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Item 2. Management’s Discussion and Analysis

2022-06-09 compared with 2022-03-10 · 355 added, 345 removed, 597 unchanged (54% of the section changed)

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain information in this Quarterly Report on Form 10-Q contains forward-looking statements, including but not limited to, information relating to our future performance and financial condition, plans and objectives of our management and our assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under our control which may cause our actual results, future performance and financial condition, and achievement of our plans and objectives to be materially different from the results, performance or other expectations implied by these forward-looking statements.

Certain information in this Quarterly Report on Form 10-Q contains forward-looking statements.

Forward-looking statements can be identified by words such as:

"anticipate," "intend," "plan," "goal," "seek," "believe," "project, "estimate," "expect," "strategy," "future," "likely," "may," "should," "will," and similar references to future periods.

Examples of forward-looking statements include, among others, statements we make regarding our future performance and financial condition, plans and objectives of our management and our assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under our control which may cause our actual results, future performance and financial condition, and achievement of our plans and objectives to be materially different from the results, performance or other expectations implied by these forward-looking statements.

These factors include, among other things:

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We manage our business through two reportable operating segments:

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

• Commercial Solutions - 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.

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

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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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Impairment of Goodwill and Other Intangible Assets .

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).

As of April 30, 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 April 30, 2022, net intangibles recorded on our Condensed Consolidated Balance Sheet aggregated $252.7 million (of which $209.9 million relates to our Commercial Solutions segment and $42.8 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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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 and intangibles 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).

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.

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.

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

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.

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.

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 January 31, 2022.

We believe that the carrying values of our net intangible assets were recoverable as of April 30, 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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Business Outlook for Fiscal 2022

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;

Comtech delivered financial results for our third quarter ended April 30, 2022 that were ahead of our expectations.

Our financial highlights for the quarter include:

• Consolidated net sales were $122.1 million, up 1.4% sequentially from the second quarter;

• Gross margins improved sequentially ten basis points to 38.2%;

• GAAP net loss attributable to common stockholders was $1.7 million, and included $0.9 million of strategic emerging technology costs for next-generation satellite technology, as discussed below;

• GAAP EPS loss of $0.06 and Non-GAAP EPS income of $0.06;

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $11.2 million, a 14.3% 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;

• New bookings (also referred to as orders) of $113.4 million, a 10.2% sequential increase and resulting in a quarterly book-to-bill ratio of 0.93x (a measure defined as bookings divided by net sales);

• Backlog of $602.3 million as of April 30, 2022, compared to $611.1 million as of January 31, 2022;

• Revenue visibility of approximately $1.2 billion.

We measure this revenue visibility as the sum of our $602.3 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.

• Cash flows used in operating activities of $1.1 million.

Excluding $10.6 million in aggregate payments for our former CEO transition and settled proxy contest, cash inflow from operating activities would have been $9.5 million.

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 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:

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended April 30, 2022 and 2021" and "Comparison of the Results of Operations for the Nine Months Ended April 30, 2022 and 2021.

This continues to be a transformative time for Comtech.

During the most recent quarter, we progressed on our initiative to enhance our leadership team, welcoming Maria Hedden as our new Chief Operating Officer and Robert Samuels as our new Vice President of Investor Relations and Corporate Communications.

Hedden and Mr.

Samuels will strengthen the Comtech team and make an immediate impact on our day-to-day operations in their respective areas of expertise.

We also just announced that Tim Jenkins was appointed President of our Safety and Security Technologies product group, effective June 1.

Jenkins has been with Comtech for three years, most recently serving as Group Vice President and General Manager within the Safety and Security Technologies organization.

Further, we strengthened the leadership team of our U.S.

based satellite business line with the appointment of Jon Opalski as new divisional Chief Operating Officer and Bob Pescatore as General Manager of Digital Products.

Opalski will be responsible for driving operational excellence at both Comtech’s existing Santa Clara site and our new Arizona high-volume manufacturing and technology facility.

Pescatore will lead the Satellite Network Technologies Digital Products Team, continuing development of industry-leading satellite modems, network products, and cybersecurity support.

Finally, we recently welcomed Ken Peterman as a new independent director to our board.

With over forty years in the defense sector, Mr.

Peterman’s significant experience in satellite technology and decades of experience with U.S.

government contracting will help to lead Comtech into a new era of commercial success and shareholder value.

During the third quarter, we also continued to execute on our 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, 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 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.

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

Considering this outlook, we pressed forward during the most recent quarter on our 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 56,000 square-foot facility in Basingstoke, United Kingdom.

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

Our business continues to face near-term challenges and continued uncertainties, as the repercussions of the military conflict between Russia and Ukraine remain significant.

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

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

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

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 changes in defense spending priorities.

For context, in May 2022, the U.S.

authorized an unprecedented $40.0 billion military and humanitarian aid package for Ukraine.

While there are portions of this spending package that we could expect to benefit from in the future, such as financial support for Ukraine’s military and expanded U.S.

military operations in Europe, we would not expect such spending for our communications related products and services to be immediate, as such military requirements are still being defined.

Nonetheless, at the request of the Ukrainian government, during the most recent quarter, we donated multiple COMET™ troposcatter systems to support Ukraine’s urgent need for secure, reliable communications.

In late May 2022, at the request of the U.S.

Army, we conducted in-field demonstrations of our troposcatter solutions (including the COMET™) for both U.S.

and NATO allied government customers.

These demonstrations consisted of end-to-end data communications links, showcasing small, medium and large troposcatter terminals.

While it is always difficult to predict the timing and amount of future orders, we feel confident that Comtech is well-positioned to participate in the uptick in demand, as conflict and uncertainties present new opportunities for the types of communications solutions we provide.

However, given the priority for weapons systems spending as opposed to communications systems spending right now, we continue to expect no meaningful bookings or related sales for the rest of fiscal 2022.

As we enter the fourth quarter of fiscal 2022, like experienced by most companies around the world, business conditions have become more challenging, and the operating environment is largely unpredictable.

There continues to be 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.

As such, we shifted several opportunities from our prior fiscal 2022 business outlook, as we now expect them to occur in our fiscal 2023.

For instance, we no longer expect our signed contract to deploy a state-wide NG-911 system for the state of Ohio to be funded during the quarter because the legislative vote to do so is now expected to occur in the fall of 2022.

Additionally, we no longer expect funding to be finalized in the quarter for a smaller NG-911 infrastructure project in the southwest.

We also are removing a previously expected multi-million-dollar award for a government customer located in Asia due to significant price increases from our vendor which we do not believe we can pass on.

Also, as it relates to our operations in Russia, like other companies, we are continuing to shift certain commercial software development and related support activities conducted in our Russian office to locations outside of the country.

Our updated guidance reflects additional expenses of roughly $1.5 million (or $6.0 million on an annual basis) associated with shifting these development resources.

In light of business conditions and resulting challenges, we have lowered our financial targets for fiscal 2022.

For the fourth quarter of fiscal 2022, we are now targeting consolidated net sales and Adjusted EBITDA of approximately $123.0 million and $11.5 million, respectively, and for fiscal 2022, we are targeting consolidated net sales and Adjusted EBITDA of approximately $482.0 million and $38.0 million, respectively.

This compares to our prior annual financial targets for fiscal 2022 which consisted of consolidated net sales of $520.0 million and Adjusted EBITDA of $50.0 million.

Our effective tax rate for fiscal 2022 is now expected to approximate 28.25% as compared to our prior estimate of 19.75% due to changes in expected product and geographical mix changes reflected in our updated Business Outlook for Fiscal 2022.

We expect such challenging business conditions to carry into fiscal 2023.

Nevertheless, despite these headwinds, we are confident in the importance and value of the markets we serve, and the way we are serving them.

Reflecting this confidence in our business, 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 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.

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%.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended April 30, 2022 and 2021 " and " Comparison of the Results of Operations for the Nine Months Ended April 30, 2022 and 2021."

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND 2021

Consolidated net sales were $122.1 million and $139.4 million for the three months ended April 30, 2022 and 2021, respectively, representing a decrease of $17.3 million, or 12.4%.

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 $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.

Net sales in our Commercial Solutions segment were $88.1 million for the three months ended April 30, 2022, as compared to $91.4 million for the three months ended April 30, 2021, a decrease of $3.3 million, or 3.6%.

Our Commercial Solutions segment represented 72.2% of consolidated net sales for the three months ended April 30, 2022 as compared to 65.6% for the three months ended April 30, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.75x.

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

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

Net sales in the three months ended April 30, 2022 of our satellite ground station technologies were comparable to the three months ended April 30, 2021.

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

Our satellite earth station product line has been impacted by overall challenging business conditions, including 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.

Although our backlog for satellite earth station products has increased since the beginning of the year, shortages of components are impacting shipments.

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 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 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.

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

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

Although quarterly bookings for our public safety and location technology solutions were the highest all year, net sales in the three months ended April 30, 2022 of our public safety and location technology solutions were lower than the three months ended April 30, 2021, reflecting the timing of non-recurring sales of certain of our NG-911 services.

As a result of challenging business conditions, we are no longer expecting to book certain large opportunities during the fourth quarter of fiscal 2022.

We do not believe these opportunities to be lost and now expect them to occur in fiscal 2023.

Overall, we believe that sales of our public safety and location technology solutions will be higher than the amount we achieved in fiscal 2021.

In aggregate, net sales for our Commercial Solutions segment is anticipated to 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 $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.

Net sales in our Government Solutions segment were $34.0 million for the three months ended April 30, 2022 as compared to $48.0 million for the three months ended April 30, 2021, a decrease of $14.0 million or 29.2%.

Our Government Solutions segment represented 27.8% of consolidated net sales for the three months ended April 30, 2022 as compared to 34.4% for the three months ended April 30, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended April 30, 2022 was 1.38x.

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

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.

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

Net sales during the three months ended April 30, 2021 also included revenue related to our 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 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.

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.

There were nominal corresponding sales in the third quarter of fiscal 2022.

We believe the next round of funding on this IDIQ contract will now occur in fiscal 2023.

In aggregate, net sales for our Government Solutions segment are anticipated to be significantly lower than the amount we achieved in fiscal 2021.

As discussed in our Form 10-Q filed with the SEC on June 8, 2021, our revenues in fiscal 2022 were expected to decline due to the U.S.

government’s decision to fully withdraw troops from Afghanistan and make certain program changes.

In addition, as a direct result of the Russia/Ukraine military conflict, we no longer expect to receive and ship orders to Ukraine in fiscal 2022.

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.

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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 January 31, 2022 and 2021 are as follows:

Three months ended January 31,

Sales by geography and customer type, as a percentage of related sales, for the three months ended April 30, 2022 and 2021 are as follows:

Three months ended April 30,

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 11.1% 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.

Included in domestic sales are sales to Verizon, which accounted for 10.6% and 11.4% of consolidated net sales for the three months ended April 30, 2022 and 2021, respectively.

International sales for the three months ended April 30, 2022 and 2021 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $34.3 million and $28.2 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 January 31, 2022 and 2021.

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 April 30, 2022 and 2021.

Gross Profit.

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 was $46.7 million and $53.0 million for the three months ended April 30, 2022 and 2021, respectively.

Gross profit, as a percentage of consolidated net sales, for the three months ended April 30, 2022 was 38.2% as compared to 38.0% for the three months ended April 30, 2021.

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

Excluding such benefit, our gross profit, as a percentage of consolidated net sales, in the third quarter of fiscal 2021 would have been 36.6%.

Gross profit during the most recent quarter reflects a more favorable product mix and a lower provision for warranty obligations during the three months ended April 30, 2022 in light of the reduced level of sales activity during the period, offset in part by the impact of lower consolidated net sales.

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 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.

Our Commercial Solutions segment's gross profit, as a percentage of related segment net sales, for the three months ended April 30, 2022 increased in comparison to the three months ended April 30, 2021.

The gross profit percentage in the most recent quarter primarily reflects changes in products and services mix, offset in part by 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 April 30, 2022 decreased in comparison to the three months ended April 30, 2021 and reflects changes in product and services mix in the most recent quarter, as discussed above.

Also, during the three months ended April 30, 2022 and 2021, we incurred $0.1 million and $0.4 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 January 31, 2022 and 2021 are provisions for excess and obsolete inventory of $1.1 million and $1.4 million, respectively.

Included in consolidated cost of sales for the three months ended April 30, 2022 and 2021 are provisions for excess and obsolete inventory of $1.1 million and $0.8 million, respectively.

As discussed in "Item 2.

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Selling, General and Administrative Expenses .

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.

Selling, general and administrative expenses were $27.6 million and $27.0 million for the three months ended April 30, 2022 and 2021, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 22.6% and 19.4% for the three months ended April 30, 2022 and 2021, respectively.

During the three months ended April 30, 2022 and 2021, we incurred $1.6 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 April 30, 2022 and 2021 would have been $26.0 million, or 21.3%, and $26.4 million, or 18.9%, 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.

Our selling, general and administrative expenses in the most recent quarter also 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 our fourth quarter of fiscal 2022.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $0.9 million in the three months ended April 30, 2022 as compared to $1.1 million in the three months ended April 30, 2021.

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

Research and Development Expenses.

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.

Research and development expenses were $14.3 million and $13.1 million for the three months ended April 30, 2022 and 2021, respectively.

As a percentage of consolidated net sales, research and development expenses were 11.7% and 9.4% for the three months ended April 30, 2022 and 2021, respectively.

For the three months ended April 30, 2022 and 2021, research and development expenses of $12.3 million and $10.9 million, respectively, related to our Commercial Solutions segment, and $1.9 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 April 30, 2022 and 2021 related to the amortization of stock-based compensation expense.

During the three months ended April 30, 2022 and 2021, we incurred $0.9 million and $0.3 million, respectively, of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

Of the fiscal 2022 amount, $0.3 million and $0.6 million, respectively, was incurred in our Commercial Solutions and Government Solutions segments.

All of the fiscal 2021 amount was incurred in our Government Solutions segment.

As we have stated in the past, we are evaluating this new market in relation to our long-term business strategies, and we may incur additional costs in the future.

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

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.

During the three months ended April 30, 2022 and 2021, customers reimbursed us $2.7 million and $3.7 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 $4.3 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 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.

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.

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 April 30, 2022 and $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 April 30, 2021.

Acquisition Plan Expenses.

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.

During the three months ended April 30, 2021, we incurred $5.3 million of acquisition plan expenses in our Unallocated segment related to the acquisition of TDMA satellite networking technologies and GD NG-911 acquisition-related litigation.

There were no similar costs incurred during the three months ended April 30, 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 loss for the three months ended April 30, 2022 was $0.6 million as compared to operating income of $2.4 million for the three months ended April 30, 2021.

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

Three months ended January 31,

Three months ended April 30,

2022 2021 2022 2021 2022 2021 2022 2021

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net sales 8.4 % 10.2 % NA 1.7 % NA NA NA 1.7 %

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:

Our GAAP operating loss of $0.6 million for the three months ended April 30, 2022 reflects:

(i) $1.6 million of restructuring costs;

(ii) $0.9 million of strategic emerging technology costs;

and (iii) $0.1 million of incremental operating costs due to the lingering impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating income for the three months ended April 30, 2022 would have been $2.1 million or 1.6% of consolidated net sales.

Our GAAP operating income of $2.4 million for the three months ended April 30, 2021 reflects:

(i) $5.3 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.

(iii) $0.4 million of incremental operating costs due to the impact of COVID-19;

and (iv) $0.3 million of strategic emerging technology costs, as discussed above.

Excluding such items, our consolidated operating income for the three months ended April 30, 2021 would have been $8.9 million, or 6.4% of consolidated net sales.

The decrease in operating income from $8.9 million to $2.1 million in the most recent quarter was primarily due to lower consolidated net sales.

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.

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 April 30, 2022 was driven primarily by lower net sales, higher restructuring costs and higher research and development expenses, as discussed above.

The decrease in our Government Solutions segment operating income for the three months ended April 30, 2022 was driven primarily by lower net sales and a lower gross profit percentage, as discussed above.

The decrease in unallocated expenses for the three months ended April 30, 2022 as compared to the three months ended April 30, 2021 was primarily due to not having acquisition plan expenses in the three months ended April 30, 2022, offset in part by the $2.0 million benefit in the three months ended April 30, 2021, related to a refund of historical excise tax paid, as discussed above.

It is difficult to predict GAAP operating results for 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%.

Interest expense was $1.0 million and $1.5 million for the three months ended April 30, 2022 and 2021, respectively.

Our effective interest rate (including amortization of deferred financing costs) in the three months ended April 30, 2022 was approximately 3.3%.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility approximates 2.5%.

Interest (Income) and Other.

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

Interest (income) and other for both the three months ended April 30, 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.

During the three months ended April 30, 2022, we recorded a $0.3 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.

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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.

For the three months ended April 30, 2022, we recorded a tax benefit of $0.8 million as compared to a tax expense of $0.3 million for the three months ended April 30, 2021.

Our effective tax rate (excluding discrete tax items) for the three months ended April 30, 2022 and 2021 was 28.25% and 11.5%, 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.

For purposes of determining our 28.25% estimated annual effective tax rate for fiscal 2022, former 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 April 30, 2022, we recorded a net discrete tax expense of $0.2 million, primarily related to the expiration of equity based awards, partially offset by the finalization of certain tax accounts in connection with the filing of our fiscal 2021 federal income tax return.

During the three months ended April 30, 2021, we recorded a net discrete tax expense of $0.2 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 U.S.

federal income tax return, partially offset by the release of valuation allowances previously established on the deferred tax assets of one of our Canadian subsidiaries.

federal income tax returns for fiscal 2019 through 2021 are subject to potential future IRS audit.

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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.

During the three months ended April 30, 2022, consolidated net loss attributable to common stockholders was $1.7 million as compared to net income attributable to common stockholders of $0.8 million during the three months ended April 30, 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,

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the three months ended April 30, 2022 and 2021 are shown in the table below (numbers in the table may not foot due to rounding):

Three months ended April 30,

2022 2021 2022 2021 2022 2021 2022 2021

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Net income (loss) $ 6.6 9.0 (1.8) 0.8 (4.8) (9.0) $ — 0.8

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

Provision for (benefit from) income taxes 0.8 0.3 (0.7) (0.1) (0.9) 0.1 (0.8) 0.3

Interest (income) and other — — (0.4) 0.1 — (0.4) (0.4) (0.3)

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Depreciation 2.0 1.8 0.4 0.4 — 0.1 2.5 2.3

CEO transition costs — — — — 13.6 — 13.6 —

Proxy solicitation costs — — — — 9.1 — 9.1 —

Amortization of cost to fulfill assets — — 0.2 — — — 0.2 —

Restructuring costs 1.3 0.6 0.3 — — — 1.6 0.6

COVID-19 related costs — — 0.1 0.4 — — 0.1 0.4

Strategic emerging technology costs 0.3 — 0.6 0.3 — — 0.9 0.3

Acquisition plan expenses — — — — — 5.3 — 5.3

Adjusted EBITDA $ 15.3 15.9 (0.1) 3.0 (3.9) (1.2) $ 11.2 17.7

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.

Percentage of related net sales 17.4 % 17.4 % NA 6.3 % NA NA 9.2 % 12.7 %

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the three months ended April 30, 2022 as compared to the three months ended April 30, 2021 is primarily attributable to lower consolidated net sales, as discussed above.

The slight 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, offset in part by a higher gross profit percentage, as discussed above.

The decrease in our Government Solutions segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is primarily due to lower net sales, 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, CEO transition costs, proxy solicitation costs, strategic alternatives analysis expenses and other.

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, 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.

Our definition of Adjusted EBITDA may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and therefore may not be comparable to similarly titled measures used by other companies.

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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).

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 April 30, 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.

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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

In addition, due to the GAAP net loss for the period, Non-GAAP EPS for the three months ended April 30, 2022 was computed using 27,225,000 weighted average diluted shares outstanding during the period.

Three months ended April 30, 2022

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

Reconciliation of GAAP to Non-GAAP Earnings:

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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

Restructuring costs

COVID-19 related costs 0.1 0.1 —

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

Net discrete tax benefit

— (0.1) (0.01)

Strategic emerging technology costs 0.9 0.7 0.03

Change in fair value of convertible preferred stock purchase option

liability — (0.3) (0.01)

Net discrete tax expense

Non-GAAP measures $ 2.1 $ 1.7 $ 0.06

Three months ended January 31, 2021

Three months ended April 30, 2021

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

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COVID-19 related costs

Net discrete tax benefit

— (0.8) (0.03)

Strategic emerging technology costs

Net discrete tax expense

Non-GAAP measures $ 8.9 $ 6.8 $ 0.26

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%.

COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED APRIL 30, 2022 AND 2021

Consolidated net sales were $359.3 million and $435.9 million for the nine months ended April 30, 2022 and 2021, respectively, representing a decrease of $76.6 million, or 17.6%.

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.

Net sales in our Commercial Solutions segment were $248.3 million for the nine months ended April 30, 2022, as compared to $261.0 million for the nine months ended April 30, 2021, a decrease of $12.7 million, or 4.9%.

Our Commercial Solutions segment represented 69.1% of consolidated net sales for the nine months ended April 30, 2022 as compared to 59.9% for the nine months ended April 30, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.81x.

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.

Net sales in the nine months ended April 30, 2022 of our satellite ground station technologies were lower than the nine months ended April 30, 2021.

Such decrease reflects the timing of receipt of and performance on orders related to our U.S.

government customers.

Our results for the nine months ended April 30, 2022 and 2021 include nominal sales from our TDMA satellite networking technologies acquired on March 2, 2021.

Although our backlog of our satellite earth station products has increased since the beginning of the year, shortages of components are impacting shipments.

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.

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.

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

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

Net sales in the nine months ended April 30, 2022 of our public safety and location technology solutions were higher than the nine months ended April 30, 2021, reflecting increased sales of our location-based technology solutions and NG-911 services.

As a result of challenging business conditions, we are no longer expecting to book certain large opportunities during the fourth quarter of fiscal 2022.

We do not believe these opportunities to be lost and now expect them to occur in fiscal 2023.

Overall, we believe that sales of our public safety and location technology solutions will be higher than the amount we achieved in fiscal 2021.

In aggregate, net sales for our Commercial Solutions segment is anticipated to 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 $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.

Net sales in our Government Solutions segment were $110.9 million for the nine months ended April 30, 2022 as compared to $174.9 million for the nine months ended April 30, 2021, a decrease of $64.0 million or 36.6%.

Our Government Solutions segment represented 30.9% of consolidated net sales for the nine months ended April 30, 2022 as compared to 40.1% for the nine months ended April 30, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the nine months ended April 30, 2022 was 0.92x.

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.

Net sales for the nine months ended April 30, 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.

Net sales during the nine months ended April 30, 2021 included revenue related to our 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.

There were nominal corresponding sales during the nine months ended April 30, 2022.

We believe the next round of funding on this IDIQ contract will now occur in fiscal 2023.

In aggregate, net sales for our Government Solutions segment are anticipated to be significantly lower than the amount we achieved in fiscal 2021.

As discussed in our Form 10-Q filed with the SEC on June 8, 2021, our revenues in fiscal 2022 were expected to decline due to the U.S.

government’s decision to fully withdraw troops from Afghanistan and make certain program changes.

In addition, as a direct result of the Russia/Ukraine military conflict, we no longer expect to receive and ship orders to Ukraine in fiscal 2022.

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 perio d-to-period due to many factors, including unpredictable funding, deployment and technology decisions by our U.S.

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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,

Sales by geography and customer type, as a percentage of related sales, for the nine months ended April 30, 2022 and 2021 are as follows:

Nine months ended April 30,

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 11.4% 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.

Included in domestic sales are sales to Verizon, which accounted for 11.1% and 11.2% of consolidated net sales for the nine months ended April 30, 2022 and 2021, respectively.

International sales for the nine months ended April 30, 2022 and 2021 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $89.9 million and $98.1 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.

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for the nine months ended April 30, 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 was $134.3 million and $158.9 million for the nine months ended April 30, 2022 and 2021, respectively.

Gross profit, as a percentage of consolidated net sales, for the nine months ended April 30, 2022 was 37.4% as compared to 36.5% for the nine months ended April 30, 2021.

During the nine months ended April 30, 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.

During the nine months ended April 30, 2021, we recorded a $2.0 million benefit to cost of sales in our Unallocated segment related to a refund of historical excise tax paid.

Excluding such items, gross profit, as a percentage of consolidated net sales, for the nine months ended April 30, 2022 and 2021 was 36.7% and 36.0%, respectively.

Gross profit during the most recent period reflects the impact of an overall favorable product mix and a lower provision for warranty obligations during the nine months ended April 30, 2022 in light of the reduced level of sales activity during the period, offset in part by lower consolidated net sales.

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.

Our Commercial Solutions segment's gross profit, as a percentage of related segment net sales, for the nine months ended April 30, 2022 was comparable to the nine months ended April 30, 2021.

The gross profit percentage in the most recent nine-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 nine months ended April 30, 2022 decreased in comparison to the nine months ended April 30, 2021 and reflects changes in products and services mix, as discussed above.

Also, during the nine months ended April 30, 2022 and 2021, we incurred $1.1 million and $0.6 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.

Included in consolidated cost of sales for the nine months ended April 30, 2022 and 2021 are provisions for excess and obsolete inventory of $3.3 million and $3.2 million, respectively.

As discussed in "Item 2.

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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.

Selling, general and administrative expenses were $85.7 million and $84.0 million for the nine months ended April 30, 2022 and 2021, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 23.9% and 19.3% for the nine months ended April 30, 2022 and 2021, respectively.

During the nine months ended April 30, 2022 and 2021, we incurred $4.0 million and $1.2 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 nine months ended April 30, 2022 and 2021 would have been $81.7 million or 22.7% and $82.8 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.

Our selling, general and administrative expenses in the most recent period also 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 our fourth quarter of fiscal 2022.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $3.5 million in the nine months ended April 30, 2022 as compared to $2.8 million in the nine months ended April 30, 2021.

Such amortization for the nine months ended April 30, 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.

Research and development expenses were $39.4 million and $37.4 million for the nine months ended April 30, 2022 and 2021, respectively, representing an increase of $2.0 million, or 5.3%.

As a percentage of consolidated net sales, research and development expenses were 11.0% and 8.6% for the nine months ended April 30, 2022 and 2021, respectively.

For the nine months ended April 30, 2022 and 2021, research and development expenses of $35.0 million and $30.7 million, respectively, related to our Commercial Solutions segment and $4.1 million and $6.5 million, respectively, related to our Government Solutions segment.

The remaining research and development expenses of $0.3 million and $0.2 million in the nine months ended April 30, 2022 and 2021, respectively, related to the amortization of stock-based compensation expense.

During the nine months ended April 30, 2022 and 2021, we incurred $0.9 million and $0.3 million, respectively, of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

Of the fiscal 2022 amount, $0.3 million and $0.6 million, respectively, was incurred in our Commercial Solutions and Government Solutions segments.

Of the fiscal 2021 amount, all was incurred in our Government Solutions segment.

As we have stated in the past, we are evaluating this new market in relation to our long-term business strategies, and we may incur additional costs in the future.

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.

During the nine months ended April 30, 2022 and 2021, customers reimbursed us $8.0 million and $11.0 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.

Amortization relating to intangible assets with finite lives was $16.0 million (of which $12.8 million was for the Commercial Solutions segment and $3.2 million was for the Government Solutions segment) for the nine months ended April 30, 2022 and $15.7 million (of which $12.8 million was for the Commercial Solutions segment and $2.9 million was for the Government Solutions segment) for the nine months ended April 30, 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.

During the nine months ended April 30, 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 .

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

Former CEO Transition Costs .

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

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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.

Transition costs related to our former CEO, Mr.

Kornberg, were $13.6 million and all expensed in our Unallocated segment in the nine months ended April 30, 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.

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.

During the nine months ended April 30, 2021, we incurred $99.8 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 GD NG-911 acquisition-related litigation.

These expenses are primarily recorded in our Unallocated segment.

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

There were no similar costs incurred during the nine months ended April 30, 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 loss for the nine months ended April 30, 2022 and 2021 was $31.7 million and $78.0 million, respectively.

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

Six months ended January 31,

Nine months ended April 30,

2022 2021 2022 2021 2022 2021 2022 2021

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net sales 5.7 % 10.5 % NA 5.0 % NA NA NA NA

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;

Our GAAP operating loss of $31.7 million for the nine months ended April 30, 2022 reflects:

(i) $13.6 million of former CEO transition costs;

(ii) $11.2 million of proxy solicitation costs;

(iii) $4.0 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:

(iv) $1.1 million of incremental operating costs due to the lingering impact of COVID-19;

and (v) $0.9 million of strategic emerging technology costs, as discussed above.

Excluding such items, our consolidated operating loss for the nine months ended April 30, 2022 would have been $0.8 million.

Our GAAP operating loss of $78.0 million for the nine months ended April 30, 2021 reflects:

(i) $99.8 million of acquisition plan expenses;

(ii) $1.2 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 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.

(iii) $0.6 million of incremental operating costs due to the impact of COVID-19;

and (iv) $0.3 million of strategic emerging technology costs, as discussed above.

Excluding such items, our consolidated operating income for the nine months ended April 30, 2021 would have been $23.9 million, or 5.5% of consolidated net sales.

The decrease in operating income from $23.9 million for the nine months ended April 30, 2021 to an operating loss of $0.8 million for the nine months ended April 30, 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 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.

The decrease in our Commercial Solutions segment operating income, both in dollars and as a percentage of the related segment net sales, for the nine months ended April 30, 2022 was driven primarily by lower net sales, higher restructuring costs and higher research and development expenses, as discussed above.

The decrease in our Government Solutions segment operating income for the nine months ended April 30, 2022 was driven primarily by lower net sales and a lower gross profit percentage, partially offset by lower research and development expenses, as discussed above.

The decrease in unallocated expenses for the nine months ended April 30, 2022 as compared to the nine months ended April 30, 2021 was primarily due to no acquisition plan expenses incurred during the most recent nine-month period, partially offset by former CEO transition costs and proxy solicitation costs during the nine months ended April 30, 2022, as discussed above.

Amortization of stock-based compensation was $4.0 million and $3.2 million, respectively, for the nine months ended April 30, 2022 and 2021.

Stock-based compensation expense for the nine months ended April 30, 2022 includes $0.8 million related to the retirement of three, long-standing Board members, who retired in December 2021.

Excluding the impact of former 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 $15.7 million and $13.4 million, respectively, for the nine months ended April 30, 2022 and 2021.

Our unallocated expenses for the nine months ended April 30, 2021 reflects a benefit of $2.0 million related to a refund of historical excise tax paid.

It is difficult to predict GAAP operating results for 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 $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%.

Interest expense was $3.6 million and $5.2 million for the nine months ended April 30, 2022 and 2021, respectively.

Interest expense for the nine months ended April 30, 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 nine months ended April 30, 2022 was approximately 3.2%.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility approximates 2.5%.

Interest (Income) and Other.

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

Interest (income) and other for both the nine months ended April 30, 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 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.

During the nine months ended April 30, 2022, we recorded a $1.0 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.

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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.

For the nine months ended April 30, 2022 and 2021, we recorded a tax benefit of $6.1 million and $2.1 million, respectively.

Our effective tax rate (excluding discrete tax items) for the nine months ended April 30, 2022 and 2021 was 28.25% and 11.5%, respectively.

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

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.

During the nine months ended April 30, 2022, we recorded a net discrete tax benefit of $3.5 million, primarily related to proxy solicitation costs, the deductible portion of former CEO transition costs and the finalization of certain tax accounts in connection with the filing of our fiscal 2021 federal income tax return.

During the nine months ended April 30, 2021, we recorded a net discrete tax benefit of $0.6 million, primarily related to the release of valuation allowances previously established on the deferred tax assets of one of our Canadian subsidiaries, partially offset by the finalization of certain tax accounts in connection with the filing of our fiscal 2020 U.S.

federal income tax return.

federal income tax returns for fiscal 2019 through 2021 are subject to potential future IRS audit.

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Net Loss Attributable to Common Stockholders.

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.

During the nine months ended April 30, 2022 and 2021, consolidated net loss attributable to common stockholders was $36.4 million and $80.8 million, respectively.

Adjusted EBITDA.

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,

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the nine months ended April 30, 2022 and 2021 are shown in the table below (numbers in the table may not foot due to rounding):

Nine months ended April 30,

2022 2021 2022 2021 2022 2021 2022 2021

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Depreciation 5.7 5.7 1.2 1.3 0.2 0.3 7.1 7.3

CEO transition costs — — — — 13.6 — 13.6 —

Amortization of cost to fulfill assets — — 0.2 — — — 0.2 —

Former CEO transition costs — — — — 13.6 — 13.6 —

Proxy solicitation costs — — — — 11.2 — 11.2 —

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COVID-19 related costs — — 1.1 0.6 — — 1.1 0.6

Strategic emerging technology costs 0.3 — 0.6 0.3 — — 0.9 0.3

Acquisition plan expenses — (1.1) — — — 100.9 — 99.8

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Percentage of related net sales 14.8 % 17.7 % 1.9 % 7.9 % NA NA 7.4 % 11.5 %

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.

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the nine months ended April 30, 2022 as compared to the nine months ended April 30, 2021 is primarily attributable to lower consolidated net sales, as discussed above.

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

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

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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, 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.

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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 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).

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 nine months ended April 30, 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).

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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 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 addition, due to the GAAP net loss for the period, Non-GAAP EPS for the nine months ended April 30, 2021 was computed using 26,016,000 weighted average diluted shares outstanding during the period.

Nine months ended April 30, 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

Former CEO transition costs

13.6 13.0 0.49

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COVID-19 related costs

Strategic emerging technology costs

Change in fair value of convertible preferred stock purchase option liability — (1.0) (0.04)

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Non-GAAP measures $ (0.8) $ (2.9) $ (0.11)

Six months ended January 31, 2021

Nine months ended April 30, 2021

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

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COVID-19 related costs

Strategic emerging technology costs

Interest expense

Net discrete tax benefit

— (0.6) (0.02)

Non-GAAP measures $ 23.9 $ 17.8 $ 0.69

LIQUIDITY AND CAPITAL RESOURCES

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.

Our cash and cash equivalents were $32.8 million and $30.9 million at April 30, 2022 and July 31, 2021, respectively.

For the nine months ended April 30, 2022, our cash flows reflect the following:

• Net cash provided by operating activities was $8.4 million for the nine months ended April 30, 2022 as compared to net cash used in operating activities of $56.6 million for the nine months ended April 30, 2021.

During the nine months ended April 30, 2022, we paid $13.5 million in aggregate payments related to our former CEO transition and settled proxy contest.

Excluding such payments, net cash provided by operating activities would have been $21.9 million.

During the nine months ended April 30, 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 $13.4 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 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.

The period-over-period increase in cash flow from operating activities (excluding the $13.5 million and $70.0 million payments) reflects overall changes in net working capital requirements, principally the timing of shipments, billings and payments.

• Net cash used in investing activities for the nine months ended April 30, 2022 and 2021 was $14.4 million and $7.6 million, respectively.

Net cash used in the nine months ended April 30, 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 $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.

• Net cash provided by financing activities was $8.0 million and $55.5 million for the nine months ended April 30, 2022 and 2021, respectively.

During the nine months ended April 30, 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 nine months ended April 30, 2022, we also made net payments under our Credit Facility of $74.0 million as compared to net borrowings under our Credit Facility of $65.5 million during the nine months ended April 30, 2021, primarily related to the $70.0 million payment we made to Gilat.

During the nine months ended April 30, 2022 and 2021, we paid $8.4 million and $7.7 million, respectively, in cash dividends to our common stockholders.

We also made $6.1 million and $2.8 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during the nine months ended April 30, 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 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;

(iii) payments related to lease commitments;

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

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

(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.

In addition to capital investments for our two new high-volume manufacturing centers, we have been 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.

In total, with respect to capital investments for these and other initiatives, we expect to incur approximately $30.0 million of capital expenditures in fiscal 2022, of which we have paid $14.4 million during the nine months ended April 30, 2022.

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.

Pursuant to the stock purchase agreement, during fiscal 2021, the initial up-front payment of approximately $24.0 million was paid mostly in shares of our common stock, with a nominal amount paid in cash.

In August 2021, approximately $4.0 million of the $5.0 million hold back amount previously placed in 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 $9.0 million, 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.

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

Pursuant to the stock purchase agreement, during fiscal 2021, at closing, we funded the $24.0 million and $5.0 million up-front payments with 1,026,567 shares of our common stock, based on a volume weighted average stock price of $28.14 per share, plus $0.1 million in cash.

The stock purchase agreement also provided for a contingent earn-out payment of up to $9.0 million, payable at our option in cash and or shares of our common stock, if specified sales milestones were reached during a defined period ending September 30, 2022.

As of April 30, 2022, the specified sales milestones were reached, and the full $9.0 million earn-out payment was earned.

We have not yet decided how we will settle such payment.

On March 3, 2021, 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 shareholder of UHP.

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 that is registered under this shelf registration statement to satisfy initial payment and escrow arrangements under the terms of the stock purchase agreement.

We plan to file an amended shelf registration statement with the SEC for the sale of additional shares of our common stock necessary to fund all or a portion of the $9.0 million earn-out payment expected to occur in the fourth quarter of fiscal 2022.

Our shelf registration statement filed with the SEC on March 3, 2021 included 355,000 shares of common stock for the earn-out payment, and we may need to register additional shares depending on the portion of the earn-out payment we choose to pay in shares of our common stock.

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 the fourth quarter of fiscal 2022, we also expect to file a new $200.0 million shelf registration statement with the SEC for the sale of various types of securities, including debt.

This new shelf registration statement would replace the prior unused $400.0 million shelf registration statement that expired in December 2021.

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 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.

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

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.

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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 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.

As of April 30, 2022, the amount outstanding under our Credit Facility was $127.0 million, which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At April 30, 2022, we had $0.9 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 nine months ended April 30, 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 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.

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

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

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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 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:

We do not expect that these commitments, as of April 30, 2022, will materially adversely affect our liquidity.

At April 30, 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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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.

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

Pursuant to the stock purchase agreement, during fiscal 2021, at closing, we funded the $24.0 million and $5.0 million up-front payments with 1,026,567 shares of our common stock, based on a weighted average stock price of $28.14, plus $0.1 million in cash.

As of April 30, 2022, the specified sales milestones were reached, and the full $9.0 million earn-out payment was earned.

We have not yet decided how we will settle such payment.

As discussed further in " Notes to Condensed Consolidated Financial Statements - Note (10) - Credit Facility ," our Credit Facility provides a senior secured loan facility of up to $550.0 million consisting of:

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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 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.

At April 30, 2022, we have approximately $0.9 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 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.

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

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All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of our Company or a termination of the employee.

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.

Our Condensed Consolidated Balance Sheet at April 30, 2022 includes total liabilities of $9.8 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 six months ended January 31, 2022, we adopted:

As further discussed in " Notes to Condensed Consolidated Financial Statements – Note (3) - Adoption of Accounting Standards and Updates " during the nine months ended April 30, 2022, we adopted:

• FASB ASU No.

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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