 and 2020 related to the amortization of stock-based compensation expense.

Research and development expenses were $12.6 million and $12.7 million for the three months ended January 31, 2022 and 2021, respectively.

As a percentage of consolidated net sales, research and development expenses were 10.5% and 7.9% for the three months ended January 31, 2022 and 2021, respectively.

For the three months ended January 31, 2022 and 2021, research and development expenses of $11.5 million and $10.3 million, respectively, related to our Commercial Solutions segment, and $1.0 million and $2.3 million, respectively, related to our Government Solutions segment.

The remaining research and development expenses of $0.1 million in both the three months ended January 31, 2022 and 2021 related to the amortization of stock-based compensation expense.

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

During the three months ended October 31, 2021 and 2020, customers reimbursed us $2.6 million and $3.4 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

During the three months ended January 31, 2022 and 2021, customers reimbursed us $2.7 million and $3.9 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

Amortization of Intangibles.

Amortization relating to intangible assets with finite lives was $5.3 million (of which $4.2 million was for the Commercial Solutions segment and $1.1 million was for the Government Solutions segment) for the three months ended October 31, 2021 and $5.6 million (of which $4.3 million was for the Commercial Solutions segment and $1.3 million was for the Government Solutions segment) for the three months ended October 31, 2020.

Amortization relating to intangible assets with finite lives was $5.3 million (of which $4.3 million was for the Commercial Solutions segment and $1.0 million was for the Government Solutions segment) for the three months ended January 31, 2022 and $4.8 million (of which $4.3 million was for the Commercial Solutions segment and $0.5 million was for the Government Solutions segment) for the three months ended January 31, 2021.

Proxy Solicitation Costs .

During the three months ended October 31, 2021, we incurred $2.2 million of proxy solicitation costs (including legal and advisory fees) in our unallocated segment as a result of a proxy contest initiated by a shareholder during the most recently completed fiscal quarter.

During the three months ended January 31, 2022, we incurred $9.1 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022.

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

Due to the ongoing nature of the proxy contest, we anticipate incurring similar proxy solicitation and related costs in our second quarter of fiscal 2022.

During the most recent fiscal quarter, we entered into a Cooperation Agreement with such shareholder and do not expect to incur significant proxy solicitation costs during the remainder of fiscal 2022.

CEO Transition Costs .

On December 31, 2021, our Board of Directors appointed Mr.

Porcelain as CEO.

Prior to that, Mr.

Porcelain served as our President and 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 $13.6 million and all expensed in our Unallocated segment in the three months ended January 31, 2022.

Of such amount, $10.3 million related to our former CEO's severance payments and benefits upon termination of his employment;

the remainder related to our former CEO agreeing to serve as a Senior Technology Advisor for a minimum of two years.

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

Acquisition Plan Expenses.

During the three months ended October 31, 2020, we incurred $91.2 million of acquisition plan expenses, of which $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 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.

During the three months ended January 31, 2021, we incurred $3.4 million of acquisition plan expenses in our Unallocated segment related to the acquisition of TDMA satellite networking technologies and to GD NG-911 acquisition-related litigation.

There were no similar costs incurred during the three months ended January 31, 2022.

Operating Income (Loss).

Operating loss for the three months ended January 31, 2022 was $24.6 million as compared to operating income of $5.4 million for the three months ended January 31, 2021.

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

Three months ended January 31,

2022 2021 2022 2021 2022 2021 2022 2021

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

Operating income (loss) $ 4.6 9.4 (0.2) 5.5 (28.9) (9.4) $ (24.6) 5.4

Percentage of related

net sales 5.7 % 10.7 % NA 7.5 % NA NA NA 3.3 %

Our GAAP operating loss of $24.6 million for the three months ended January 31, 2022 reflects:

(i) $13.6 million of CEO transition costs;

(ii) $9.1 million of proxy solicitation costs;

(iii) $1.7 million of restructuring costs;

and (iv) $0.4 million of incremental operating costs due to the impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating income for the three months ended January 31, 2022 would have been $0.1 million.

Our GAAP operating income of $5.4 million for the three months ended January 31, 2021 reflects:

(i) $3.4 million of acquisition plan expenses;

(ii) $0.6 million of restructuring costs;

and (iii) $0.2 million of incremental operating costs due to the impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating income for the three months ended January 31, 2021 would have been $9.5 million, or 5.9% of consolidated net sales.

The decrease in operating income from $9.5 million to $0.1 million in the most recent quarter was primarily due to lower consolidated net sales, offset in part by a higher gross profit percentage, as discussed above.

Operating income (loss) by reportable segment is further discussed below.

The decrease in our Commercial Solutions segment operating income, both in dollars and as a percentage of related segment net sales, for the three months ended January 31, 2022 was driven primarily by lower net sales, higher restructuring costs and higher research and development expenses, offset in part by a benefit from lower than expected warranty claims during the most recent quarter, as discussed above.

The decrease in our Government Solutions segment operating income for the three months ended January 31, 2022 was driven primarily by lower net sales, offset in part by a higher gross profit percentage and lower research and development expenses during the most recent quarter, as discussed above.

The increase in unallocated expenses for the three months ended January 31, 2022 as compared to the three months ended January 31, 2021 was primarily due to CEO transition costs, proxy solicitation costs and higher amortization of stock-based compensation expense due to retiring directors during the most recent quarter, offset in part by not having acquisition plan expenses in the three months ended January 31, 2022, as discussed above.

Excluding the impact of CEO transition costs, proxy solicitation costs, the higher amortization of stock-based compensation expense, and acquisition plan expenses in their respective periods, unallocated expenses would have been $5.4 million and $6.0 million, respectively, for the three months ended January 31, 2022 and 2021.

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

Interest Expense and Other.

Interest expense was $1.0 million $1.4 million for the three months ended January 31, 2022 and 2021, respectively.

Our effective interest rate (including amortization of deferred financing costs) in the three months ended January 31, 2022 was approximately 3.4%.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility approximates 1.9%.

Interest (Income) and Other.

Interest (income) and other for both the three months ended January 31, 2022 and 2021 was nominal.

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.

Change in Fair Value of Convertible Preferred Stock Purchase Option Liability.

During the three months ended January 31, 2022, we recorded a $0.4 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability.

See "Notes to Condensed Consolidated Financial Statements - Note (17) - Convertible Preferred Stock" for more information.

Benefit from Income Taxes.

Our income tax provision or benefit is computed by applying an estimated annual effective tax rate for the full fiscal year to “ordinary” income or loss for the reporting period (“ordinary” is generally defined as pre-tax income or loss excluding significant, unusual or infrequently occurring discrete tax items).

For the three months ended January 31, 2022 and 2021, we recorded a tax benefit of $3.3 million and $0.2 million, respectively.

Our effective tax rate (excluding discrete tax items) for the three months ended January 31, 2022 and 2021 was 19.75% and 17.0%, respectively.

The increase is primarily due to expected product and geographical mix changes reflected in our Business Outlook for Fiscal 2022.

For purposes of determining our 19.75% estimated annual effective tax rate for fiscal 2022, CEO transition costs and proxy solicitation costs are considered significant, unusual or infrequently occurring discrete tax items and are excluded from the computation of our effective tax rate.

During the three months ended January 31, 2022, we recorded a net discrete tax benefit of $3.3 million, primarily related to proxy solicitation costs and the deductible portion of CEO transition costs.

During the three months ended January 31, 2021, we recorded a net discrete tax benefit of $0.8 million, primarily related to updating our effective tax rate for the fiscal year, as well as the finalization of certain tax accounts in connection with the filing of our fiscal 2020 Canadian income tax returns.

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.

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

Net (Loss) Income Attributable to Common Stockholders.

During the three months ended January 31, 2022, consolidated net loss attributable to common stockholders was $23.5 million as compared to net income attributable to common stockholders of $4.2 million during the three months ended January 31, 2021.

Adjusted EBITDA.

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the three months ended January 31, 2022 and 2021 are shown in the table below (numbers in the table may not foot due to rounding):

Three months ended January 31,

2022 2021 2022 2021 2022 2021 2022 2021

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

Net income (loss) $ 4.6 9.3 (0.1) 5.7 (26.3) (10.8) $ (21.9) 4.2

(Benefit from) provision for income taxes (0.1) 0.2 — (0.3) (3.1) (0.1) (3.3) (0.2)

Interest (income) and other 0.1 (0.1) (0.1) — (0.1) — — (0.1)

Change in fair value of convertible preferred stock purchase option liability — — — — (0.4) — (0.4) —

Interest expense — — — — 1.0 1.4 1.0 1.4

Amortization of stock-based compensation — — — — 2.0 1.3 2.0 1.3

Amortization of intangibles 4.3 4.3 1.1 0.5 — — 5.3 4.8

Depreciation 1.9 1.9 0.3 0.4 0.1 0.1 2.3 2.5

CEO transition costs — — — — 13.6 — 13.6 —

Proxy solicitation costs — — — — 9.1 — 9.1 —

Restructuring costs 1.7 0.6 — — — — 1.7 0.6

COVID-19 related costs — — 0.4 0.2 — — 0.4 0.2

Acquisition plan expenses — — — — — 3.4 — 3.4

Adjusted EBITDA $ 12.5 16.2 1.6 6.6 (4.3) (4.7) $ 9.8 18.1

Percentage of related net sales 15.4 % 18.5 % 4.1 % 9.0 % NA NA 8.1 % 11.2 %

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the three months ended January 31, 2022 as compared to the three months ended January 31, 2021 is primarily attributable to lower consolidated net sales, partially offset by a higher gross profit percentage, 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 primarily due to lower net sales and higher research and development expenses, 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, is primarily due to lower net sales, 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 segment as well as unallocated spending, it is inherently difficult to forecast.

A reconciliation of our fiscal 2021 GAAP Net Loss to Adjusted EBITDA is shown in the table below (numbers in the table may not foot due to rounding):

($ in millions) Fiscal Year 2021

Reconciliation of GAAP Net Loss to Adjusted EBITDA:

Net loss $ (73.5)

Benefit from income taxes (1.5)

Interest (income) and other (0.1)

Interest expense 6.8

Amortization of stock-based compensation 10.0

Amortization of intangibles 21.0

Depreciation 9.4

Acquisition plan expenses 100.3

Restructuring costs 2.8

COVID-19 related costs 1.0

Strategic emerging technology costs 0.3

Adjusted EBITDA $ 76.5

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before 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.

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.

Adjusted EBITDA is also a measure frequently requested by our investors and analysts.

We believe that investors and analysts may use Adjusted EBITDA, along with other information contained in our SEC filings, in assessing our performance and comparability of our results with other companies.

Our Non-GAAP measures reflect the GAAP measures as reported, adjusted for certain items as described herein and also excludes the effects of our outstanding convertible preferred stock.

These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct our business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP.

These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP in the tables presented herein, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring.

Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP.

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 and interest expense, 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.

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the three months ended January 31, 2022 and 2021 to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding).

Non-GAAP net (loss) income attributable to common stockholders and net (loss) income per diluted common share reflect Non-GAAP provisions for income taxes based on year-to-date 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.

Three months ended January 31, 2022

($ in millions, except for per share amount) Operating (Loss) Income Net Loss Attributable to Common Stockholders Net Loss per Diluted Common Share

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported

$ (24.6) $ (23.5) $ (0.89)

Adjustments to reflect redemption value of convertible preferred stock

CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

Restructuring costs

COVID-19 related costs 0.4 0.3 0.01

Changed in fair value of convertible preferred stock purchase option liability — (0.4) (0.02)

Net discrete tax benefit

— (0.1) (0.01)

Non-GAAP measures $ 0.1 $ (0.7) $ (0.03)

Three months ended January 31, 2021

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

Diluted Share

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported

$ 5.4 $ 4.2 $ 0.17

Acquisition plan expenses

Restructuring costs

COVID-19 related costs

Net discrete tax benefit

— (0.8) (0.03)

Non-GAAP measures $ 9.5 $ 6.8 $ 0.27

COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 2022 AND 2021

Consolidated net sales were $237.1 million and $296.5 million for the six months ended January 31, 2022 and 2021, respectively, representing a decrease of $59.4 million, or 20.0%.

The period-over-period decrease in net sales reflects lower net sales in both of our segments, as further discussed below.

Commercial Solutions

Net sales in our Commercial Solutions segment were $160.2 million for the six months ended January 31, 2022, as compared to $169.6 million for the six months ended January 31, 2021, a decrease of $9.4 million, or 5.5%.

Our Commercial Solutions segment represented 67.6% of consolidated net sales for the six months ended January 31, 2022 as compared to 57.2% for the six months ended January 31, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.84x.

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

Net sales in the six months ended January 31, 2022 of our satellite ground station technologies were lower than the six months ended January 31, 2021.

Our results for the first half of fiscal 2022 include nominal sales from our TDMA satellite networking technologies acquired on March 2, 2021.

We continue to monitor our inventory needs and navigate supply chain constraints which are impacting the timing of new orders, deliveries and installations.

In addition, we expect to make no sales to Russian customers for the rest of fiscal 2022.

As such, we expect sales of our satellite earth station products in fiscal 2022 to decline as compared to fiscal 2021.

Net sales in the six months ended January 31, 2022 of our public safety and location technology solutions were higher than the six months ended January 31, 2021, reflecting increased sales of our NG-911 services and location-based technology solutions.

As a result of the Omicron surge across Europe and the U.S.

during the six months ended January 31, 2022, several opportunities were delayed.

Nevertheless, we have a number of large opportunities in our pipeline and long-term demand for our products and services appears strong.

We are awaiting funding on a large NG-911 contract that we have already been awarded (and which is not in our backlog) and remain in negotiations with several other potential customers.

Timing of these awards are difficult to predict.

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 and NG-911 customers, we believe that sales of our NG-911 solutions will be higher than the amount we achieved in fiscal 2021.

Overall, based on expected new order flow, we expect that fiscal 2022 net sales for this segment will be lower 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.

As such, period-to-period comparisons of our results may not be indicative of a trend or future performance.

Government Solutions

Net sales in our Government Solutions segment were $76.9 million for the six months ended January 31, 2022 as compared to $126.9 million for the six months ended January 31, 2021, a decrease of $50.0 million or 39.4%.

Our Government Solutions segment represented 32.4% of consolidated net sales for the six months ended January 31, 2022 as compared to 42.8% for the six months ended January 31, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the six months ended January 31, 2022 was 0.72x.

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

Net sales for the first half of fiscal 2022 primarily reflect significantly lower sales of global field support services, advanced VSAT products and other programs to the U.S.

Army, offset in part by higher sales of our satellite-based mobile communications and tracking systems, high reliability EEE satellite-based space components and solid-state, high-power amplifiers.

Net sales during the six months ended January 31, 2021 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.

There were no corresponding sales in the first half of fiscal 2022, as we continue to expect the next round of funding on this IDIQ contract during the second half of fiscal 2022.

As result of the U.S.

In addition, as a direct result of the Russia/Ukraine military conflict and geopolitical uncertainty in Europe, we no longer expect to receive and ship a previously expected order to Ukraine.

That customer had an immediate need for wireless communication services and has redirected procurement dollars to war-fighting equipment.

We have a number of other international troposcatter orders that we expect to close soon, and we are expecting the fourth quarter of fiscal 2022 to benefit from such sales.

and international government customers.

As such, period-to-period comparisons of our results may not be indicative of a trend or future performance.

Geography and Customer Type

Sales by geography and customer type, as a percentage of related sales, for the six months ended January 31, 2022 and 2021 are as follows:

Six months ended January 31,

2022 2021 2022 2021 2022 2021

Commercial Solutions Government Solutions Consolidated

government 14.5 % 15.5 % 57.8 % 70.1 % 28.6 % 38.8 %

Domestic 63.5 % 57.3 % 15.7 % 11.1 % 48.0 % 37.6 %

78.0 % 72.8 % 73.5 % 81.2 % 76.6 % 76.4 %

International 22.0 % 27.2 % 26.5 % 18.8 % 23.4 % 23.6 %

Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Sales to U.S.

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, which accounted for 11.4% and 11.1% of consolidated net sales for the six months ended January 31, 2022 and 2021, respectively.

International sales for the six months ended January 31, 2022 and 2021 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $55.5 million and $69.9 million, 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% of consolidated net sales for the six months ended January 31, 2022 and 2021.

Gross Profit.

Gross profit was $87.6 million and $105.9 million for the six months ended January 31, 2022 and 2021, respectively.

Gross profit, as a percentage of consolidated net sales, for the six months ended January 31, 2022 was 36.9% as compared to 35.7% for the six months ended January 31, 2021.

The increase in gross margins primarily relates to overall favorable product mix.

In addition, during the six months ended January 31, 2022, we recorded a $2.5 million benefit to cost of sales as we reduced a warranty accrual due to lower than expected warranty claims in our NG-911 product line.

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 the six months ended January 31, 2022 decreased slightly in comparison to the six months ended January 31, 2021.

The gross profit percentage in the most recent six-month period primarily reflects changes in products and services mix and lower than expected warranty claims, as discussed above, as well as lower levels of factory utilization and higher logistics and operational costs resulting from global supply chain constraints.

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for the six months ended January 31, 2022 decreased in comparison to the six months ended January 31, 2021 and reflects changes in products and services mix, as discussed above.

Also, during the six months ended January 31, 2022 and 2021, we incurred $1.0 million and $0.2 million, respectively, of incremental operating costs related to our antenna facility located 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 in fiscal 2021.

Included in consolidated cost of sales for the six months ended January 31, 2022 and 2021 are provisions for excess and obsolete inventory of $2.2 million and $2.4 million, respectively.

As discussed in "Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Provisions for Excess and Obsolete Inventory," we regularly review our inventory and record a provision for excess and obsolete inventory based on historical and projected usage trends.

Our consolidated gross profit, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and related gross profit for each segment, and therefore is inherently difficult to forecast.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses were $58.1 million and $57.0 million for the six months ended January 31, 2022 and 2021, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 24.5% and 19.2% for the six months ended January 31, 2022 and 2021, respectively.

During the six months ended January 31, 2022 and 2021, we incurred $2.4 million and $0.6 million, 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.

Excluding restructuring costs, selling, general and administrative expenses for the six months ended January 31, 2022 and 2021 would have been $55.7 million or 23.5% and $56.4 million or 19.0%, respectively, of consolidated net sales.

The increase in our selling, general and administrative expenses, as a percentage of consolidated net sales, is primarily due to lower consolidated net sales.

Our selling, general and administrative expenses incurred during the six months ended January 31,2022 reflect higher labor costs associated with a tight global labor market, increased investments in marketing, including new social media activities and other investments we are making to achieve our long term business goals.

Such spending is expected to continue during the second half of fiscal 2022.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $2.6 million in the six months ended January 31, 2022 as compared to $1.7 million in the six months ended January 31, 2021.

Such amortization for the six months ended January 31, 2022 includes $0.8 million related to the retirement, in December 2021, of three, long-standing members of the Board of Directors.

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

Research and Development Expenses.

Research and development expenses were $25.1 million and $24.3 million for the six months ended January 31, 2022 and 2021, respectively, representing an increase of $0.8 million, or 3.3%.

As a percentage of consolidated net sales, research and development expenses were 10.6% and 8.2% for the six months ended January 31, 2022 and 2021, respectively.

For the six months ended January 31, 2022 and 2021, research and development expenses of $22.7 million and $19.7 million, respectively, related to our Commercial Solutions segment and $2.2 million and $4.4 million, respectively, related to our Government Solutions segment.

The remaining research and development expenses of $0.2 million in both the six months ended January 31, 2022 and 2021 related to the amortization of stock-based compensation expense.

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

During the six months ended January 31, 2022 and 2021, customers reimbursed us $5.3 million and $7.2 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

Amortization of Intangibles .

Amortization relating to intangible assets with finite lives was $10.7 million (of which $8.5 million was for the Commercial Solutions segment and $2.2 million was for the Government Solutions segment) for the six months ended January 31, 2022 and $10.4 million (of which $8.6 million was for the Commercial Solutions segment and $1.8 million was for the Government Solutions segment) for the six months ended January 31, 2021.

Proxy Solicitation Costs .

During the six months ended January 31, 2022, we incurred $11.2 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022.

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

CEO Transition Costs .

On December 31, 2021, our Board of Directors appointed Mr.

Porcelain as CEO.

Prior to that, Mr.

Porcelain served as our President and 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 $13.6 million and all expensed in our Unallocated segment in the six months ended January 31, 2022.

Of such amount, $10.3 million related to our former CEO's severance payments and benefits upon termination of his employment;

the remainder related to our former CEO agreeing to serve as a Senior Technology Advisor for a minimum of two years.

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

Acquisition Plan Expenses.

During the six months ended January 31, 2021, we incurred $94.5 million of acquisition plan expenses, of which $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 primarily related to the acquisition of TDMA satellite networking technologies and to GD NG-911 acquisition-related litigation.

These expenses are primarily recorded in our Unallocated segment.

There were no similar costs incurred during the three months ended October 31, 2021.

Operating Loss.

Operating loss for the three months ended October 31, 2021 was $6.5 million as compared to an operating loss of $85.7 million for the three months ended October 31, 2020.

There were no similar costs incurred during the six months ended January 31, 2022.

Operating Income (Loss).

Operating loss for the six months ended January 31, 2022 and 2021 was $31.1 million and $80.3 million, respectively.

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

Three months ended October 31,

Six months ended January 31,

2022 2021 2022 2021 2022 2021 2022 2021

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net sales 4.2 % 10.7 % NA 6.3 % NA NA NA NA

Our GAAP operating loss of $6.5 million for the three months ended October 31, 2021 reflects:

(i) $2.2 million of proxy solicitation costs;

Our GAAP operating loss of $31.1 million for the six months ended January 31, 2022 reflects:

(i) $13.6 million of CEO transition costs;

(ii) $11.2 million of proxy solicitation costs;

(iii) $2.4 million of restructuring costs;

and (iv) $1.0 million of incremental operating costs due to the impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating loss for the six months ended January 31, 2022 would have been $2.8 million.

Our GAAP operating loss of $80.3 million for the six months ended January 31, 2021 reflects:

(i) $94.5 million of acquisition plan expenses;

(ii) $0.6 million of restructuring costs;

and (iii) $0.2 million of incremental operating costs due to the impact of COVID-19, as discussed above.

Excluding such costs, our consolidated operating loss would have been $3.0 million.

Our GAAP operating loss of $85.7 million for the three months ended October 31, 2020 reflects $91.2 million of acquisition plan expenses, as discussed above.

Excluding such costs, our consolidated operating income for the three months ended October 31, 2020 would have been $5.5 million, or 4.0% of consolidated net sales.

The decrease in operating income from $5.5 million to an operating loss of $3.0 million in the most recent quarter was due primarily to lower consolidated net sales and a lower gross profit percentage, as discussed above.

Excluding such items, our consolidated operating income for the six months ended January 31, 2021 would have been $15.0 million, or 5.1% of consolidated net sales.

The decrease in operating income from $15.0 million for the six months ended January 31, 2021 to an operating loss of $2.8 million for the six months ended January 31, 2022 was primarily due to lower consolidated net sales, as discussed above.

Operating income (loss) by reportable segment is further discussed below.

The decrease in our Commercial Solutions segment operating income, both in dollars and as a percentage of the related segment net sales, for the three months ended October 31, 2021 was primarily due to lower net sales and gross profit percentage, higher research and development expenses and $0.8 million of restructuring costs, as discussed above.

The decrease in our Government Solutions segment operating income for the three months ended October 31, 2021 was driven primarily by lower net sales and gross profit percentage, as discussed above.

The decrease in unallocated expenses for the three months ended October 31, 2021 as compared to the three months ended October 31, 2020 was due primarily to no acquisition plan expenses incurred during the most recently completed fiscal quarter, as discussed above.

Amortization of stock-based compensation was $0.9 million and $0.7 million, respectively, for the three months ended October 31, 2021 and 2020.

Excluding the impact of proxy solicitation costs of $2.2 million and acquisition plan expenses of $92.2 million in their respective periods, unallocated expenses were $5.1 million and $4.9 million, respectively, for the three months ended October 31, 2021 and 2020.

It is difficult to predict GAAP operating income in fiscal 2022 as it will be impacted by both start-up expenses and restructuring costs associated with the opening of Comtech’s new high-volume technology manufacturing centers, COVID-19 related costs, proxy solicitation costs and expenses associated with the CEO transition that was announced in October 2021.

The decrease in our Commercial Solutions segment operating income, both in dollars and as a percentage of the related segment net sales, for the six months ended January 31, 2022 was driven primarily by lower net sales and gross profit percentage and higher research and development expenses, as discussed above.

The decrease in our Government Solutions segment operating income for the six months ended January 31, 2022 was driven primarily by lower net sales and gross profit percentage, partially offset by lower research and development expenses, as discussed above.

The decrease in unallocated expenses for the six months ended January 31, 2022 as compared to the six months ended January 31, 2021 was primarily due to no acquisition plan expenses incurred during the most recent six-month period, partially offset by CEO transition costs and proxy solicitation costs during the six months ended January 31, 2022, as discussed above.

Amortization of stock-based compensation was $2.9 million and $2.0 million, respectively, for the six months ended January 31, 2022 and 2021.

Stock-based compensation expense for the six months ended January 31, 2022 includes $0.8 million related to the retirement of three, long-standing Board members.

Excluding the impact of CEO transition costs, proxy solicitation costs, the higher amortization of stock-based compensation expense and acquisition plan expenses in their respective periods, unallocated expenses would have been $10.7 million and $10.9 million, respectively, for the six months ended January 31, 2022 and 2021.

It is difficult to predict GAAP operating results in fiscal 2022 as it will be impacted by both start-up expenses and restructuring costs associated with the opening of Comtech’s new high-volume technology manufacturing centers and COVID-19 related costs.

Interest Expense and Other.

Interest expense was $1.6 million and $2.3 million for the three months ended October 31, 2021 and 2020, respectively.

Interest expense for the three months ended October 31, 2020 includes $1.2 million of incremental interest expense related to a now terminated financing commitment letter.

Our effective interest rate (including amortization of deferred financing costs) in the three months ended October 31, 2021 was approximately 2.9%.

Interest expense was $2.6 million and $3.7 million for the six months ended January 31, 2022 and 2021, respectively.

Interest expense for the six months ended January 31, 2021 includes $1.2 million of incremental interest expense related to a now terminated financing commitment letter.

Our effective interest rate (including amortization of deferred financing costs) in the six months ended January 31, 2022 was approximately 3.1%.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility approximates 1.9%.

Interest (Income) and Other.

Interest (income) and other for both the three months ended October 31, 2021 and 2020 was nominal.

Interest (income) and other for both the six months ended January 31, 2022 and 2021 was nominal.

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.

Change in Fair Value of Convertible Preferred Stock Purchase Option Liability.

During the three months ended October 31, 2021, we recorded a $0.3 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability.

During the six months ended January 31, 2022, we recorded a $0.7 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability.

See "Notes to Condensed Consolidated Financial Statements - Note (17) - Convertible Preferred Stock" for more information.

Benefit from Income Taxes.

For the three months ended October 31, 2021 and 2020, we recorded a tax benefit of $2.1 million and $2.2 million, respectively.

Our effective tax rate (excluding discrete tax items) for the three months ended October 31, 2021 and 2020 was 21.00% and 13.75%, respectively.

For the six months ended January 31, 2022 and 2021, we recorded a tax benefit of $5.3 million and $2.4 million, respectively.

Our effective tax rate (excluding discrete tax items) for the six months ended January 31, 2022 and 2021 was 19.75% and 17.0%, respectively.

The increase is primarily due to expected product and geographical mix changes reflected in our Business Outlook for Fiscal 2022.

During the three months ended October 31, 2021, we recorded a net discrete tax benefit of $0.4 million, primarily related to the remeasurement of certain deferred tax items as a result of restructuring activities taken during the quarter.

During the three months ended October 31, 2020, we recorded a net discrete tax expense of $0.2 million, primarily related to stock-based awards that were settled during the quarter.

During the six months ended January 31, 2022, we recorded a net discrete tax benefit of $3.7 million, primarily related to proxy solicitation costs and the deductible portion of CEO transition costs.

During the six months ended January 31, 2021, we recorded a net discrete tax benefit of less than $0.1 million.

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

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Net Loss Attributable to Common Stockholders.

During the three months ended October 31, 2021 and 2020, the consolidated net loss attributable to common stockholders was $11.2 million and $85.8 million, respectively.

During the six months ended January 31, 2022 and 2021, consolidated net loss attributable to common stockholders was $34.7 million and $81.6 million, respectively.

Adjusted EBITDA.

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the three months ended October 31, 2021 and 2020 are shown in the table below (numbers in the table may not foot due to rounding):

Three months ended October 31,

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the six months ended January 31, 2022 and 2021 are shown in the table below (numbers in the table may not foot due to rounding):

Six months ended January 31,

2022 2021 2022 2021 2022 2021 2022 2021

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Depreciation 3.8 3.9 0.7 0.8 0.1 0.2 4.6 5.0

CEO transition costs — — — — 13.6 — 13.6 —

Proxy solicitation costs — — — — 11.2 — 11.2 —

Acquisition plan expenses — (1.1) — — — 92.2 — 91.2

Restructuring costs 2.5 0.6 (0.1) — — — 2.4 0.6

COVID-19 related costs — — 1.0 0.2 — — 1.0 0.2

Acquisition plan expenses — (1.1) — — — 95.6 — 94.5

Adjusted EBITDA $ 21.5 30.2 2.2 10.8 (8.4) (8.7) $ 15.3 32.3

Percentage of related net sales 13.4 % 17.8 % 2.9 % 8.5 % NA NA 6.5 % 10.9 %

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the three months ended October 31, 2021 as compared to the three months ended October 31, 2020 is primarily attributable to lower consolidated net sales and gross profit percentage, and higher research and development expenses, 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, for the three months ended October 31, 2021 as compared to the three months ended October 31, 2020 is primarily due to lower segment net sales and gross profit percentage, as well as higher research and development expenses, 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, for the three months ended October 31, 2021 as compared to the three months ended October 31, 2020 is driven primarily by lower segment net sales and gross profit percentage, as discussed above.

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the six months ended January 31, 2022 as compared to the six months ended January 31, 2021 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 primarily due to lower net sales and gross profit percentage and higher research and development expenses, 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 is primarily due to lower net sales and gross profit percentage, partially offset by lower research and development expenses, as discussed above.

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Adjusted EBITDA $ 76.5

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before 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.

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Our Non-GAAP measures for consolidated operating income (loss), net income (loss) attributable to common stockholders and net income (loss) per diluted common share reflect the GAAP measures as reported, adjusted for certain items as described above.

Our Non-GAAP measures reflect the GAAP measures as reported, adjusted for certain items as described herein and also excludes the effects of our outstanding convertible preferred stock.

These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP in the tables above, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring.

Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP.

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Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the three months ended October 31, 2021 and 2020 to the corresponding non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding).

Non-GAAP net (loss) income attributable to common stockholders and EPS reflect non-GAAP provisions for income taxes based on year-to-date results, as adjusted for the non-GAAP reconciling items included in the tables below.

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the six months ended January 31, 2022 and 2021 to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding).

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 EPS adjustments for the three months ended October 31, 2020 were computed using 25,315,000 weighted average diluted shares outstanding during the period.

Three months ended October 31, 2021

In addition, due to the GAAP net loss for the period, Non-GAAP EPS for the six months ended January 31, 2021 was computed using 25,365,000 weighted average diluted shares outstanding during the period.

Six months ended January 31, 2022

($ in millions, except for per share amount) Operating Loss Net Loss Attributable to Common Stockholders Net Loss per Diluted Common Share

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Adjustments to reflect redemption value of convertible preferred stock

CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

11.2 8.7 0.33

Restructuring costs

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Non-GAAP measures $ (2.8) $ (4.6) $ (0.18)

Three months ended October 31, 2020

Six months ended January 31, 2021

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

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94.5 90.4 3.56

Restructuring costs

COVID-19 related costs

Interest expense

Net discrete tax expense

Non-GAAP measures $ 15.0 $ 10.3 $ 0.41

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents were $30.9 million at both October 31, 2021 and July 31, 2021 and reflect the following:

• Net cash provided by operating activities was $4.8 million for the three months ended October 31, 2021 as compared to net cash used in operating activities of $74.2 million for the three months ended October 31, 2020.

During the three months ended October 31, 2020, 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 used in operating activities would have been $4.2 million.

Our cash and cash equivalents were $30.9 million at both January 31, 2022 and July 31, 2021.

For the six months ended January 31, 2022, our cash flows reflect the following:

• Net cash provided by operating activities was $9.6 million for the six months ended January 31, 2022 as compared to net cash used in operating activities of $63.4 million for the six months ended January 31, 2021.

During the six months ended January 31, 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 $6.6 million.

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

• Net cash used in investing activities for the three months ended October 31, 2021 and 2020 was $3.6 million and $0.9 million, respectively.

Net cash used in the three months ended October 31, 2021 primarily reflects capital expenditures to build-out cloud-based computer networks to support our recent NG-911 contract wins and capital investments and tenant improvements in connection with the opening of our new high-volume technology manufacturing centers.

• Net cash used in investing activities for the six months ended January 31, 2022 and 2021 was $8.8 million and $4.4 million, respectively.

Net cash used in the six months ended January 31, 2022 primarily reflects capital expenditures to build-out cloud-based computer networks to support our recent NG-911 contract wins and capital investments and building improvements in connection with the opening of our new high-volume technology manufacturing centers.

Net cash used in both periods also relates to expenditures for property, plant and equipment upgrades and enhancements.

• Net cash used in financing activities was $1.1 million for the three months ended October 31, 2021 as compared to net cash provided by financing activities of $59.7 million for the three months ended October 31, 2020.

During the three months ended October 31, 2021, we received an aggregate of $100.0 million in proceeds related to the issuance of a new series of Convertible Preferred Stock to certain investors.

During the three months ended October 31, 2021, we also made net payments under our Credit Facility of $93.0 million as compared to net borrowings under our Credit Facility of $67.5 million during the three months ended October 31, 2020, primarily related to the $70.0 million payment we made to Gilat.

During the three months ended October 31, 2021 and 2020, we paid $2.9 million and $5.2 million, respectively, in cash dividends to our stockholders.

We also made $4.7 million and $2.7 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during the three months ended October 31, 2021 and 2020, respectively.

• Net cash used in financing activities was $0.7 million for the six months ended January 31, 2022 as compared to net cash provided by financing activities of $50.9 million for the six months ended January 31, 2021.

During the six months ended January 31, 2022, we received an aggregate of $100.0 million in proceeds related to the issuance of a new series of Convertible Preferred Stock to certain investors.

During the six months ended January 31, 2022, we also made net payments under our Credit Facility of $86.5 million as compared to net borrowings under our Credit Facility of $58.5 million during the six months ended January 31, 2021, primarily related to the $70.0 million payment we made to Gilat.

During the six months ended January 31, 2022 and 2021, we paid $5.8 million and $5.2 million, respectively, in cash dividends to our common stockholders.

We also made $4.7 million and $2.7 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during the six months ended January 31, 2022 and 2021, respectively.

The Credit Facility is discussed below and in " Notes to Condensed Consolidated Financial Statements – Note (10) – Credit Facility.

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Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.

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

(i) capital investments and tenant improvements in connection with the opening of our two new high-volume technology manufacturing centers;

As of January 31, 2022, our material short-term cash requirements primarily consist of:

(i) capital investments and building improvements in connection with the opening of our two new high-volume technology manufacturing centers;

(ii) interest payments under our Credit Facility;

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(v) payment of accrued quarterly dividends on shares of our common stock;

and (vi) a cumulative 6.5% annual dividend on our Convertible Preferred Stock, which is payable in kind or in cash at our election.

(vi) accrued CEO transition costs;

and (vii) a cumulative 6.5% annual dividend on our Convertible Preferred Stock, which is payable in kind or in cash at our election.

In addition to capital investments for our two new high-volume manufacturing centers, we continue to make significant capital expenditures to build-out cloud-based computer networks to support our previously announced 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.

In the first half of fiscal 2022, we have spent $8.8 million in property, plant and equipment.

As discussed in "Notes to Condensed Consolidated Financial Statements - Note (2) - Acquisitions - UHP Networks Inc.," we completed our acquisition of UHP on March 2, 2021.

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

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

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

The terms of the stock purchase agreement provide an ability for us to substitute cash in lieu of the common stock that was initially placed into escrow.

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.

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

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 the three months ended October 31, 2021 and 2020.

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

Our material long-term cash requirements primarily consist of mandatory interest payments pursuant to our Credit Facility, a cumulative 6.5% annual dividend related to our Convertible Preferred Stock, which is payable in kind or in cash at our election, and lease commitments.

We have historically met both our short-term and long-term cash requirements with funds provided by a combination of cash and cash equivalent balances, cash generated from operating activities and cash generated from financing transactions.

Based on our anticipated level of future sales and operating income, we believe that our existing cash and cash equivalent balances, our cash generated from operating activities and amounts potentially available under our Credit Facility will be sufficient to meet both our currently anticipated short-term and long-term operating cash requirements.

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.

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

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.

Our material cash requirements are for working capital, capital expenditures, income tax payments, debt service, facilities lease payments and dividends related to our Convertible Preferred Stock, which are payable in kind or in cash at our election.

We have historically met our cash requirements with funds provided by a combination of cash and cash equivalent balances, cash generated from operating activities and cash generated from equity and debt financing transactions.

In our fiscal quarter ended October 31, 2021, we secured a $100.0 million strategic growth investment to enhance our financial flexibility and strengthen our ability to capitalize on recent large contract awards and growing customer demand by making crucial investments in our satellite technologies and next-generation 911 public safety solutions.

Based on our current revenue visibility, we believe that our existing cash and cash equivalent balances, our cash generated from operating activities and amounts potentially available under our Credit Facility will be sufficient to meet our short-term cash requirements.

Our material cash requirements could increase beyond our current expectations due to factors such as general economic conditions, a change in government spending priorities, or larger than usual customer orders.

In addition, we may choose to raise additional funds through equity and debt financing transactions to provide additional flexibility or to pursue acquisitions.

Although it is difficult to predict the terms and conditions of financing that may be available in the future, we believe that we would have sufficient access to credit from financial institutions and/or financing from public and private debt and equity markets.

Credit Facility

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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.

As of October 31, 2021, the amount outstanding under our Credit Facility was $108.0 million, which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At October 31, 2021, we had $1.5 million of standby letters of credit outstanding under our Credit Facility related to our 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 $100.0 million to $212.0 million.

As of January 31, 2022, the amount outstanding under our Credit Facility was $114.5 million, which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At January 31, 2022, we had $1.0 million of standby letters of credit outstanding under our Credit Facility related to our 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 $100.0 million to $212.0 million.

Borrowings under the Credit Facility shall be either:

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

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

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

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

Our Interest Expense Coverage Ratio as of January 31, 2022 was 11.91x 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 and foreign subsidiaries (the "Guarantors").

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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 $125.0 million, 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 $125.0 million, 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 $100.0 million.

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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 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 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 $25.0 million of shares of common stock), dispositions of businesses or assets, the incurrence of indebtedness and certain amendments or extensions of our existing Credit Facility.

Holders 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.

In addition, each holder will have the right to cause the Company to repurchase its shares of Convertible Preferred Stock in connection with a Change of Control, at a price equal to the liquidation preference.

Off-Balance Sheet Arrangements

As of October 31, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) 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.

We do not expect that these commitments, as of October 31, 2021, will materially adversely affect our liquidity.

At October 31, 2021, cash payments due under long-term obligations (including estimated interest expense on our Credit Facility), excluding purchase orders that we entered into in our normal course of business, are as follows:

We do not expect that these commitments, as of January 31, 2022, will materially adversely affect our liquidity.

At January 31, 2022, cash payments due under long-term obligations (including estimated interest expense on our Credit Facility), excluding purchase orders that we entered into in our normal course of business, are as follows:

Obligations Due by Fiscal Years or Maturity Date (in thousands)

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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.

At October 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.

At January 31, 2022, we have approximately $1.0 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.

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As the Convertible Preferred Stock are not mandatorily redeemable for cash, the redemption value of such shares are not presented in the table above.

As discussed further in " Notes to Condensed Consolidated Financial Statements - Note (18) - Stockholders’ Equity ," 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 common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval.

As discussed further in " Notes to Condensed Consolidated Financial Statements - Note (18) - Stockholders’ Equity ," 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.

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

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As a result, pending or future claims asserted against us by a party that we may agree or have agreed to indemnify could result in legal costs and damages that could have a material adverse effect on our consolidated results of operations and financial condition.

We have an employment agreement and change of control agreement with Fred Kornberg, our Chief Executive Officer 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 President and CEO 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.

Our Condensed Consolidated Balance Sheet at October 31, 2021 includes total liabilities of $9.4 million for uncertain tax positions, including interest, any or all of which may result in a cash payment.

Our Condensed Consolidated Balance Sheet at January 31, 2022 includes total liabilities of $9.5 million for uncertain tax positions, including interest, any or all of which may result in a cash payment.

The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of any potential cash settlement with the taxing authorities.

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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 Condensed Consolidated Financial Statements – Note (3) - Adoption of Accounting Standards and Updates " during the three months ended October 31, 2021, we adopted:

As further discussed in " Notes to Condensed Consolidated Financial Statements – Note (3) - Adoption of Accounting Standards and Updates " during the six months ended January 31, 2022, we adopted:

• FASB ASU No.

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2020-06, which simplifies the accounting for convertible instruments by removing certain separation models (including the cash conversion model and the beneficial conversion feature model) for convertible instruments.

As a result, for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815 or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features are no longer are separated from the host contract.

Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost as long as no other features require bifurcation and recognition as derivatives.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis