What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-09-29 compared with 2021-10-04 · 433 added, 513 removed, 407 unchanged (70% of the section changed)

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

We manage our business through two reportable operating segments:

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

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

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

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

Overview of Business

We are a leading global provider of next-generation 911 emergency systems ("NG-911") and secure wireless and satellite communications technologies.

We see these two end-markets as part of what Comtech has identified as the “Failsafe Communications Market.” This includes the critical communications infrastructure that people, businesses, and governments rely on when durable, trusted connectivity is required, no matter where they are – on land, at sea, or in the air – and no matter what the circumstances – from armed conflict to a natural disaster.

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

We anticipate future growth in our business due to increasing demand for global voice, video and data usage.

We provide our solutions to both commercial and governmental customers.

In the fourth quarter of fiscal 2022, we revised our business segments to better align them with end-markets for our products and services.

Our businesses have been re-organized into two new reportable segments:

“Satellite and Space Communications” and “Terrestrial and Wireless Networks.” All current and prior periods reflected in this Form 10-K have been presented according to these two segments, unless otherwise noted.

For more information and for financial information about our business segments, including net sales, operating income, Adjusted EBITDA (a Non-GAAP financial measure), total assets, and our operations outside the United States, refer to " Notes to Consolidated Financial Statements - Note (11) Segment Information" included in "Part II - Item 8 - Financial Statements and Supplementary Data.

" A description of the segments is provided below:

• Satellite and Space Communications - is organized into four product areas:

Satellite Modem and Amplifier Technologies, Troposcatter and SATCOM Solutions, Space Components and Antennas, and High-Power Amplifiers and Switches.

This segment offers customers:

satellite ground station technologies, services and system integration that facilitate the transmission of voice, video and data over GEO, MEO and LEO satellite constellations, including solid-state and traveling wave tube power amplifiers, modems, VSAT platforms and frequency converters;

satellite communications and tracking antenna systems, including high precision full motion fixed and mobile X/Y tracking antennas, RF feeds, reflectors and radomes;

over-the-horizon microwave equipment that can transmit digitized voice, video, and data over distances up to 200 miles using the troposphere and diffraction, including the Comtech COMET™;

solid-state, RF microwave high-power amplifiers and control components designed for radar, electronic warfare, data link, medical and aviation applications;

and procurement and supply chain management of high reliability EEE parts for satellite, launch vehicle and manned space applications.

• Terrestrial and Wireless Networks - is organized into four product areas:

Next Generation 911 & Call Delivery, Solacom Call Handling Solutions, Trusted Location and Messaging Solutions, and Cyber Security Training & Services.

This segment offers customers SMS Text to 911 services, providing alternate paths for individuals who need to request assistance (via text messaging) a method to reach Public Safety Answering Points;

Next Generation 911 solutions, providing emergency call routing, location validation, policy-based routing rules, logging and security functionality;

Emergency Services IP Network transport infrastructure for emergency services communications and support of Next Generation 911 services;

call handling applications for Public Safety Answering Points;

wireless emergency alerts solutions for network operators;

software and equipment for location-based and text messaging services for various applications, including for public safety, commercial and government services, and cybersecurity training, skills labs, and competency assessments for both technical and non-technical applications.

Our Quarterly Financial Information

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Our gross profit may also be affected by the impact of any cumulative adjustments to contracts that are accounted for over time.

Our contracts with the U.S.

In particular our contracts with the U.S.

government can be terminated for convenience by it at any time and orders are subject to unpredictable funding, deployment and technology decisions by the U.S.

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government is not obligated to purchase any equipment or services under these contracts.

We have, in the past, experienced and we continue to expect significant fluctuations in sales and operating results from quarter-to-quarter and period-to-period.

We have, in the past, experienced and we continue to expect significant fluctuations in sales and operating results from quarter-to-quarter and period-to-period due to these factors.

As such, comparisons between periods and our current results may not be indicative of a trend or future performance.

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

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

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

The cost-to-cost method is principally used to account for contracts in our Satellite and Space Communications segment and, to a lesser extent, certain location-based and messaging infrastructure contracts within our Terrestrial and Wireless Networks segment.

For service-based contracts in our Terrestrial and Wireless Networks segment, we also recognize revenue over time.

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

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

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

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

Point in time accounting is principally applied to contracts in our Satellite and Space Communications segment, which includes satellite modems, solid-state and traveling wave tube amplifiers and certain contracts for our solid-state, high-power RF amplifiers.

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

customers do not simultaneously receive and or consume the benefits provided by our performance;

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and, although many of our contracts have termination for convenience clauses and or an enforceable right to payment for performance completed to date, our performance creates an asset with an alternative use through the point of delivery.

In determining that our equipment has alternative use, we considered the underlying manufacturing process for our products.

In determining that our equipment has alternative use, we considered the underlying manufacturing process.

In the early phases of manufacturing, raw materials and work in process (including subassemblies) consist of common parts that are highly fungible among many different types of products and customer applications.

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Impairment of Goodwill and Other Intangible Assets .

As of July 31, 2021, total goodwill recorded on our 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 July 31, 2021, net intangibles recorded on our Consolidated Balance Sheet aggregated $268.7 million (of which $222.6 million relates to our Commercial Solutions segment and $46.1 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.

As of July 31, 2022, total goodwill recorded on our Consolidated Balance Sheet aggregated $347.7 million (of which $173.6 million relates to our Satellite and Space Communications segment and $174.1 million relates to our Terrestrial and Wireless Networks segment).

Additionally, as of July 31, 2022, net intangibles recorded on our Consolidated Balance Sheet aggregated $247.3 million (of which $72.4 million relates to our Satellite and Space Communications segment and $174.9 million relates to our Terrestrial and Wireless Networks segment).

For purposes of reviewing impairment and the recoverability of goodwill and other intangible assets, our Satellite and Space Communications and Terrestrial and Wireless Networks segments each constitute a reporting unit and we must make various assumptions in determining their estimated fair values.

Reporting units are defined by how our Chief Executive Officer ("CEO") manages the business, which includes resource allocation decisions.

We may, in the future, change our management approach which in turn may change the way we define our reporting units, as such term is defined by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other." A change to our management approach may require us to perform an interim goodwill impairment test and possibly record impairment charges in a future period.

In accordance with FASB ASC 350, we perform a goodwill impairment analysis at least annually (in the first quarter of each fiscal year), unless indicators of impairment exist in interim periods.

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

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

As a result of our segment restructuring in the fourth quarter of fiscal 2022 from the Commercial Solutions and Government Solutions segments to the Satellite and Space Communications and Terrestrial and Wireless Networks segments, we performed an interim quantitative assessment as of July 29, 2022 and estimated the fair value of each of our reporting units, both before and after the change, using a combination of the income and market approaches.

Based on our quantitative evaluations, we determined that our Satellite and Space Communications and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least and 18.4% and 11.6%, 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.

Given its proximity to our next regularly scheduled annual goodwill impairment testing date, we utilized our July 29, 2022 interim quantitative assessment to conclude that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment as of August 1, 2022.

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

We also considered overall business conditions.

In performing the quantitative assessment, we estimated the fair value of each of our reporting units using a combination of the income and market approaches.

The income approach, also known as the discounted cash flow ("DCF") method, utilizes the present value of cash flows to estimate fair value.

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Under the market approach, we estimated a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium.

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.

Finally, we compared our estimates of fair values to our total public market capitalization and assessed implied control premiums based on our common stock price of $11.62 as of the date of testing.

It is possible that, during fiscal 2023 or beyond, business conditions (both in the U.S.

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A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal 2023 or beyond.

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.

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 Satellite and Space Communications and Terrestrial and Wireless Networks 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, 2023 (the start of our fiscal 2024).

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

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

Valuation allowances are established, when necessary, to reduce net deferred tax assets to the amount "more likely than not" expected to be realized.

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

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

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We continue to monitor our accounts receivable credit portfolio.

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

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

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

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Research and development expenses 10.8 % 8.4 % 8.5 %

Settlement of intellectual property litigation — % — % (0.5) %

CEO transition costs 2.8 % — % — %

Proxy solicitation costs 2.3 % — % — %

Acquisition plan expenses — % 17.2 % 3.4 %

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Interest expense (income) and other 0.7 % 1.2 % 1.0 %

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

(Loss) income before (benefit from) provision for income taxes (7.6) % (12.9) % 1.5 %

Net (loss) income (6.8) % (12.6) % 1.1 %

Net (loss) income attributable to common stockholders (8.9) % (12.6) % 1.1 %

Adjusted EBITDA (a Non-GAAP measure) 8.1 % 13.2 % 12.6 %

For a definition and explanation of Adjusted EBITDA, see " Item 7.

Selected Consolidated Financial Data - Non-GAAP Financial Data" and " Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2022 and 2021 - Adjusted EBITDA."

Impact of COVID-19 and Business Outlook for Fiscal 2022

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

• Net sales of $581.7 million;

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

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

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

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

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

Fiscal 2022 Highlights and Business Outlook for Fiscal 2023

Our financial highlights for the fiscal year ended July 31, 2022 include:

• Consolidated net sales were $486.2 million;

• Gross margins improved, year-over-year, twenty basis points to 37.0%;

• GAAP net loss attributable to common stockholders was $43.3 million, and included $13.6 million of CEO transition costs, $11.2 million of proxy solicitation costs, $6.0 million of restructuring costs, $1.2 million of strategic emerging technology costs for next-generation satellite technology, and $1.1 million of COVID-19 related costs, as discussed below;

• GAAP EPS loss of $1.63 and Non-GAAP EPS loss of $0.13;

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $39.3 million;

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

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

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

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

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

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

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

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

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

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

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

troops from Afghanistan and other U.S.

government program changes.

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

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

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

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

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

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

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

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

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

Marine Corps.

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

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

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

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

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

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

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

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

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

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

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

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

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

• New bookings (also referred to as orders) of $445.5 million, resulting in an annual book-to-bill ratio of 0.92x (a measure defined as bookings divided by net sales);

• Backlog of $618.1 million as of July 31, 2022, compared to $658.9 million as of July 31, 2021 and $602.3 million as of April 30, 2022;

• Revenue visibility of approximately $1.1 billion.

We measure this revenue visibility as the sum of our $618.1 million backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders;

• Cash flows provided by operating activities of $2.0 million.

Excluding $15.9 million in aggregate payments for our CEO transition and settled proxy contest, cash flows provided by operating activities would have been $17.9 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 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2022 and 2021."

In August 2022, we announced that Ken Peterman was appointed President and CEO.

Prior to such appointment, in May 2022, Mr.

Peterman joined our Board of Directors as Chairman.

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 is expected to enhance our efforts to continually improve commercial success and shareholder value.

Also, we progressed on our initiative to enhance our leadership team, welcoming Don Bach as our first ever Vice President of Procurement.

In light of ongoing global supply chain disruptions, part shortages and extended lead times for components, Mr.

Bach’s immediate focus is expected to be on optimizing the end-to-end management of our consolidated inventories, including efforts to enhance our buying power across the various product areas.

We also appointed Anirban Chakraborty as our first ever Chief Growth Officer.

Chakraborty has been with Comtech for four years, most recently serving as Senior Vice President of Strategy and Business Development within the Trusted Location and Messaging Solutions product area.

Chakraborty is expected to focus on growth initiatives by seeking meaningful ways to deploy our cutting edge technological innovations in new market areas, as well as fostering centers of engineering excellence across Comtech.

During the fourth quarter, we 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:

Satellite and Space Communications and Terrestrial and Wireless Networks.

We believe 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 these trends in our end-markets, 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, particularly as it relates to our Chandler, Arizona facility, both manufacturing centers are expected to support production of next-generation broadband satellite technology and should be fully operational in 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 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.

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 example, in May 2022, the U.S.

authorized a $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 do not expect such spending for our communications related products and services to be immediate.

Nonetheless, at the request of the Ukrainian government, in our third quarter of fiscal 2022, we donated multiple COMET™ troposcatter systems to support Ukraine’s urgent need for secure, reliable communications.

Shortly thereafter, as announced in September 2022, we were awarded a funded order to supply the Ukrainian government with additional systems.

We expect related deliveries to occur in the first half of fiscal 2023.

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.

As we enter fiscal 2023, business conditions have become more challenging, and the operating environment is largely unpredictable, especially now with increasing news reports of inflation, interest rate hikes and a potential global recession.

There also 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 the business environment relates to our operations in Russia, we are continuing to shift certain commercial software development and related support activities conducted in our Russian office to locations outside of the country.

While we continue to seek and implement initiatives to lower such costs, our Business Outlook for Fiscal 2023 reflects additional expenses associated with shifting these development resources.

In light of these business conditions and resulting challenges, for our first quarter of fiscal 2023, we are targeting consolidated net sales to increase between 1.0% and 3.0%, sequentially, and for our consolidated Adjusted EBITDA margin to approximate 8.0%.

On September 29, 2022, our Board of Directors declared a cash dividend of $0.10 per common share, payable on November 18, 2022 to stockholders of record at the close of business on October 19, 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 2023 and a definition and explanation of Adjusted EBITDA is included in the below section "Item 7.

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Consolidated net sales were $486.2 million and $581.7 million for fiscal 2022 and 2021, respectively, representing a decrease of $95.5 million, or 16.4%.

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

The period-over-period decrease in net sales primarily reflects lower net sales in our Satellite and Space Communications segment.

Net sales by operating segment are discussed below.

Commercial Solutions

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

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

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

Satellite and Space Communications

Net sales in our Satellite and Space Communications segment were $279.7 million for fiscal 2022 as compared to $374.9 million for fiscal 2021, a decrease of $95.2 million, or 25.4%.

Our Satellite and Space Communications segment represented 57.5% of consolidated net sales for fiscal 2022 as compared to 64.4% for fiscal 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2022 was 1.01x.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

military communications system, among others.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

government end customer;

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

tier-one MNO;

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

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

tier-one MNO;

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

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

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

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

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

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

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

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

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

Fiscal 2022 net sales primarily reflect significantly lower sales of our global field support services, advanced VSAT products and other programs to the U.S.

Army, as well as of our satellite ground station technologies, partially offset by higher sales of our satellite-based mobile communications and tracking systems and high-reliability EEE satellite-based space components.

Fiscal 2021 net sales 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 nominal corresponding sales in fiscal 2022.

In aggregate, net sales for our Satellite and Space Communications segment were 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 expected to receive and ship orders to Ukraine in fiscal 2022.

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

However, as announced in September 2022, we were awarded a funded order to supply the Ukrainian government with troposcatter systems that we expect to deliver in the first half of fiscal 2023.

The lower sales of our satellite ground station technologies primarily reflects the timing of receipt of, and performance on, orders related to our U.S.

government and international customers.

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

Our satellite ground 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 of our satellite ground station products has increased during fiscal 2022, lead times for components are impacting the timing of 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 do not expect to make any new sales to Russian customers at this time.

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

and international government customers, and changes in the general business environment.

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

Government Solutions

Net sales in our Government Solutions segment were $221.5 million for fiscal 2021 as compared to $263.0 million for fiscal 2020, a decrease of $41.5 million or 15.8%.

Our Government Solutions segment represented 38.1% of consolidated net sales for fiscal 2021 as compared to 42.6% for fiscal 2020.

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

Terrestrial and Wireless Networks

Net sales in our Terrestrial and Wireless Networks segment were $206.5 million for fiscal 2022, as compared to $206.8 million for fiscal 2021, a decrease of $0.3 million, or 0.1%, reflecting slightly higher sales of our trusted location and messaging solutions and cyber security training services, offset by slightly lower sales of our 911 call routing services.

Our Terrestrial and Wireless Networks segment represented 42.5% of consolidated net sales for fiscal 2022 as compared to 35.6% for fiscal 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.79x.

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

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

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

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

Marine Corps.

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

Such orders support the sustainment of the U.S.

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

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

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

Other notable orders awarded in fiscal 2021 include:

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

government for our JCAC training solutions;

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

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

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

Army’s PM MC's BFT-1 program;

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

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

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

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

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

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

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

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

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

Marine Corps.

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

NATO family customer for multiple COMET TM terminals.

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

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

Special Operations Command.

In April 2021, the U.S.

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

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

In addition, the U.S.

presidential administration released its fiscal 2022 budget request.

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

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

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

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

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

and international government customers.

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

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

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2022 2021 2022 2021 2022 2021

Commercial Solutions Government Solutions Consolidated

Satellite and Space Communications Terrestrial and Wireless Networks Consolidated

government 45.6 % 52.8 % 2.4 % 1.4 % 27.2 % 34.6 %

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Included in domestic sales are sales to Verizon Communications Inc.

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

Except for the U.S.

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

("Verizon"), which accounted for 11.1% and 10.7% of consolidated net sales for fiscal 2022 and 2021, respectively.

International sales for fiscal 2022 and 2021 (which include sales to U.S.

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Gross profit was $179.8 million and $214.0 million for fiscal 2022 and 2021, respectively.

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

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

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

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

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

Gross profit, as a percentage of consolidated net sales, for fiscal 2022 was 37.0% as compared to 36.8% for fiscal 2021.

During fiscal 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 fiscal 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 fiscal 2022 and 2021 was 36.5% and 36.4%, 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 fiscal 2022 in light of the reduced level of sales activity during the period, offset in part by lower consolidated net sales.

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 and inflationary pressures.

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

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

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

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

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

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

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

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

Our Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for fiscal 2022 decreased in comparison to fiscal 2021.

The decrease in gross profit percentage primarily reflects changes in products and services mix, as well as lower levels of factory utilization and higher logistics and operational costs resulting from global supply chain constraints.

Also, during fiscal 2022 and 2021, we incurred $1.1 million and $1.0 million, respectively, of incremental operating costs related to our antenna facility in the United Kingdom due to the impact of the COVID-19 pandemic.

Although operations in the United Kingdom have largely resumed, we continued to experience lingering impacts from COVID-19 and the related facility shut-down in fiscal 2021.

We do not expect to incur similar costs in fiscal 2023.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for fiscal 2022 was comparable to fiscal 2021.

The gross profit percentage in fiscal 2022 primarily reflects changes in products and services mix, and lower than expected warranty claims, as discussed above.

Included in consolidated cost of sales for both fiscal 2022 and 2021 are provisions for excess and obsolete inventory of $4.4 million.

As discussed in "Item 7.

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Selling, General and Administrative Expenses .

Selling, general and administrative expenses were $111.8 million and $117.1 million for fiscal 2021 and 2020, respectively, representing a decrease of $5.3 million, or 4.5%.

Selling, general and administrative expenses were $114.9 million and $111.8 million for fiscal 2022 and 2021, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 23.6% and 19.2% for fiscal 2022 and 2021, respectively.

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

During fiscal 2022 and 2021, we incurred $6.0 million and $2.8 million, respectively, of restructuring costs to streamline our operations, including costs related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

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

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

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

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

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

Excluding such items, selling, general and administrative expenses for fiscal 2022 and 2021 would have been $108.9 million or 22.4% and $112.1 million or 19.3%, 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 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 fiscal 2023.

Amortization of stock-based compensation expenses recorded as selling, general and administrative expenses was $6.3 million in fiscal 2022 as compared to $8.1 million in fiscal 2021.

Such amortization for fiscal 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 $49.1 million and $52.2 million for fiscal 2021 and 2020, respectively, representing a decrease of $3.1 million, or 5.9%.

Research and development expenses were $52.5 million and $49.1 million for fiscal 2022 and 2021, respectively, representing an increase of $3.4 million, or 6.9%.

As a percentage of consolidated net sales, research and development expenses were 10.8% and 8.4% for fiscal 2022 and 2021, respectively.

For fiscal 2021 and 2020, research and development expenses of $41.0 million and $45.2 million, respectively, related to our Commercial Solutions segment, and $7.1 million and $6.1 million, respectively, related to our Government Solutions segment.

For fiscal 2022 and 2021, research and development expenses of $26.5 million and $28.0 million, respectively, related to our Satellite and Space Communications segment, and $25.2 million and $20.1 million, respectively, related to our Terrestrial and Wireless Networks segment.

The remaining research and development expenses of $0.8 million and $1.0 million in fiscal 2022 and 2021, respectively, related to the amortization of stock-based compensation expense.

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

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

During fiscal 2022 and 2021, our Satellite and Space Communications segment incurred $1.2 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.

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.

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Amortization of Intangibles.

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

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

Amortization relating to intangible assets with finite lives was $21.4 million (of which $7.3 million was for the Satellite and Space Communications segment and $14.1 million was for the Terrestrial and Wireless Networks segment) for fiscal 2022 and $21.0 million (of which $5.7 million was for the Satellite and Space Communications segment and $15.3 million was for the Terrestrial and Wireless Networks segment) for fiscal 2021.

Proxy Solicitation Costs .

During fiscal 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 prior year.

During our first quarter of fiscal 2022, we entered into a Cooperation Agreement with such shareholder.

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.

Transition costs related to our former CEO, Mr.

Kornberg, were $13.6 million and all expensed in our Unallocated segment during fiscal 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 prior year.

On August 9, 2022, subsequent to year end, our Board of Directors appointed our Chairman of the Board, Mr.

Peterman, as President and CEO.

Transition costs related to our former President and CEO, Mr.

Porcelain, pursuant to his separation agreement with the Company, were $7.4 million, of which $3.8 million related to the acceleration of unamortized stock based compensation, with the remaining $3.6 million related to his severance payments and benefits upon termination of employment.

The cash portion of the transition costs of $3.6 million is expected to be paid to Mr.

Porcelain in October 2022.

Also, in connection with Mr.

Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $1.0 million expense related to a cash sign-on bonus.

CEO transition costs related to Mr.

Porcelain and Mr.

Peterman will be expensed in our Unallocated segment during the first quarter of fiscal 2023.

Acquisition Plan Expenses.

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

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

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

During fiscal 2021, we incurred $100.3 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 fiscal 2022.

Operating (Loss) Income.

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

Operating loss for fiscal 2022 and 2021 was $33.8 million and $68.3 million, respectively.

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

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2022 2021 2022 2021 2022 2021 2022 2021

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

Operating income (loss) $ 41.1 $ 34.8 $ 8.4 $ 20.0 $ (117.8) $ (39.6) $ (68.3) $ 15.2

($ in millions) Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Consolidated

Operating (loss) income $ (5.7) $ 24.3 $ 18.9 $ 25.2 $ (47.0) $ (117.8) $ (33.8) $ (68.3)

Percentage of related

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

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

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

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

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

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

net sales NA 6.5 % 9.2 % 12.2 % NA NA NA NA

Our GAAP operating loss of $33.8 million for fiscal 2022 reflects:

(i) $13.6 million of CEO transition costs;

(ii) $11.2 million of proxy solicitation costs;

(iii) $6.0 million of restructuring costs;

(iv) $1.2 million of strategic emerging technology costs;

and (v) $1.1 million of incremental operating costs due to the lingering impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating loss for fiscal 2022 would have been $0.7 million.

Our GAAP operating loss of $68.3 million for fiscal 2021 reflects:

(i) $100.3 million of acquisition plan expenses;

(ii) $2.8 million of restructuring costs;

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

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

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

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

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

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

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

Excluding such items, our consolidated operating income for fiscal 2021 would have been $36.1 million, or 6.2% of consolidated net sales.

The decrease in operating income from $36.1 million for fiscal 2021 to an operating loss of $0.7 million for fiscal 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 Satellite and Space Communications segment operating income for fiscal 2022 was driven primarily by lower net sales and gross profit percentage and higher restructuring costs and amortization of intangibles, partially offset by lower research and development expenses, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2022 was driven primarily by higher research and development expenses, as discussed above.

The decrease in unallocated expenses for fiscal 2022 as compared to fiscal 2021 was primarily due to no acquisition plan expenses incurred during the most recent fiscal year, partially offset by CEO transition costs and proxy solicitation costs during fiscal 2022, as discussed above.

Amortization of stock-based compensation was $7.8 million and $10.0 million, respectively, for fiscal 2022 and 2021.

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

Our unallocated expenses for fiscal 2021 also reflects benefits of $3.1 million for legal expense recoveries from insurance and $2.0 million related to a refund of historical excise tax paid.

Excluding these items in their respective periods, unallocated expense would have been $21.4 million and $21.6 million, respectively, for fiscal 2022 and 2021.

GAAP operating results for fiscal 2023 will be impacted by start-up expenses and restructuring costs associated with the opening of Comtech’s new high-volume technology manufacturing centers, as well as the expenses associated with the CEO change that was announced in August 2022.

Interest Expense and Other.

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

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

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

Our effective interest rate (including amortization of deferred financing costs) in fiscal 2022 was approximately 3.4%.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility is approximately 5.1%.

Interest (Income) and Other.

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

(Benefit from) Provision for Income Taxes.

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

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

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

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

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

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

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

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

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

These benefits were offset, in part, by:

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

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

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

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

During fiscal 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 (15) - Convertible Preferred Stock" for more information.

Benefit from Income Taxes.

For fiscal 2022 and 2021, we recorded tax benefits of $4.0 million and $1.5 million, respectively.

Our effective tax rate (excluding discrete tax items) for fiscal 2022 was 28.0%, as compared to a nominal effective tax rate for fiscal 2021.

The increase was primarily due to expected product and geographical mix changes in fiscal 2022.

For purposes of determining our 28.0% 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 fiscal 2022, we recorded a net discrete tax benefit of $0.6 million, primarily related to the deductible portion of CEO transition costs and proxy solicitation costs.

These benefits were partially offset by the establishment of a valuation allowance on certain foreign related net deferred tax assets and the settlement of certain stock-based awards during fiscal 2022.

During fiscal 2021, we recorded a net discrete tax benefit of $1.6 million, primarily related to the release of valuation allowances previously established on certain foreign related deferred tax assets, the finalization of certain tax accounts in connection with the filing of our fiscal 2020 federal, state and foreign income tax returns and the settlement of certain stock-based awards during fiscal 2021.

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

None of our state income tax returns prior to fiscal 2018 are subject to audit.

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

Net (Loss) Income.

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

Net Loss Attributable to Common Stockholders.

During fiscal 2022 and 2021, consolidated net loss attributable to common stockholders was $43.3 million and $73.5 million, respectively.

Adjusted EBITDA.

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2022 2021 2022 2021 2022 2021 2022 2021

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

Net income (loss) $ 39.2 34.4 9.6 20.2 (122.2) (47.6) $ (73.5) 7.0

Provision for (benefit from) income taxes

1.8 0.4 (1.4) (0.1) (1.9) 2.0 (1.5) 2.3

($ in millions) Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Consolidated

Net (loss) income $ (3.9) 24.4 18.8 24.4 (48.0) (122.2) $ (33.1) (73.5)

(Benefit from) provision for income taxes (1.1) (0.4) — 0.8 (2.9) (1.9) (4.0) (1.5)

Interest (income) and other (0.8) 0.2 0.1 — — (0.4) (0.7) (0.1)

0.1 — 0.2 (0.2) (0.4) — (0.1) (0.2)

Change in fair value of

convertible preferred stock

option liability — — — — (1.0) — (1.0) —

Interest expense 0.1 0.1 — — 4.9 6.8 5.0 6.8

Amortization of stock-based compensation — — — — 7.8 10.0 7.8 10.0

— — — — 10.0 9.3 10.0 9.3

Amortization of intangibles 7.3 5.7 14.1 15.3 — — 21.4 21.0

17.1 17.3 4.0 4.3 — — 21.0 21.6

Depreciation 4.0 3.7 6.1 5.3 0.2 0.3 10.3 9.4

Estimated contract settlement costs

— 0.4 — — — — — 0.4

Acquisition plan expenses

(1.1) 0.8 — — 101.3 20.0 100.3 20.8

Amortization of cost to fulfill assets 0.5 — — — — — 0.5 —

CEO transition costs — — — — 13.6 — 13.6 —

Proxy solicitation costs — — — — 11.2 — 11.2 —

Restructuring costs 5.7 2.8 — — 0.3 — 6.0 2.8

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

Strategic emerging technology costs 1.2 0.3 — — — — 1.2 0.3

COVID-19 related costs 1.1 1.0 — — — — 1.1 1.0

Acquisition plan expenses — — — (1.1) — 101.3 — 100.3

Adjusted EBITDA $ 14.1 37.8 39.1 44.8 (13.9) (6.1) $ 39.3 76.5

Percentage of related net sales

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

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

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

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

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

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

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

Percentage of related net sales 5.0 % 10.1 % 18.9 % 21.7 % NA NA 8.1 % 13.2 %

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

The decrease in our Satellite and Space Communications segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, 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 our Terrestrial and Wireless Networks segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, was driven primarily by higher research and development expenses, as discussed above.

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

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

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

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

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

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

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

Diluted Share

In addition, due to the GAAP net loss for the period, Non-GAAP EPS for fiscal 2021 was computed using 25,885,000 weighted average diluted shares outstanding during the period.

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

Diluted Common Share

Reconciliation of GAAP to Non-GAAP Earnings:

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$ (33.8) $ (43.3) $ (1.63)

Acquisition plan expenses

Adjustments to reflect redemption value of convertible preferred stock

CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

11.2 8.7 0.33

Restructuring costs

COVID-19 related costs 1.0 0.8 0.03

Strategic emerging technology costs 1.2 0.9 0.03

Interest expense

Net discrete tax benefit

COVID-19 related costs 1.1 0.8 0.03

Change in fair value of convertible preferred stock purchase option

— (1.0) (0.04)

Net discrete tax expense

Non-GAAP measures $ (0.7) $ (3.5) $ (0.13)

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

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

Diluted Share

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

Estimated contract settlement costs

Acquisition plan expenses

100.3 93.3 3.60

Restructuring costs

COVID-19 related costs

Strategic emerging technology costs

Interest expense

Net discrete tax benefit

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Non-GAAP measures $ 36.1 $ 22.4 $ 0.86

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

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

Our Non-GAAP measures for consolidated operating income, net income and net income per diluted share reflect the GAAP measures as reported, adjusted for certain items as described.

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

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

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

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

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

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

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

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

We have not quantitatively reconciled our Q1 fiscal 2023 Adjusted EBITDA target to the most directly comparable GAAP measure because items such as adjustments to the provision for income taxes, and interest expense, which are specific items that impact these measures, have not yet occurred, are out of our control, or cannot be predicted.

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.

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

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

The decrease in net sales primarily reflects lower net sales in our Satellite and Space Communications segment.

Net sales by operating segment are discussed below.

Commercial Solutions

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

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

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

Satellite and Space Communications

Net sales in our Satellite and Space Communications segment were $374.9 million for fiscal 2021 as compared to $411.1 million for fiscal 2020, a decrease of $36.2 million or 8.8%.

Our Satellite and Space Communications segment represented 64.4% of consolidated net sales for fiscal 2021 as compared to 66.7% for fiscal 2020.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2021 was 0.91x.

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

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

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

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

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

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

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

Government Solutions

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

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

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

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

Such increase was offset in part by higher sales of our high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components (including incremental sales of X/Y antenna products that we now offer as a result of our January 2020 acquisition of CGC), 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 and a nominal amount of sales related to our acquisition of UHP Networks Inc.

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

Terrestrial and Wireless Networks

Net sales in our Terrestrial and Wireless Networks segment were $206.8 million for fiscal 2021, as compared to $205.6 million for fiscal 2020, an increase of $1.2 million, or 0.6%.

Our Terrestrial and Wireless Networks segment represented 35.6% of consolidated net sales for fiscal 2021 as compared to 33.3% for fiscal 2020.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2021 was 1.37x.

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

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

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

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

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

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

and international government customers.

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

Net sales in fiscal 2021 reflect increased sales of our trusted location and messaging solutions, offset in part by the absence of 911 wireless call routing sales to AT&T.

Geography and Customer Type

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2021 2020 2021 2020 2021 2020

Commercial Solutions Government Solutions Consolidated

Satellite and Space Communications Terrestrial and Wireless Networks Consolidated

government 52.8 % 53.7 % 1.4 % 1.2 % 34.6 % 36.2 %

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state and local governments.

Included in domestic sales are sales to Verizon, which accounted for 10.7% of consolidated net sales for fiscal 2021.

Except for the U.S.

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

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

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

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

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

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

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

Our gross profit in fiscal 2021 reflects a higher percentage of consolidated net sales generated from our Terrestrial and Wireless Networks segment, offset by increased costs due to production delays, supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs resulting from the COVID-19 pandemic.

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

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

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

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

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

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

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

Our Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for fiscal 2021 increased in comparison to fiscal 2020 primarily reflecting changes in products and services mix, as discussed above.

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

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for fiscal 2021 decreased in comparison to fiscal 2020 primarily reflecting changes in products and services mix, including the cessation of sales to AT&T for 911 wireless call routing services and an increase in sales related to a recently awarded statewide NG-911 deployment (which has lower margins than our 911 wireless call routing services).

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

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

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

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

Severance costs related to these actions were not material.

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

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

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

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

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

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

In fiscal 2020, we incurred estimated contract settlement costs of $0.4 million principally related to the repositioning of our trusted location and messaging solutions offerings in our Terrestrial and Wireless Networks segment.

The decrease in our selling, general and administrative expenses, in dollars, is largely attributable to the benefit from our efforts to streamline business operations in our Satellite and Space Communications segment.

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

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

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

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As a percentage of consolidated net sales, research and development expenses were 8.4% and 8.5% for fiscal 2021 and 2020, respectively.

For fiscal 2020 and 2019, research and development expenses of $45.2 million and $48.2 million, respectively, related to our Commercial Solutions segment, and $6.1 million and $7.2 million, respectively, related to our Government Solutions segment.

For fiscal 2021 and 2020, research and development expenses of $28.0 million and $31.0 million, respectively, related to our Satellite and Space Communications segment, and $20.1 million and $20.3 million, respectively, related to our Terrestrial and Wireless Networks segment.

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

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

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

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Amortization of Intangibles.

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

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

Settlement of Intellectual Property Litigation.

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

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

There was no comparable adjustment in fiscal 2020.

Amortization relating to intangible assets with finite lives was $21.0 million (of which $5.7 million was for the Satellite and Space Communications segment and $15.3 million was for the Terrestrial and Wireless Networks segment) for fiscal 2021 and $21.6 million (of which $5.1 million was for the Satellite and Space Communications segment and $16.5 million was for the Terrestrial and Wireless Networks segment) for fiscal 2020.

Acquisition Plan Expenses.

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

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

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

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

Operating Income.

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

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

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

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

These expenses are primarily recorded in our Unallocated segment.

Operating (Loss) Income.

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

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

Fiscal Years Ended July 31,

2021 2020 2021 2020 2021 2020 2021 2020

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

($ in millions) Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Consolidated

Operating income (loss) $ 24.3 $ 25.5 $ 25.2 $ 29.3 $ (117.8) $ (39.6) $ (68.3) $ 15.2

Percentage of related

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

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

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

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

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

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

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

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

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

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

net sales 6.5 % 6.2 % 12.2 % 14.3 % NA NA NA 2.5 %

The decrease in our Satellite and Space Communications segment operating income, in dollars, for fiscal 2021 was driven primarily by lower net sales, $2.8 million of restructuring costs and $1.0 million of COVID-19 related costs, partially offset by a higher gross profit percentage and lower research and development expenses, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2021 was driven primarily by a lower gross profit percentage, partially offset by lower amortization of intangibles, as discussed above.

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

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

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

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

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

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

(ii) $2.8 million of restructuring costs;

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

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

Interest Expense and Other.

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

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

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

Write-off of Deferred Financing Costs.

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

There was no comparable charge in fiscal 2020.

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

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

Interest (Income) and Other.

Interest (income) and other for both fiscal 2021 and 2020 was nominal.

Provision for Income Taxes.

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

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

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

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

(Benefit from) Provision for Income Taxes.

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

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

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

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

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

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

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

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

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

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

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

These benefits were offset, in part, by:

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

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

Net (Loss) Income Attributable to Common Stockholders.

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

Adjusted EBITDA.

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2021 2020 2021 2020 2021 2020 2021 2020

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

($ in millions) Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Consolidated

Net income (loss) $ 24.4 25.7 24.4 28.9 (122.2) (47.6) $ (73.5) 7.0

Provision for (benefit from) income taxes

0.4 — (0.1) — 2.0 3.9 2.3 3.9

(Benefit from) provision for income taxes (0.4) — 0.8 0.3 (1.9) 2.0 (1.5) 2.3

Interest (income) and other

0.2 (0.2) — — (0.4) — (0.1) (0.2)

Write-off of deferred financing costs

— — — — — 3.2 — 3.2

Interest expense 0.1 — — — 6.8 6.0 6.8 6.1

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— 0.4 — — — — — 0.4

Settlement of intellectual property litigation

— — — — — (3.2) — (3.2)

Acquisition plan expenses

— 0.8 (1.1) — 101.3 20.0 100.3 20.8

Facility exit costs

— — — 1.4 — — — 1.4

Restructuring costs 2.8 — — — — — 2.8 —

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

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

Adjusted EBITDA $ 37.8 35.7 44.8 51.7 (6.1) (9.6) $ 76.5 77.8

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10.1 % 8.7 % 21.7 % 25.1 % NA NA 13.2 % 12.6 %

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

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

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

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

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

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

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

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

For a definition and explanation of Adjusted EBITDA, see "Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2022 and 2021 - Adjusted EBITDA ."

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

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

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

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

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

In addition, due to the GAAP net loss for the period, Non-GAAP EPS for fiscal 2021 was computed using 25,885,000 weighted average diluted shares outstanding during the period.

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

Diluted Share

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

Estimated contract settlement costs

Acquisition plan expenses

100.3 93.3 3.60

Restructuring costs

COVID-19 related costs 1.0 0.8 0.03

Strategic emerging technology costs 0.3 0.3 0.01

Interest expense

Net discrete tax benefit

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Non-GAAP measures $ 36.1 $ 22.4 $ 0.86

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

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

Diluted Share

3 unchanged sentences

Estimated contract settlement costs

Settlement of intellectual property litigation

(3.2) (2.5) (0.10)

Facility exit costs

Acquisition plan expenses

Write-off of deferred financing costs

20.8 13.1 0.53

Net discrete tax benefit

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Non-GAAP measures $ 36.4 $ 19.2 $ 0.77

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

Our Non-GAAP measures for consolidated operating income, net income and net income per diluted share reflect the GAAP measures as reported, adjusted for certain items as described.

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

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

Liquidity and Capital Resources

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

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

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

Our cash and cash equivalents were $21.7 million and $30.9 million at July 31, 2022 and 2021, respectively.

For fiscal 2022, our cash flows reflect the following:

• Net cash provided by operating activities was $2.0 million for fiscal 2022 as compared to net cash used in operating activities of $40.6 million for fiscal 2021.

During fiscal 2022, we paid $15.9 million in aggregate payments related to our CEO transition and settled proxy contest.

Excluding such payments, net cash provided by operating activities would have been $17.9 million for fiscal 2022.

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

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

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

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

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

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

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

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

" included in " Part II - Item 8.

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

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

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

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

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

Excluding such payment, net cash provided by operating activities would have been $29.4 million for fiscal 2021.

The period-over-period decrease in cash flow from operating activities (excluding the $15.9 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 fiscal 2022 and 2021 was $19.6 million and $15.5 million, respectively.

Net cash used during fiscal 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 provided by financing activities was $8.4 million and $39.1 million for fiscal 2022 and 2021, respectively.

During fiscal 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 fiscal 2022, we also made net payments under our Credit Facility of $71.0 million as compared to net borrowings under our Credit Facility of $51.5 million during fiscal 2021, primarily due to the $70.0 million payment we made to Gilat.

During fiscal 2022 and 2021, we paid $11.0 million and $10.3 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 fiscal 2022 and 2021, respectively.

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

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

Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss while at the same time maximize the income we receive without significantly increasing risk.

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

The Convertible Preferred Stock is discussed below and in "Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock" included in "Part II - Item 8.

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

Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss and maximize the income we receive without significantly increasing risk.

To minimize risk, we generally invest our cash and cash equivalents in money market mutual funds (both government and commercial), certificates of deposit, bank deposits, and U.S.

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

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

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

(iii) payments related to lease commitments;

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

and (v) payment of accrued quarterly dividends.

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

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

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

In addition to making capital investments for our 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.

We expect capital investments for these and other initiatives to continue in fiscal 2023.

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

" included in " Part II - Item 8.

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

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

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

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

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

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

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

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

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

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

- Financial Statements and Supplementary Data " included in this Form 10-K, we completed our acquisition of UHP on March 2, 2021, substantially all of which was paid for with shares of our common stock.

On July 13, 2022, we filed a $200.0 million shelf registration statement with the SEC for the sale of various types of securities, including debt.

This new shelf registration statement was declared effective by the SEC as of July 25, 2022 and replaces 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 fiscal 2022 and 2021.

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

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

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

Our material long-term cash requirements primarily consist of mandatory interest payments pursuant to our Credit Facility and lease commitments.

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

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

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

As discussed further in " Notes to Consolidated Financial Statements - Note (16) -"Stockholders' Equity " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K, on June 9, 2022, our Board of Directors declared a cash dividend of $0.10 per common share, which was paid on August 19, 2022.

On September 29, 2022, our Board of Directors declared a cash dividend of $0.10 per common share, payable on November 18, 2022 to stockholders of record at the close of business on October 19, 2022.

Our material cash requirements are for working capital, CEO transition costs expected to be paid in October 2022, capital expenditures, income tax payments, debt service, facilities lease payments, dividends related to our common stock and dividends related to our Convertible Preferred Stock, which are payable in kind or in cash at our election.

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

In our first quarter of fiscal 2022, we secured a $100.0 million strategic growth investment to enhance our financial flexibility and strengthen our ability to capitalize on large contract awards and growing customer demand by making crucial investments in our satellite and space communications and terrestrial and wireless network solutions.

Based on our current revenue visibility, we believe that our existing cash and cash equivalent balances, our cash generated from operating activities and amounts potentially available under our Credit Facility will be sufficient to meet our currently anticipated cash requirements in the next twelve months and beyond.

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

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

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

Credit Facility

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

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

(i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $300.0 million;

(ii) an accordion feature allowing us to borrow up to an additional $250.0 million;

(iii) a $35.0 million letter of credit sublimit;

and (iv) a swingline loan credit sublimit of $25.0 million.

The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date").

If we issue new unsecured debt in excess of $5.0 million with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

As discussed further in " Notes to Consolidated Financial Statements - Note (7) - Credit Facility " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), on October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders.

As of July 31, 2022, the amount outstanding under our Credit Facility was $130.0 million, which is reflected in the non-current portion of long-term debt on our Consolidated Balance Sheet.

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During fiscal 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:

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

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

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

The Credit Facility also contains customary negative covenants, subject to negotiated exceptions, including but not limited to:

(i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements.

The Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business.

In addition, under certain circumstances, we may be required to enter into amendments to the Credit Facility in connection with any further syndication of the Credit Facility.

The Credit Facility provides for, among other things:

(i) no scheduled payments of principal until maturity;

(ii) a maximum Secured Leverage Ratio of 3.75x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and a Maximum Total Leverage Ratio of 4.50x TTM Adjusted EBITDA, each with no step downs;

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

As of July 31, 2021, our Secured Leverage Ratio was 2.53x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA.

As of July 31, 2022, our Secured Leverage Ratio was 3.50x trailing twelve months ("TTM") Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of July 31, 2022 was 8.81x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

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

As collateral security under the Credit Facility and the guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

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

Off-Balance Sheet Arrangements

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

Although we expect our Secured Leverage Ratio to remain elevated during the first quarter of fiscal 2023, as we make payments to various vendors associated with the build-out of our high-volume technology manufacturing facilities, to support our working capital needs for our existing contracts and to make required CEO transition related payments, given our overall expected business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future.

Convertible Preferred Stock

As discussed further in " Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), on October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value $0.10 per share (the "Convertible Preferred Stock"), for an aggregate purchase price of up to $125.0 million, or $1,000 per share.

On October 19, 2021 (the “Initial Closing Date”), pursuant to the terms of the Subscription Agreement, the Investors purchased an aggregate of 100,000 shares of Convertible Preferred Stock (the “Initial Issuance”) for an aggregate purchase price of $100.0 million.

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 July 31, 2022, will materially adversely affect our liquidity.

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

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

At July 31, 2022, cash payments due under contractual 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:

($ in thousands)

Due Within 1 Year

Credit Facility - principal payments $ 130,000 —

Credit Facility - interest payments 7,914 6,341

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

Operating and financing lease obligations 62,596 9,953

Dividends payable 2,746 2,746

Contractual cash obligations $ 203,256 $ 19,040

As discussed further in " Notes to Consolidated Financial Statements - Note (7) - Credit Facility " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Annual Report on Form 10-K, our Credit Facility provides a senior secured loan facility of up to $550.0 million consisting of:

(i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $300.0 million;

(ii) an accordion feature allowing us to borrow up to an additional $250.0 million;

(iii) a $35.0 million letter of credit sublimit;

and (iv) a swingline loan credit sublimit of $25.0 million.

The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date").

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

Such amounts are not included in the above table.

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

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

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

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

" included in " Part II - Item 8.

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

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

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

- Financial Statements and Supplementary Data, " included in this Form 10-K, for additional information on our lease commitments.

As discussed further in " Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K, the holders of the Convertible Preferred Stock have the option to redeem such shares for cash commencing in October 2026.

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

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

Pursuant to these agreements, we have agreed to indemnify, hold harmless and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party, including but not limited to losses related to third-party intellectual property claims.

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

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

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

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

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

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

We have change in control agreements, severance agreements and indemnification agreements with certain of our executive officers and certain key employees.

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

These costs are not included in the above table.

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

We have change in control agreements with certain of our executive officers and certain key employees.

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

As further discussed in " Notes to Consolidated Financial Statements – Note (9) - "Income Taxes " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), our Consolidated Balance Sheet at July 31, 2022 includes total liabilities of $10.0 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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As further discussed in " Notes to Consolidated Financial Statements – Note (1)(n) - Adoption of Accounting Standards and Updates " included in " Part II - Item 8.

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

• FASB ASU No.

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

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

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

• FASB ASU No.

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