What changed in this filing

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Item 1. Financial Statements

2022-06-09 compared with 2022-03-10 · 247 added, 253 removed, 888 unchanged (36% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

Assets January 31, 2022 July 31, 2021

Assets April 30, 2022 July 31, 2021

Current assets:

30 unchanged sentences

authorized 125,000 shares;

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

issued 100,000 at April 30, 2022 (includes accrued dividends of $ 558,000 )

103,522,000 —

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authorized 100,000,000 shares;

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

issued 41,560,361 and 41,281,812 shares at April 30, 2022 and July 31, 2021, respectively

4,156,000 4,128,000

2 unchanged sentences

906,409,000 942,568,000

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

Treasury stock, at cost ( 15,033,317 shares at April 30, 2022 and July 31, 2021)

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

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three months ended April 30, Nine months ended April 30,

2022 2021 2022 2021

5 unchanged sentences

Amortization of intangibles 5,349,000 5,310,000 16,047,000 15,671,000

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

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

Proxy solicitation costs — — 11,248,000 —

7 unchanged sentences

stock purchase option liability ( 302,000 ) — ( 1,004,000 ) —

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

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

(Loss) income before (benefit from) provision for

income taxes ( 796,000 ) 1,108,000 ( 33,983,000 ) ( 82,921,000 )

(Benefit from) provision for income taxes ( 771,000 ) 316,000 ( 6,100,000 ) ( 2,078,000 )

Net (loss) income $ ( 25,000 ) 792,000 $ ( 27,883,000 ) ( 80,843,000 )

Adjustments to reflect redemption value of convertible preferred stock:

Adjustments to reflect redemption value of

convertible preferred stock:

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

2 unchanged sentences

Dividend on convertible preferred stock ( 1,655,000 ) — ( 3,522,000 ) —

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

Net (loss) income attributable to common

stockholders $ ( 1,680,000 ) 792,000 $ ( 36,417,000 ) ( 80,843,000 )

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

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CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Three months ended January 31, 2022 and 2021

Three months ended April 30, 2022 and 2021

Series A Convertible Preferred Stock Common Stock Additional

1 unchanged sentence

Shares Amount Shares Amount Shares Amount

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

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

Equity-classified stock award compensation

2 unchanged sentences

— — 12,113 1,000 204,000 — — — 205,000

Forfeiture of restricted stock ( 480 ) — — — — — —

Net settlement of stock-based awards

— — 4,038 — ( 59,000 ) — — — ( 59,000 )

Common stock issued for acquisition of UHP Networks Inc.

— — 1,026,567 103,000 28,789,000 28,892,000

Cash dividends declared, net ($ 0.10 per share)

3 unchanged sentences

Net income — — — — — 792,000 — — 792,000

Balance as of April 30, 2021 — $ — 41,102,215 $ 4,110,000 $ 601,029,000 $ 328,332,000 15,033,317 $ ( 441,849,000 ) $ 491,622,000

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

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

Equity-classified stock award compensation

— — — — 1,071,000 — — — 1,071,000

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

Proceeds from issuance of employee stock purchase plan shares

— — 12,131 2,000 160,000 — — — 162,000

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

Net settlement of stock-based awards

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Net loss — — — — — ( 25,000 ) — — ( 25,000 )

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

Balance as of April 30, 2022 100,000 $ 103,522,000 41,560,361 $ 4,156,000 $ 613,898,000 $ 288,355,000 15,033,317 $ ( 441,849,000 ) $ 464,560,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Six months ended January 31, 2022 and 2021

Nine months ended April 30, 2022 and 2021

Series A Convertible Preferred Stock Common Stock Additional

6 unchanged sentences

— — 43,235 4,000 570,000 — — — 574,000

Issuance of restricted stock

— — 35,975 4,000 ( 4,000 ) — — — —

Issuance of restricted stock, net of forfeiture — — 35,495 4,000 ( 4,000 ) — — — —

Net settlement of stock-based awards

— — 72,479 7,000 ( 1,407,000 ) — — — ( 1,400,000 )

Common stock issued for acquisition of UHP — — 1,026,567 103,000 28,789,000 — — — 28,892,000

Cash dividends declared, net ($ 0.30 per share)

4 unchanged sentences

Net loss — — — — — ( 80,843,000 ) — — ( 80,843,000 )

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

Balance as of April 30, 2021 — $ — 41,102,215 $ 4,110,000 $ 601,029,000 $ 328,332,000 15,033,317 $ ( 441,849,000 ) $ 491,622,000

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

1 unchanged sentence

— — — — 3,975,000 — — — 3,975,000

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

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

Proceeds from issuance of employee stock purchase plan shares

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Net loss — — — — — ( 27,883,000 ) — — ( 27,883,000 )

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

Balance as of April 30, 2022 100,000 $ 103,522,000 41,560,361 $ 4,156,000 $ 613,898,000 $ 288,355,000 15,033,317 $ ( 441,849,000 ) $ 464,560,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended January 31,

Nine months ended April 30,

Cash flows from operating activities:

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Amortization of stock-based compensation 3,975,000 3,190,000

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

Amortization of cost to fulfill assets 233,000 —

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

Amortization of deferred financing costs 608,000 552,000

2 unchanged sentences

(Gain) loss on disposal of property, plant and equipment ( 120,000 ) 29,000

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

Provision for (benefit from) allowance for doubtful accounts 316,000 ( 287,000 )

Provision for excess and obsolete inventory 3,299,000 3,213,000

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Cash flows from investing activities:

Net cash acquired from acquisition of UHP — 1,381,000

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

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Proceeds from issuance of employee stock purchase plan shares 616,000 574,000

Net cash (used in) provided by financing activities ( 683,000 ) 50,864,000

Net cash provided by (used in) financing activities 7,969,000 55,508,000

Net increase (decrease) in cash and cash equivalents 1,970,000 ( 8,680,000 )

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six months ended January 31,

Nine months ended April 30,

Supplemental cash flow disclosures:

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Non-cash investing and financing activities:

Unpaid additions to property, plant and equipment $ 2,904,000 1,132,000

Accrued additions to property, plant and equipment $ 2,379,000 2,068,000

Cash dividends declared on common stock but unpaid (including accrual of

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Issuance of restricted stock $ 13,000 4,000

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

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

Adjustment to reflect redemption value of convertible preferred stock $ 8,534,000 —

Common stock issued for acquisitions $ — 28,892,000

Fair value of UHP acquisition contingent earn-out consideration $ — 8,500,000

See accompanying notes to condensed consolidated financial statements.

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The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp.

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

and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and nine months ended April 30, 2022 and 2021 are unaudited.

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

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

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

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

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

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

CEO Transition Costs

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

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

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

Such business conditions are expected to continue during our fourth quarter of fiscal 2022 and carry into fiscal 2023.

Former CEO Transition Costs

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

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

Also, on January 3, 2022, Mr.

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

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

Transition costs related to our former CEO, Mr.

Kornberg, were $ 13,554,000 and all expensed in our second quarter of fiscal 2022.

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(2) Acquisitions

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

("UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions, pursuant to a stock purchase agreement initially entered into in November 2019 and amended in June 2020 and on March 1, 2021, respectively.

With end-markets for high-speed satellite-based networks anticipated to significantly grow, our acquisition allows us to enhance our Commercial Solutions segment's offerings with low cost time division multiple access ("TDMA") satellite modems.

The acquisition has a preliminary purchase price for accounting purposes of $ 37,470,000 .

Pursuant to the stock purchase agreement, during fiscal 2021, the initial upfront payment of approximately $ 23,979,000 was paid mostly in shares of our common stock, with $ 87,000 in cash.

In August 2021, $ 3,991,000 of the $ 4,991,000 hold back amount previously placed into escrow at closing was paid to the seller in shares of our common stock, as the conditions pursuant to the stock purchase agreement were met.

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

The preliminary estimated fair value of such contingent earn-out consideration at the acquisition date was $ 8,500,000 .

Of the $ 23,979,000 paid at closing, $ 4,560,000 was placed into escrow to be released ratably over three years upon settlement of potential indemnification obligations of the seller.

We issued 1,026,567 shares of our common stock at closing, based on a volume weighted average stock price of approximately $ 28.14 per share, in satisfaction of 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.

We are accounting for the acquisition under the acquisition method of accounting in accordance with FASB ASC 805, "Business Combinations" ("ASC 805").

The purchase price was allocated to the assets acquired and liabilities assumed, based on their preliminary fair value as of March 2, 2021 pursuant to the business combination accounting rules.

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

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

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

The acquisition had a final purchase price for accounting purposes of $ 37,470,000 , which represents the sum of $ 23,979,000 paid at closing, $ 4,991,000 paid on August 1, 2021 and $ 8,500,000 related to the acquisition date estimated fair value of a $ 9,000,000 contingent earn-out payment.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

At closing, we funded the $ 23,979,000 and $ 4,991,000 payments with 1,026,567 shares of our common stock, based on a volume weighted average stock price of approximately $ 28.14 per share, plus $ 87,000 in cash.

As of April 30, 2022, 197,855 of the 1,026,567 shares of our common stock issued at closing were held in escrow to satisfy potential indemnification obligations of the seller.

In addition, the full $ 9,000,000 earn-out payment was accrued, as the specified sales milestones were met.

Settlement of the $ 9,000,000 earn-out payment is expected to occur in the fourth quarter of fiscal 2022.

Comtech retains the right to use cash, common stock or a combination of both to settle such payment.

Upon payment, twenty-percent, or $ 1,800,000 , of such amount will also be placed into escrow and is anticipated to be released to the seller equally on March 2, 2023 and 2024.

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.

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

Price Allocation (1)

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Contingent earn-out consideration 8,500,000

Preliminary purchase price at fair value $ 37,470,000

Preliminary allocation of aggregate purchase price:

Purchase price at fair value $ 37,470,000

Allocation of aggregate purchase price:

Cash and cash equivalents $ 1,391,000

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Goodwill 13,899,000 Indefinite

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

Allocation of aggregate purchase price $ 37,470,000

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

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

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

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

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

(i) possible outcomes for targeted net sales during the earn-out period;

(ii) timing of each possible outcome;

(iii) probability of each possible outcome;

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

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

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

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

The primary areas of the purchase price allocation not yet finalized include the purchase price (due to customary adjustments for potential indemnification obligations of the seller under the stock purchase agreement), a final assessment of assets acquired and liabilities assumed, accrued warranty obligations, income taxes and residual goodwill.

We accounted for the acquisition under the acquisition method of accounting in accordance with FASB ASC 805, "Business Combinations" ("ASC 805").

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

The final purchase price was allocated to the assets acquired and liabilities assumed, based on their fair value as of March 2, 2021 pursuant to the business combination accounting rules.

Our condensed consolidated statements of operations for the three and nine months ended April 30, 2022 include a nominal amount of revenue contribution from the acquisition.

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

COMTECH TELECOMMUNICATIONS CORP.

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Acquisition Plan Expenses

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

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

During the three and nine months ended April 30, 2021, we incurred acquisition plan expenses of $ 5,267,000 and $ 99,807,000 , respectively.

Of the amount recorded for the nine months ended April 30, 2021, $ 88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd.

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

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

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

Additionally, during the nine months ended April 30, 2021, we recorded $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter.

(3) Adoption of Accounting Standards and Updates

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

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

During the nine months ended April 30, 2022, we adopted:

• FASB ASU No.

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

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

Three months ended April 30, Nine months ended April 30,

2022 2021 2022 2021

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Included in domestic sales are sales to Verizon Communications Inc.

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

("Verizon"), which accounted for 10.6 % and 11.1 % of consolidated net sales for the three and nine months ended April 30, 2022, respectively, and 11.4 % and 11.2 % of consolidated net sales for the three and nine months ended April 30, 2021, respectively.

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

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

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

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three and nine months ended April 30, 2022 and 2021.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our Chief Operating Decision Maker ("CODM") for the three and nine months ended April 30, 2022 and 2021.

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

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

Three months ended April 30, 2022 Nine months ended April 30, 2022

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three months ended April 30, 2021 Nine months ended April 30, 2021

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

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Under ASC 606, unbilled receivables constitute contract assets.

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

There were no material impairment losses recognized on contract assets during the nine months ended April 30, 2022 and 2021, respectively.

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

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

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

Of the contract liability balance at July 31, 2021 and July 31, 2020, $ 46,031,000 and $ 30,011,000 was recognized as revenue during the nine months ended April 30, 2022 and 2021, respectively.

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

Incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

otherwise, such costs are capitalized and amortized over the estimated life of the contract.

During the three and nine months ended April 30, 2022, incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

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

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

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

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

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

As of April 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 602,333,000 (which represents the amount of our consolidated funded backlog).

We estimate that a substantial portion of our remaining performance obligations at April 30, 2022 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During the three and nine months ended April 30, 2022, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(5) Fair Value Measurements and Financial Instruments

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

The stock purchase agreement for the acquisition of UHP provides for a contingent earn-out payment of up to $ 9,000,000 , if specified sales milestones are reached during a defined period ending September 30, 2022.

The earn-out is accounted for as a contingent consideration liability to be recorded at its fair value.

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

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

The stock purchase agreement for the acquisition of UHP provided for a contingent earn-out payment of up to $ 9,000,000 , if specified sales milestones were reached during a defined period ending September 30, 2022.

The earn-out was accounted for as a contingent consideration liability to be recorded at its fair value.

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

As of April 30, 2022 and July 31, 2021, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

(6) Earnings Per Share

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

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

There were no repurchases of our common stock during the three or nine months ended April 30, 2022 or 2021.

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

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

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

Weighted average stock options, RSUs and restricted stock outstanding of 1,369,000 and 912,000 for the three months ended April 30, 2022 and 2021, respectively, and 1,463,000 and 1,499,000 for the nine months ended April 30, 2022 and 2021, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 339,000 and 236,000 weighted average performance shares outstanding for the three months ended April 30, 2022 and 2021, respectively, and 287,000 and 235,000 for the nine months ended April 30, 2022 and 2021, respectively, as the performance conditions have not yet been satisfied.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Weighted average common shares of 553,000 and 455,000 related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation for the three and nine months ended April 30, 2022, respectively, because their effect would have been anti-dilutive.

Weighted average common shares of 4,225,000 and 2,969,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for the three and nine months ended April 30, 2022, respectively, because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for the three and nine months ended April 30, 2022 is the respective net loss attributable to common stockholders.

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

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

Three months ended April 30, Nine months ended April 30,

2022 2021 2022 2021

Net (loss) income $ ( 25,000 ) 792,000 $ ( 27,883,000 ) ( 80,843,000 )

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

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

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

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

Convertible preferred stock issuance

costs — — ( 4,007,000 ) —

Establishment of initial convertible

preferred stock purchase option

liability — — ( 1,005,000 ) —

Dividend on convertible preferred

stock ( 1,655,000 ) — ( 3,522,000 ) —

Net loss attributable to common

stockholders $ ( 1,680,000 ) 792,000 $ ( 36,417,000 ) ( 80,843,000 )

Denominator for basic calculation 26,528,000 25,911,000 26,582,000 25,875,000

3 unchanged sentences

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

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

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

As a result, our EPS calculations for the three and nine months ended April 30, 2022 were based on the two-class method.

Given the net loss attributable to common stockholders for the three and nine months ended April 30, 2022, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

(7) Accounts Receivable

Accounts receivable consist of the following at:

January 31, 2022 July 31, 2021

April 30, 2022 July 31, 2021

Receivables from commercial and international customers $ 62,691,000 86,890,000

10 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Unbilled receivables as of April 30, 2022 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

Under ASC 606, unbilled receivables constitute contract assets.

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

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

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

and Verizon, respectively.

Management estimates that a substantial portion of the amounts not yet billed at April 30, 2022 will be billed and collected within one year.

As of April 30, 2022, except for the U.S.

government (and its agencies) and Verizon, which represented 18.3 % and 16.9 % of total accounts receivable, respectively, there were no other customers which accounted for greater than 10% of total accounts receivable.

As of July 31, 2021, 23.0 %, 12.7 % and 12.1 % of total accounts receivable related to the U.S.

3 unchanged sentences

Inventories consist of the following at:

January 31, 2022 July 31, 2021

April 30, 2022 July 31, 2021

Raw materials and components $ 72,005,000 62,249,000

3 unchanged sentences

Inventories, net $ 95,243,000 80,358,000

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

As of April 30, 2022 and July 31, 2021, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 7,993,000 and $ 7,028,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 1,724,000 and $ 1,509,000 , respectively.

(9) Accrued Expenses and Other Current Liabilities

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

January 31, 2022 July 31, 2021

April 30, 2022 July 31, 2021

Accrued wages and benefits $ 26,758,000 26,367,000

6 unchanged sentences

Accrued expenses and other current liabilities $ 84,164,000 89,601,000

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

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

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

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

Accrued acquisition-related costs as of April 30, 2022 and July 31, 2021 include $ 9,000,000 and $ 8,705,000 , respectively, of contingent earn-out consideration related to our acquisition of UHP.

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

” for further discussion.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Accrued warranty obligations as of April 30, 2022 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

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

1 unchanged sentence

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

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

Six months ended January 31,

Changes in our accrued warranty obligations during the nine months ended April 30, 2022 and 2021 were as follows:

Nine months ended April 30,

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

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

(Benefit from) provision for warranty obligations ( 613,000 ) 2,852,000

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

2 unchanged sentences

Balance at end of period $ 10,832,000 16,747,000

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

During the nine months ended April 30, 2022, we recorded a $ 2,500,000 benefit to cost of sales in our Commercial Solutions segment due to lower than expected warranty claims associated with previously acquired NG-911 technologies.

(10) Credit Facility

7 unchanged sentences

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

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

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

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

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

As of April 30, 2022, the amount outstanding under our Credit Facility was $ 127,000,000 , which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At April 30, 2022, we had $ 925,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the nine months ended April 30, 2022, we had outstanding balances under the Credit Facility ranging from $ 100,000,000 to $ 212,000,000 .

As of April 30, 2022, total net deferred financing costs related to the Credit Facility were $ 1,216,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended April 30, 2022 and 2021 was $ 1,004,000 and $ 1,515,000 , respectively.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the nine months ended April 30, 2022 and 2021 was $ 3,478,000 and $ 4,040,000 , respectively.

Our blended interest rate approximated 3.30 % and 2.97 %, respectively, for the three months ended April 30, 2022 and 2021 and approximated 3.20 % and 2.80 %, respectively, for the nine months ended April 30, 2022 and 2021.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Borrowings under the Credit Facility shall be either:

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

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

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

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

As of April 30, 2022, our Secured Leverage Ratio was 2.40 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of April 30, 2022 was 12.12 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

Although we do expect our Secured Leverage Ratio to increase during the fourth quarter of fiscal 2022 as we make payments to various vendors associated with the build-out of our high-volume technology manufacturing facilities and working capital needs for our existing contracts, given our overall expected business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future.

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

23 unchanged sentences

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

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

As of April 30, 2022, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

COMTECH TELECOMMUNICATIONS CORP.

2 unchanged sentences

The components of lease expense are as follows:

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

Three months ended April 30, Nine months ended April 30,

2022 2021 2022 2021

8 unchanged sentences

Additional information related to leases is as follows:

Six months ended January 31,

Nine months ended April 30,

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

4 unchanged sentences

Operating leases $ 15,212,000 $ 24,504,000

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

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of April 30, 2022:

Operating Finance Total

11 unchanged sentences

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

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

Lease payments made during the nine months ended April 30, 2022 and 2021 were $ 504,000 and $ 494,000 , respectively.

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

1 unchanged sentence

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

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

As of April 30, 2022, we do not have any material rental commitments that have not commenced.

COMTECH TELECOMMUNICATIONS CORP.

2 unchanged sentences

(12) Income Taxes

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

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

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

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

At April 30, 2022 and July 31, 2021, total unrecognized tax benefits were $ 9,845,000 and $ 9,172,000 , respectively, including interest of $ 289,000 and $ 163,000 , respectively.

At April 30, 2022 and July 31, 2021, $ 3,003,000 and $ 2,717,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 6,842,000 and $ 6,455,000 at April 30, 2022 and July 31, 2021, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 8,921,000 and $ 8,408,000 at April 30, 2022 and July 31, 2021, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

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

8 unchanged sentences

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

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

As of April 30, 2022, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500 .

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

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

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

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

January 31, 2022

As of April 30, 2022, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,246,184 shares (net of 5,321,105 expired and canceled awards), of which an aggregate of 7,605,758 have been exercised or settled.

As of April 30, 2022, the following stock-based awards, by award type, were outstanding:

April 30, 2022

Stock options 541,985

7 unchanged sentences

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

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

Through April 30, 2022, we have cumulatively issued 928,578 shares of our common stock to participating employees in connection with our ESPP.

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

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

Three months ended April 30, Nine months ended April 30,

2022 2021 2022 2021

3 unchanged sentences

Stock-based compensation expense 1,071,000 1,204,000 3,975,000 3,190,000

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

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

Total stock-based compensation expense before income tax benefit 1,071,000 1,204,000 11,363,000 3,190,000

2 unchanged sentences

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

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

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

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

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

At April 30, 2022, unrecognized stock-based compensation of $ 10,078,000 , net of estimated forfeitures of $ 797,000 , is expected to be recognized over a weighted average period of 3.1 years.

Total stock-based compensation capitalized and included in ending inventory at both April 30, 2022 and July 31, 2021 was $ 48,000 .

There are no liability-classified stock-based awards outstanding as of April 30, 2022 or July 31, 2021.

Selling, general and administrative expenses included in the table above, for the nine months ended April 30, 2022, includes $ 827,000 of amortization of stock-based compensation related to three , long-standing members of our Board of Directors who retired in December 2021.

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

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

Three months ended April 30, Nine months ended April 30,

2022 2021 2022 2021

4 unchanged sentences

Stock-based compensation expense 1,071,000 1,204,000 3,975,000 3,190,000

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

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

Total stock-based compensation expense before income tax benefit 1,071,000 1,204,000 11,363,000 3,190,000

6 unchanged sentences

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

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

Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of April 30, 2022 and July 31, 2021.

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

12 unchanged sentences

Outstanding at January 31, 2022 1,005,935 25.65

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

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

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

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

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

Expired/canceled ( 463,950 ) 26.44

Outstanding at April 30, 2022 541,985 $ 24.97 4.17 $ —

Exercisable at April 30, 2022 424,625 $ 26.93 3.09 $ —

Vested and expected to vest at April 30, 2022 536,090 $ 25.05 4.13 $ —

Stock options outstanding as of April 30, 2022 have exercise prices ranging from $ 17.88 - $ 33.94 , representing the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years .

The total intrinsic value relating to stock options exercised during the nine months ended April 30, 2022 was $ 7,000 .

There were no stock options exercised during the nine months ended April 30, 2021.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

12 unchanged sentences

Outstanding at January 31, 2022 1,046,605 22.73

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Granted 84,125 16.39

Settled ( 14,099 ) 24.00

Canceled/Forfeited ( 18,190 ) 22.46

Outstanding at April 30, 2022 1,098,441 $ 22.23 $ 14,939,000

Vested at April 30, 2022 444,847 $ 22.12 $ 6,050,000

Vested and expected to vest at April 30, 2022 1,064,636 $ 22.22 $ 14,479,000

The total intrinsic value relating to fully-vested awards settled during the three and nine months ended April 30, 2022 was $ 262,000 and $ 9,726,000 , respectively.

The total intrinsic value relating to fully-vested awards settled during the three and nine months ended April 30, 2021 was $ 178,000 and $ 3,083,000 , respectively.

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

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

As of April 30, 2022, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

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

5 unchanged sentences

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

2 unchanged sentences

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

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

During the three and nine months ended April 30, 2022, we accrued $ 97,000 and $ 314,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 2,000 and $ 527,000 , respectively.

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

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

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

As of April 30, 2022 and July 31, 2021, accrued dividend equivalents were $ 671,000 and $ 884,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and nine months ended April 30, 2022, we recorded an income tax expense of $ 483,000 and $ 344,000 , respectively, and during the three and nine months ended April 30, 2021, we recorded an income tax benefit of $ 18,000 and an income tax expense of $ 189,000 , respectively.

(14) Segment Information

2 unchanged sentences

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

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

In connection with his recent appointment on December 31, 2021, our new CEO is currently evaluating his management approach to the business.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

4 unchanged sentences

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

income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, CEO transition costs, proxy solicitation costs, strategic alternatives analysis expenses and other.

income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, amortization of cost to fulfill assets, 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, former CEO transition costs, proxy solicitation costs, strategic alternatives analysis expenses and other.

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

6 unchanged sentences

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

Three months ended January 31, 2022

Three months ended April 30, 2022

Commercial Solutions Government Solutions Unallocated Total

2 unchanged sentences

Net income (loss) $ 6,631,000 ( 1,832,000 ) ( 4,824,000 ) $ ( 25,000 )

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

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

Provision for (benefit from) income taxes 823,000 ( 666,000 ) ( 928,000 ) ( 771,000 )

Interest (income) and other ( 30,000 ) ( 408,000 ) ( 11,000 ) ( 449,000 )

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

Change in fair value of convertible preferred stock purchase option liability

2 unchanged sentences

Amortization of stock-based compensation — — 1,071,000 1,071,000

— — 1,983,000 1,983,000

Amortization of intangibles 4,260,000 1,089,000 — 5,349,000

4,260,000 1,089,000 — 5,349,000

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

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

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

Depreciation 1,991,000 443,000 48,000 2,482,000

Amortization of cost to fulfill assets — 233,000 — 233,000

Restructuring costs 1,310,000 290,000 — 1,600,000

COVID-19 related costs — 115,000 — 115,000

Strategic emerging technology costs 268,000 644,000 — 912,000

Adjusted EBITDA $ 15,253,000 ( 114,000 ) ( 3,943,000 ) $ 11,196,000

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

Purchases of property, plant and equipment $ 4,849,000 759,000 — $ 5,608,000

$ 4,073,000 1,100,000 — $ 5,173,000

Total assets at January 31, 2022

Total assets at April 30, 2022

$ 732,436,000 222,259,000 28,942,000 $ 983,637,000

Three months ended January 31, 2021

Three months ended April 30, 2021

Commercial Solutions Government Solutions Unallocated Total

2 unchanged sentences

Net income (loss) $ 9,020,000 752,000 ( 8,980,000 ) $ 792,000

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

Provision for (benefit from) income taxes 302,000 ( 85,000 ) 99,000 316,000

217,000 ( 286,000 ) ( 86,000 ) ( 155,000 )

Interest (income) and other ( 7,000 ) 101,000 ( 370,000 ) ( 276,000 )

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

Interest expense 3,000 — 1,515,000 1,518,000

Amortization of stock-based compensation — — 1,204,000 1,204,000

— — 1,287,000 1,287,000

Amortization of intangibles 4,221,000 1,089,000 — 5,310,000

4,286,000 509,000 — 4,795,000

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

Depreciation 1,779,000 439,000 56,000 2,274,000

Acquisition plan expenses — — 5,267,000 5,267,000

— — 3,357,000 3,357,000

Restructuring costs 594,000 — — 594,000

COVID-19 related costs — 416,000 — 416,000

Strategic emerging technology costs — 315,000 — 315,000

Adjusted EBITDA $ 15,912,000 3,027,000 ( 1,209,000 ) $ 17,730,000

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

Purchases of property, plant and equipment $ 3,159,000 1,389,000 3,000 $ 4,551,000

$ 1,575,000 1,221,000 — $ 2,796,000

Total assets at January 31, 2021

Long-lived assets acquired in connection with acquisitions $ 45,597,000 — — $ 45,597,000

Total assets at April 30, 2021

$ 721,857,000 237,798,000 38,937,000 $ 998,592,000

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six months ended January 31, 2022

Nine months ended April 30, 2022

Commercial Solutions Government Solutions Unallocated Total

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5,743,000 1,163,000 151,000 7,057,000

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

Amortization of cost to fulfill assets — 233,000 — 233,000

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

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

1 unchanged sentence

COVID-19 related costs — 1,144,000 — 1,144,000

Strategic emerging technology costs 268,000 644,000 — 912,000

Adjusted EBITDA

2 unchanged sentences

$ 11,617,000 2,803,000 — $ 14,420,000

Total assets at January 31, 2022

Total assets at April 30, 2022

$ 732,436,000 222,259,000 28,942,000 $ 983,637,000

Six months ended January 31, 2021

Nine months ended April 30, 2021

Commercial Solutions Government Solutions Unallocated Total

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COVID-19 related costs — 576,000 — 576,000

Strategic emerging technology costs — 315,000 — 315,000

Adjusted EBITDA

2 unchanged sentences

$ 5,123,000 3,031,000 83,000 $ 8,237,000

Total assets at January 31, 2021

Long-lived assets acquired in connection with acquisitions

$ 45,597,000 2,443,000 — $ 48,040,000

Total assets at April 30, 2021

$ 721,857,000 237,798,000 38,937,000 $ 998,592,000

COMTECH TELECOMMUNICATIONS CORP.

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

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

During the three and nine months ended April 30, 2021, we recorded $ 5,267,000 and $ 99,807,000 , respectively of acquisition plan expenses, most of which were recorded in our unallocated expenses.

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

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

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

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

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

During the three and six months ended January 31, 2022, our Commercial Solutions segment recorded $ 1,696,000 and $ 2,509,000 , respectively, of restructuring costs to streamline our operations, including costs related to the ongoing relocation of certain of our satellite earth station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

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

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

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

There were no such charges recorded in the three and nine months ended April 30, 2022.

During the nine months ended April 30, 2022, we incurred $ 11,248,000 of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) as a result of a now settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022.

Also, during the nine months ended April 30, 2022, we expensed $ 13,554,000 of transition costs related to our former CEO.

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

During the three and nine months ended April 30, 2022, our Commercial Solutions segment recorded $ 1,310,000 and $ 3,819,000 , respectively, of restructuring costs to streamline our operations, including costs related to the ongoing relocation of certain of our satellite earth station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

Similar restructuring costs of $ 594,000 and $ 1,195,000 , respectively, were incurred during three and nine months ended April 30, 2021.

In addition, during the three and nine months ended April 30, 2022, our Government Solutions segment recorded $ 115,000 and $ 1,144,000 , respectively, of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

Similar incremental operating costs of $ 416,000 and $ 576,000 , respectively, were incurred during three and nine months ended April 30, 2021.

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

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

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

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

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

Interest expense for the nine months ended April 30, 2021 includes $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter, as discussed in more detail in Note (2) - " Acquisitions ."

Intersegment sales for the three months ended April 30, 2022 and 2021 by the Commercial Solutions segment to the Government Solutions segment were $ 920,000 and $ 827,000 , respectively.

Intersegment sales for the nine months ended April 30, 2022 and 2021 by the Commercial Solutions segment to the Government Solutions segment were $ 2,986,000 and $ 2,622,000 , respectively.

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

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

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

Unallocated assets at April 30, 2022 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

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

(15) Goodwill

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

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill during the nine months ended April 30, 2022:

Commercial Solutions Government Solutions Total

2 unchanged sentences

UHP acquisition ( 6,000 ) — ( 6,000 )

Balance as of January 31, 2022

Balance as of April 30, 2022

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

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Finally, we compared our estimates of fair values to our August 1, 2021 total public market capitalization and assessed implied control premiums based on our common stock price of $ 24.97 as of August 1, 2021.

Based on our quantitative evaluation, we determined that our Commercial Solutions and Government Solutions reporting units had estimated fair values in excess of their carrying values of at least 22.7 % and 94.1 %, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment.

Based on our quantitative evaluation performed on August 1, 2021, we determined that our Commercial Solutions and Government Solutions reporting units had estimated fair values in excess of their carrying values of at least 22.7 % and 94.1 %, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment.

It is possible that, during the remainder of fiscal 2022 or beyond, business conditions (both in the U.S.

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If assumed net sales and cash flow projections are not achieved in future periods or our common stock price significantly declines from current levels, our Commercial Solutions and Government Solutions reporting units could be at risk of failing the quantitative assessment and goodwill assigned to the respective reporting units could be impaired.

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

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

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

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

In the past several months, COVID-19, Russia's military incursion into Ukraine and the related global supply chain constraints have impacted our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve.

Such business conditions are expected to continue during our fourth quarter of fiscal 2022 and carry into fiscal 2023.

In addition, as of April 30, 2022, our stock price has declined to $ 13.60 .

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We have started our next annual goodwill impairment analysis, which is required to be performed on August 1, 2022 (the start of our fiscal 2023).

Such analysis will consider the challenging business environment we are operating in.

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

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

(16) Intangible Assets

Intangible assets with finite lives are as follows:

January 31, 2022

April 30, 2022

Weighted Average

16 unchanged sentences

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

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

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

Amortization expense for the three months ended April 30, 2022 and 2021 was $ 5,349,000 and $ 5,310,000 , respectively.

Amortization expense for the nine months ended April 30, 2022 and 2021 was $ 16,047,000 and $ 15,671,000 , respectively.

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

5 unchanged sentences

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

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

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of April 30, 2022.

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(17) Convertible Preferred Stock

3 unchanged sentences

This purchase option is commonly referred to as a “Green Shoe” and together with the Initial Issuance, is collectively referred to as the “Issuance.”

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The initial conversion price for the shares issued in the Initial Issuance is $ 24.50 , subject to an increase in the conversion price to $ 26.00 upon the achievement of $ 76.0 million of Adjusted EBITDA (as defined in the Subscription Agreement) for our fiscal 2022 year, and the initial conversion price for the Green Shoe is $ 32.00 .

9 unchanged sentences

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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We determined that our obligation to issue the Green Shoe at any time on or prior to March 31, 2023 meets the definition of a freestanding financial instrument that should be accounted for as a liability.

2 unchanged sentences

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair value of the convertible preferred stock purchase option liability was nominal as of April 30, 2022.

During the three and nine months ended April 30, 2022, we recorded benefits of $ 302,000 and $ 1,004,000 , respectively for the remeasurement of the convertible preferred stock purchase option liability.

In accordance with ASC 480, " Distinguishing Liabilities from Equity ," specifically ASC 480-10-S99-3A(2), SEC Staff Announcement:

2 unchanged sentences

We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 103,522,000 , which includes $ 2,964,000 of dividends paid in kind and $ 558,000 of accumulated and unpaid dividends.

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

As such, an adjustment of $ 8,534,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings during the nine months ended April 30, 2022.

(18) Stockholders’ Equity

Sale of Common Stock

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

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

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

2 unchanged sentences

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

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

There were no repurchases of our common stock during the nine months ended April 30, 2022 or 2021.

Common Stock Dividends

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

On October 4, 2021 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.

On October 4, 2021, December 9, 2021 and March 10, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on November 12, 2021, February 18, 2022 and May 20, 2022, respectively.

On June 9, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, payable on August 19, 2022 to stockholders of record at the close of business on July 20, 2022.

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

(19) Legal Proceedings and Other Matters

Settled Litigation Related to the Convertible Preferred Stock Issuance

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

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(19) Legal Proceedings and Other Matters

Settled Litigation Related to the Convertible Preferred Stock Issuance

In October 2021, Anthony Franchi (the “Plaintiff”) brought a putative class action in the Court of Chancery of the State of Delaware against the Company's current directors, the Company, White Hat Capital Partners LP (“White Hat”) and Magnetar Capital LLC (“Magnetar”), which was fully resolved by the parties and the case dismissed by court order on May 3, 2022.

The ultimate resolution of this matters did not result in a material adverse effect on our consolidated results of operations and financial condition.

Other Matters

10 unchanged sentences

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

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

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.

1 unchanged sentence

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

What changed 10-Q

Item 1. Financial Statements