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Item 1. Financial Statements

2022-12-08 compared with 2022-06-09 · 289 added, 524 removed, 611 unchanged (57% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

Assets April 30, 2022 July 31, 2021

Assets October 31, 2022 July 31, 2022

Current assets:

30 unchanged sentences

authorized 125,000 shares;

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

issued 100,000 at October 31, 2022 and July 31, 2022 (includes accrued dividends of $ 576,000 and 566,000 at October 31, 2022 and July 31, 2022, respectively)

106,914,000 105,204,000

4 unchanged sentences

authorized 100,000,000 shares;

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

issued 42,810,846 and 42,672,827 shares at October 31, 2022 and July 31, 2022, respectively

4,281,000 4,267,000

2 unchanged sentences

896,210,000 908,434,000

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

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

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

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

2022 2021 2022 2021

Three months ended October 31,

Net sales $ 131,139,000 116,759,000

4 unchanged sentences

Amortization of intangibles 5,349,000 5,349,000

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

CEO transition costs 9,090,000 —

Proxy solicitation costs — 2,162,000

Acquisition plan expenses — 5,267,000 — 99,807,000

56,527,000 48,250,000

Operating (loss) income ( 566,000 ) 2,350,000 ( 31,671,000 ) ( 77,964,000 )

Operating loss ( 9,724,000 ) ( 6,515,000 )

Other expenses (income):

1 unchanged sentence

Interest (income) and other ( 255,000 ) 219,000

Change in fair value of convertible preferred

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

(Loss) income before (benefit from) provision for

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

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

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

Adjustments to reflect redemption value of

convertible preferred stock:

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

Establishment of initial convertible

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

Change in fair value of convertible preferred stock purchase option liability — ( 304,000 )

Loss before benefit from income taxes ( 11,704,000 ) ( 8,037,000 )

Benefit from income taxes ( 608,000 ) ( 2,053,000 )

Net loss $ ( 11,096,000 ) ( 5,984,000 )

Adjustments to reflect redemption value of convertible preferred stock:

Dividend on convertible preferred stock ( 1,710,000 ) ( 235,000 )

Net (loss) income attributable to common

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

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

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

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

Net loss attributable to common stockholders $ ( 12,806,000 ) ( 11,231,000 )

Net loss per common share (See Note 5):

Basic $ ( 0.46 ) ( 0.43 )

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Three months ended April 30, 2022 and 2021

Series A Convertible Preferred Stock Common Stock Additional

Paid-in Capital Retained Earnings Treasury Stock Stockholders'

Shares Amount Shares Amount Shares Amount

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

Equity-classified stock award compensation

— — — — 1,204,000 — — — 1,204,000

Proceeds from issuance of employee stock purchase plan shares

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

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

Net settlement of stock-based awards

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

Common stock issued for acquisition of UHP Networks Inc.

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

Cash dividends declared, net ($ 0.10 per share)

— — — — — ( 2,600,000 ) — — ( 2,600,000 )

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

— — — — — ( 96,000 ) — — ( 96,000 )

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

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

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

Equity-classified stock award compensation

— — — — 1,071,000 — — — 1,071,000

Proceeds from issuance of employee stock purchase plan shares

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

Net settlement of stock-based awards

— — ( 5,014 ) ( 1,000 ) ( 113,000 ) — — — ( 114,000 )

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 1,655,000 — — — ( 1,655,000 ) — — ( 1,655,000 )

Cash dividends declared, net ($ 0.10 per share)

— — — — — ( 2,646,000 ) — — ( 2,646,000 )

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

— — — — — ( 97,000 ) — — ( 97,000 )

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

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

See accompanying notes to condensed consolidated financial statements.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Nine months ended April 30, 2022 and 2021

Three months ended October 31, 2022 and 2021

Series A Convertible Preferred Stock Common Stock Additional

9 unchanged sentences

— — 74,461 8,000 ( 2,135,000 ) — — — ( 2,127,000 )

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

Issuance of convertible preferred stock 100,000 100,000,000 — — — — — — —

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

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

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 5,247,000 — — — ( 5,247,000 ) — — ( 5,247,000 )

Cash dividends declared, net ($ 0.10 per share)

2 unchanged sentences

— — — — — ( 88,000 ) — — ( 88,000 )

Adoption of current expected credit loss standard — — — — — ( 215,000 ) — — ( 215,000 )

Net loss — — — — — ( 5,984,000 ) — — ( 5,984,000 )

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

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

Balance as of July 31, 2022 100,000 $ 105,204,000 42,672,827 $ 4,267,000 $ 625,484,000 $ 278,683,000 15,033,317 $ ( 441,849,000 ) $ 466,585,000

1 unchanged sentence

— — — — 904,000 — — — 904,000

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

CEO transition costs related to equity-classified stock-based awards (See Note 1) — — — — 3,764,000 — — — 3,764,000

Proceeds from issuance of employee stock purchase plan shares

— — 15,017 2,000 117,000 — — — 119,000

Issuance of restricted stock — — 132,854 13,000 ( 13,000 ) — — — —

Issuance of restricted stock, net of forfeiture — — 10,718 1,000 ( 1,000 ) — — — —

Net settlement of stock-based awards

— — 112,284 11,000 ( 1,241,000 ) — — — ( 1,230,000 )

Issuance of convertible preferred stock 100,000 100,000,000 — — — — — — —

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

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

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 1,710,000 — — — ( 1,710,000 ) — — ( 1,710,000 )

4 unchanged sentences

Net loss — — — — — ( 11,096,000 ) — — ( 11,096,000 )

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

Balance as of October 31, 2022 100,000 $ 106,914,000 42,810,846 $ 4,281,000 $ 629,027,000 $ 262,902,000 15,033,317 $ ( 441,849,000 ) $ 454,361,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended April 30,

Three months ended October 31,

Cash flows from operating activities:

Net loss $ ( 11,096,000 ) ( 5,984,000 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization of property, plant and equipment 2,798,000 2,241,000

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Amortization of cost to fulfill assets 240,000 —

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

CEO transition costs related to equity-classified stock-based awards 3,764,000 —

Amortization of deferred financing costs 203,000 203,000

1 unchanged sentence

Changes in other liabilities ( 1,033,000 ) ( 1,033,000 )

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

Loss on disposal of property, plant and equipment 71,000 —

Provision for (benefit from) allowance for doubtful accounts 242,000 ( 156,000 )

Provision for excess and obsolete inventory 847,000 1,175,000

Deferred income tax benefit ( 5,253,000 ) ( 28,000 )

Other — ( 225,000 )

Deferred income tax (benefit) expense ( 1,217,000 ) 175,000

Changes in assets and liabilities, net of effects of business acquisitions:

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Income taxes payable 790,000 ( 2,605,000 )

Net cash provided by (used in) operating activities 8,421,000 ( 56,582,000 )

Net cash (used in) provided by operating activities ( 6,197,000 ) 4,779,000

Cash flows from investing activities:

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

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

Purchases of property, plant and equipment ( 7,221,000 ) ( 3,638,000 )

2 unchanged sentences

Proceeds from issuance of convertible preferred stock — 100,000,000

Net (payments) borrowings of long-term debt under Credit Facility ( 74,000,000 ) 65,500,000

Net borrowings (payments) of long-term debt under Credit Facility 18,700,000 ( 93,000,000 )

Remittance of employees' statutory tax withholding for stock awards ( 2,332,000 ) ( 4,723,000 )

3 unchanged sentences

Repayment of principal amounts under finance lease liabilities ( 2,000 ) ( 5,000 )

Payment of shelf registration costs ( 101,000 ) —

Proceeds from issuance of employee stock purchase plan shares 119,000 229,000

Net cash provided by (used in) financing activities 13,292,000 ( 1,085,000 )

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

Net (decrease) increase in cash and cash equivalents ( 126,000 ) 56,000

Cash and cash equivalents at beginning of period 21,654,000 30,861,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Nine months ended April 30,

Three months ended October 31,

Supplemental cash flow disclosures:

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dividend equivalents) $ 2,975,000 2,717,000

Issuance of restricted stock $ 13,000 4,000

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

Reclassification of finance lease right-of-use assets to property, plant and equipment $ 12,000 —

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

Adjustment to reflect redemption value of convertible preferred stock $ 1,710,000 5,247,000

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

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

See accompanying notes to condensed consolidated financial statements.

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The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp.

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

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

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

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Our condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements, filed with the Securities and Exchange Commission ("SEC"), for the fiscal year ended July 31, 2022 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC.

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

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

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

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

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

Former CEO Transition Costs

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

Porcelain as Chief Executive Officer (“CEO”).

Prior to that, Mr.

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

Transition costs related to our former CEO, Mr.

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

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

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

the remainder related to Mr.

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

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

(2) Acquisitions

UHP Networks Inc.

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

Price Allocation (1)

Initial upfront payment $ 23,979,000

Hold-back amount 4,991,000

Contingent earn-out consideration 8,500,000

Purchase price at fair value $ 37,470,000

Allocation of aggregate purchase price:

Cash and cash equivalents $ 1,391,000

Current assets 1,367,000

Property, plant and equipment 10,000

Deferred tax assets 310,000

Contract liabilities ( 648,000 )

Accrued warranty obligations ( 750,000 )

Other current liabilities ( 1,175,000 )

Non-current liabilities ( 160,000 )

Net tangible assets at preliminary fair value $ 345,000

Identifiable intangibles, deferred taxes and goodwill:

Technology $ 15,300,000 15 years

Customer relationships 15,500,000 15 years

Trade name 800,000 20 years

Deferred tax liabilities ( 8,374,000 )

Goodwill 13,899,000 Indefinite

Allocation of aggregate purchase price $ 37,470,000

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

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

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Acquisition Plan Expenses

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

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

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

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

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

Reclassifications

Certain reclassifications have been made to previously reported condensed consolidated financial statements to conform to the fiscal 2023 presentation.

CEO Transition Costs

On August 9, 2022, our Board of Directors appointed our Chairman of the Board, Ken Peterman, as President and Chief Executive Officer ("CEO").

Transition costs related to our former President and CEO, Michael D.

Porcelain, pursuant to his separation agreement with the Company, were $ 7,424,000 , of which $ 3,764,000 related to the acceleration of unamortized stock based compensation, with the remaining $ 3,660,000 related to his severance payments and benefits upon termination of employment.

The cash portion of the transition costs of $ 3,660,000 was 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 $ 1,000,000 expense related to a cash sign-on bonus.

CEO transition costs related to Mr.

Porcelain and Mr.

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

(2) Adoption of Accounting Standards and Updates

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

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

• FASB ASU No.

2019-12, which simplifies various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

Our adoption of this ASU on August 1, 2021 did not have a material impact on our condensed consolidated financial statements or disclosures.

• FASB ASU No.

2020-01, which clarifies the interactions between Topics 321, 323 and 815.

This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815.

Our adoption of this ASU on August 1, 2021 did not impact our condensed consolidated financial statements or disclosures.

• FASB ASU No.

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

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

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

On August 1, 2021, we early adopted this ASU.

Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

• FASB ASU No.

2021-08, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts.

Prior to this ASU, an acquirer generally recognized contract assets and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date.

On August 1, 2021, we early adopted this ASU.

Our early adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

ASUs issued, but not effective until after October 31, 2022, are not expected to have a material impact on our condensed consolidated financial statements or disclosures.

COMTECH TELECOMMUNICATIONS CORP.

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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 in our public safety and location technologies product line 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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Sales by geography and customer type, as a percentage of consolidated net sales, are as follows:

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

2022 2021 2022 2021

Three months ended October 31,

United States

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Included in domestic sales are sales to Verizon Communications Inc.

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

("Verizon"), which accounted for 12.5 % and 11.7 % of consolidated net sales for the three months ended October 31, 2022 and 2021, respectively.

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

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

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

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

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

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

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

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

Three months ended October 31, 2022

Satellite and Space Communications Terrestrial and Wireless Networks Total

Geographical region and customer type

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total

Three months ended October 31, 2021

Satellite and Space Communications Terrestrial and Wireless Networks Total

Geographical region and customer type

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Under ASC 606, unbilled receivables constitute contract assets.

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

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

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

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

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

Of the contract liability balance at July 31, 2022 and July 31, 2021, $ 21,628,000 and $ 24,973,000 was recognized as revenue during the three months ended October 31, 2022 and 2021, respectively.

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

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

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

During the three months ended October 31, 2022 and 2021, incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

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

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

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

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

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

As of October 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 668,159,000 (which represents the amount of our consolidated funded backlog).

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

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

(4) Fair Value Measurements and Financial Instruments

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

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

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

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

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

See Note (9) - "Credit Facility - Subsequent Event" for more information.

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

(5) Earnings Per Share

Our basic earnings per share ("EPS") is computed based on the weighted average number of common shares (including vested but unissued stock units, share units, performance shares and restricted stock units ("RSUs")) outstanding during each respective period.

Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, settlement of escrow and earn-out arrangements related to our acquisition of UHP and the assumed conversion of Convertible Preferred Stock, if dilutive, outstanding during each respective period.

Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, settlement of escrow arrangements related to our acquisition of UHP Networks Inc.

("UHP") and the assumed conversion of Convertible Preferred Stock, if dilutive, outstanding during each respective period.

Pursuant to FASB ASC 260 " Earnings Per Share, " shares whose issuance is contingent upon the satisfaction of certain conditions are included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period.

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

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

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

See Note (17) - " Stockholders’ Equity " for more information.

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

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

Weighted average stock options, RSUs and restricted stock outstanding of 1,169,000 and 1,525,000 shares for the three months ended October 31, 2022 and 2021, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 383,000 and 239,000 weighted average performance shares outstanding for the three months ended October 31, 2022 and 2021, respectively, as the performance conditions have not yet been satisfied.

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

Weighted average common shares of 324,000 and 340,000 related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation for the three months ended October 31, 2022 and 2021, respectively, because their effect would have been anti-dilutive.

Weighted average common shares of 4,460,000 and 577,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for the three months ended October 31, 2022 and 2021, respectively, because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for the three months ended October 31, 2022 and 2021 is the respective net loss attributable to common stockholders.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

2022 2021 2022 2021

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

Convertible preferred stock issuance

costs — — ( 4,007,000 ) —

Establishment of initial convertible

preferred stock purchase option

liability — — ( 1,005,000 ) —

Dividend on convertible preferred

stock ( 1,655,000 ) — ( 3,522,000 ) —

Net loss attributable to common

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

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

Effect of dilutive securities:

Stock-based awards — 355,000 — —

Denominator for diluted calculation 26,528,000 26,266,000 26,582,000 25,875,000

Three months ended October 31,

Net loss $ ( 11,096,000 ) ( 5,984,000 )

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

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

Dividend on convertible preferred stock ( 1,710,000 ) ( 235,000 )

Net loss attributable to common stockholders $ ( 12,806,000 ) ( 11,231,000 )

Denominator for basic and diluted calculation 27,830,000 26,426,000

As discussed further in Note (16) - " Convertible Preferred Stock ," the Convertible Preferred Stock issued in October 2021 represents a "participating security" as defined in ASC 260.

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

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

As a result, our EPS calculations for the three months ended October 31, 2022 and 2021 were based on the two-class method.

Given the net loss attributable to common stockholders for the three months ended October 31, 2022 and 2021, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

(6) Accounts Receivable

Accounts receivable consist of the following at:

April 30, 2022 July 31, 2021

October 31, 2022 July 31, 2022

Receivables from commercial and international customers $ 58,863,000 59,922,000

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Accounts receivable, net $ 128,787,000 123,711,000

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

Under ASC 606, unbilled receivables constitute contract assets.

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

As of October 31, 2022, except for the U.S.

government (and its agencies), Verizon and AT&T, which represented 20.8 %, 18.3 % and 11.3 %, of total accounts receivable, respectively, there were no other customers which accounted for greater than 10% of total accounts receivable.

As of July 31, 2022, except for the U.S.

government (and its agencies) and Verizon, which represented 20.9 % and 13.4 % of total accounts receivable, respectively, there were no other customers which accounted for greater than 10% of total accounts receivable.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Under ASC 606, unbilled receivables constitute contract assets.

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

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

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

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

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

and Verizon, respectively.

(7) Inventories

Inventories consist of the following at:

April 30, 2022 July 31, 2021

October 31, 2022 July 31, 2022

Raw materials and components $ 81,288,000 78,478,000

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Inventories, net $ 99,748,000 96,317,000

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

As of October 31, 2022 and July 31, 2022, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 4,537,000 and $ 4,100,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 2,039,000 and $ 1,866,000 , respectively.

(8) Accrued Expenses and Other Current Liabilities

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

April 30, 2022 July 31, 2021

October 31, 2022 July 31, 2022

Accrued wages and benefits $ 26,282,000 25,675,000

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Accrued contract costs 17,149,000 15,921,000

Accrued acquisition-related costs 9,000,000 9,222,000

Accrued commissions and royalties 6,393,000 5,697,000

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

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

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

” for further discussion.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

Nine months ended April 30,

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

Three months ended October 31,

Balance at beginning of period $ 9,420,000 17,600,000

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

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

Provision for warranty obligations 409,000 271,000

Charges incurred ( 435,000 ) ( 982,000 )

Additions (in connection with acquisitions) — 750,000

Balance at end of period $ 9,394,000 16,889,000

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(9) 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 $ 550,000,000 consisting of:

(i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $ 300,000,000 ;

On November 30, 2022, we entered into the Second Amended and Restated Credit Agreement (the “Amended Credit Facility”) with the existing lenders.

See “ Subsequent Event ” below for further information.

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

The Credit Facility had a maturity date of October 31, 2023 and provided a senior secured loan facility of up to $ 550,000,000 consisting of:

(i) a revolving loan facility with a borrowing limit of $ 300,000,000 ;

(ii) an accordion feature allowing us to make a request to borrow up to an additional $ 250,000,000 subject to the satisfaction of specified conditions, including approval by our lenders;

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and (iv) a swingline loan credit sublimit of $ 25,000,000 .

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

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

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

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

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

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

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

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

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

As of October 31, 2022, the amount outstanding under our Credit Facility was $ 148,700,000 , which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At October 31, 2022, we had $ 519,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the three months ended October 31, 2022, we had outstanding balances under the Credit Facility ranging from $ 130,000,000 to $ 155,500,000 .

As of October 31, 2022, total net deferred financing costs related to the Credit Facility were $ 811,000 .

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended October 31, 2022 and 2021 was $ 2,240,000 and $ 1,493,000 , respectively.

Our blended interest rate approximated 5.85 % and 2.94 %, respectively, for the three months ended October 31, 2022 and 2021.

As of October 31, 2022, our Secured Leverage Ratio was 3.49 x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of October 31, 2022 was 8.79 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

Subsequent Event

On November 30, 2022, we entered into the Amended Credit Facility which provides a senior secured loan facility of up to $ 300,000,000 consisting of:

(i) a revolving loan facility (“Revolving Loan Facility”) with a borrowing limit of $ 150,000,000 , including a $ 20,000,000 letter of credit sublimit and a swingline loan credit sublimit of $ 15,000,000 ;

(ii) a $ 50,000,000 term loan A (“Term Loan”);

and (iii) an accordion feature allowing us to make a request to borrow up to an additional $ 100,000,000 subject to the satisfaction of specified conditions, including approval by our lenders.

The Amended Credit Facility has a maturity date of October 31, 2024 (“Maturity Date”).

Under the Amended Credit Facility, if we issue new unsecured debt in excess of $ 5,000,000 with a maturity date that is less than 91 days from October 31, 2024, the Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

Under the Amended Credit Facility, borrowings under the Revolving Loan Facility and Term Loan are either:

(i) Alternate Base Rate borrowings, which would bear interest from the applicable borrowing date at a rate per annum equal to (x) the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 0.50 % and (c) the Adjusted Term SOFR for a one-month tenor in effect on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00 %, plus (y) the Applicable Rate, or (ii) SOFR borrowings, which would bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted Term SOFR 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 Leverage Ratio as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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:

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

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

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

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

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

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

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

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.

On December 6, 2018, we entered into an amendment to the Credit Facility to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis.

On January 14, 2021, we entered into a further amendment of the Credit Facility to update the LIBO Rate replacement mechanism language and other definitional items.

On July 30, 2021, we entered into an amendment to incorporate certain foreign subsidiaries as loan parties and guarantors into the Credit Facility and added certain definitional items.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Amended 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 Amended Credit Facility in connection with any further syndication of the Amended Credit Facility.

The Amended Credit Facility provides for, among other things:

(i) scheduled payments of principal under the Term Loan totaling $ 2,500,000 in the first year after closing and $ 5,000,000 in the second year after closing, with the remaining balance of the Term Loan due upon maturity;

(ii) a maximum Leverage Ratio of 4.25 x TTM Adjusted EBITDA at the fiscal quarter ending January 31, 2023, stepping down to 4.00 x at the fiscal quarter ending April 30, 2023, 3.75 x at the fiscal quarter ending July 31, 2023, and 3.50 x at the fiscal quarter ending January 31, 2024 and thereafter;

(iii) a Minimum Interest Coverage Ratio of 3.25 x TTM Adjusted EBITDA;

and (iv) Minimum Liquidity of $ 25,000,000 .

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

As collateral security under the Amended 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.

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

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For all classes of leased assets, we elected the practical expedient to not separate lease components (i.e., the actual item being leased, such as the facility or piece of equipment) from non-lease components (i.e., the distinct elements of a contract not related to securing the use of the leased asset, such as common area maintenance and consumable supplies).

Certain of our facility lease agreements (which are classified as operating leases) contain rent holidays or rent escalation clauses.

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

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

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Certain of our facility lease agreements (which are classified as operating leases) contain rent holidays or rent escalation clauses.

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

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

The components of lease expense are as follows:

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

2022 2021 2022 2021

Three months ended October 31,

Finance lease expense:

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Additional information related to leases is as follows:

Nine months ended April 30,

Three months ended October 31,

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

Operating leases - Operating cash outflows $ 2,906,000 $ 2,828,000

Finance leases - Operating cash outflows 1,000 2,000

Finance leases - Financing cash outflows 3,000 6,000

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Operating leases $ 2,573,000 $ 6,667,000

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Operating Finance Total

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Weighted-average discount rate 3.42 % 6.27 %

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

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

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

Lease payments made during the three months ended October 31, 2022 and 2021 were $ 171,000 and $ 166,000 , respectively.

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(11) Income Taxes

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

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

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

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

At October 31, 2022 and July 31, 2022, total unrecognized tax benefits were $ 10,254,000 and $ 10,008,000 , respectively, including interest of $ 377,000 and $ 330,000 , respectively.

At October 31, 2022 and July 31, 2022, $ 3,236,000 and $ 3,007,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 7,018,000 and $ 7,001,000 at October 31, 2022 and July 31, 2022, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 9,228,000 and $ 9,034,000 at October 31, 2022 and July 31, 2022, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

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

We do not expect that there will be any significant changes to our total unrecognized tax benefits within the next twelve months.

The amount by which the gross unrecognized tax benefits could decrease by in the next twelve months did not significantly change during the first quarter of fiscal 2023.

federal income tax returns for fiscal 2019 through 2021 are subject to potential future Internal Revenue Service ("IRS") audit.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(12) Stock-Based Compensation

2 unchanged sentences

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

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

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

Our non-employee directors, excluding Fred Kornberg our former CEO, are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

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

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

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

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

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

April 30, 2022

As of October 31, 2022, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 10,183,915 shares (net of 5,466,293 expired and canceled awards), of which an aggregate of 8,107,927 have been exercised or settled.

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

October 31, 2022

Stock options 474,020

2 unchanged sentences

Total 2,075,988

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

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

Through October 31, 2022, we have cumulatively issued 958,926 shares of our common stock to participating employees in connection with our ESPP.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

2022 2021 2022 2021

Three months ended October 31,

Cost of sales $ 158,000 73,000

1 unchanged sentence

Research and development expenses 98,000 76,000

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

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

Stock-based compensation expense before CEO transition costs 904,000 921,000

CEO transition costs related to equity-classified stock-based awards 3,764,000 —

Total stock-based compensation expense before income tax benefit 4,668,000 921,000

2 unchanged sentences

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

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

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

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

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

At October 31, 2022, unrecognized stock-based compensation of $ 11,988,000 , net of estimated forfeitures of $ 812,000 , is expected to be recognized over a weighted average period of 2.8 years.

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

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

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

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

2022 2021 2022 2021

Three months ended October 31,

Stock options $ 25,000 78,000

2 unchanged sentences

ESPP 31,000 55,000

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

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

Stock-based compensation expense before CEO transition costs 904,000 921,000

CEO transition costs related to equity-classified stock-based awards 3,764,000 —

Total stock-based compensation expense before income tax benefit 4,668,000 921,000

2 unchanged sentences

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Stock Options

7 unchanged sentences

Expired/canceled ( 9,460 ) 26.55

Exercised ( 1,220 ) 17.88

Outstanding at October 31, 2022 474,020 $ 24.38 2.70 $ —

Expired/canceled ( 10,030 ) 27.14

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

Expired/canceled ( 463,950 ) 26.44

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

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

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Exercisable at October 31, 2022 428,900 $ 25.07 2.19 $ —

Vested and expected to vest at October 31, 2022 471,742 $ 24.42 2.67 $ —

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

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

8 unchanged sentences

Outstanding at October 31, 2022 1,601,968 $ 14.35 $ 17,702,000

Granted 187,658 23.35

Settled ( 191,238 ) 22.47

Canceled/Forfeited ( 15,156 ) 21.88

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

Granted 84,125 16.39

Settled ( 14,099 ) 24.00

Canceled/Forfeited ( 18,190 ) 22.46

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

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

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

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

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

Vested at October 31, 2022 532,533 $ 15.68 $ 5,884,000

Vested and expected to vest at October 31, 2022 1,547,797 $ 14.33 $ 17,103,000

The total intrinsic value relating to fully-vested awards settled during the three months ended October 31, 2022 and 2021 was $ 2,769,000 and $ 4,895,000 , respectively.

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

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

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

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

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

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

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

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

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

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

RSUs and restricted stock granted to non-employee directors prior to August 2022 had a vesting period of five years and are convertible into shares of our common stock generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

Commencing in August 2022, such awards have a vesting period of one year .

Also, restricted stock granted to Fred Kornberg, pursuant to his Senior Technology Advisor consulting agreement, vests 1/12 on the date of grant and in eleven (11) equal monthly installments thereafter.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

RSUs granted to employees prior to August 2022 have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one -for-one basis for no cash consideration.

RSUs granted to employees commencing in August 2022 have a vesting period of three years .

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

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

RSUs, performance shares and restricted stock granted since fiscal 2013 are entitled to dividend equivalents unless forfeited before vesting occurs.

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

RSUs, performance shares and restricted stock are entitled to dividend equivalents unless forfeited before vesting occurs.

Share units are entitled to dividend equivalents while the underlying shares are unissued.

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

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

During the three months ended October 31, 2022 and 2021, we accrued $ 201,000 and $ 88,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 346,000 and $ 315,000 , respectively.

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

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

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

As of October 31, 2022 and July 31, 2022, accrued dividend equivalents were $ 597,000 and $ 742,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three months ended October 31, 2022 and 2021, we recorded an income tax expense of $ 363,000 and an income tax benefit of $ 53,000 , respectively.

Subsequent Event

At our Fiscal 2022 Annual Meeting of Stockholders, scheduled to be held on December 15, 2022, our stockholders will be asked to approve an amendment to our Plan to increase the share reserve available under the Plan by 1,000,000 shares of common stock.

Also, our stockholders will be asked to approve an amendment to our ESPP to increase the maximum number of shares of our common stock that are reserved for issuance under the ESPP by 250,000 .

See Proposal Nos.

4 and 5 included in our definitive proxy statement filed with the SEC on November 18, 2022.

(13) Segment Information

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

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

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

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

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

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

Our Government Solutions segment provides tactical satellite-based networks and ongoing support for complicated communications networks and 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.

In the fourth quarter of fiscal 2022, we revised our business segments to better align them with end-markets for our products and services and our CODM began managing our business in two new reportable segments:

“Satellite and Space Communications” and “Terrestrial and Wireless Networks.” As a result, the segment information for the prior fiscal year has been recast to conform to the current year presentation.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Satellite and Space Communications is organized into four technology areas:

satellite modem technologies and amplifier technologies, troposcatter and SATCOM solutions, space components and antennas, and high-power amplifiers and switches technologies.

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 service areas:

next generation 911 and call delivery, Solacom call handling solutions, trusted location and messaging solutions, and cyber security training and 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 ("PSAPs");

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 PSAPs;

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 CODM primarily uses a metric that we refer to as Adjusted EBITDA to measure an operating segment’s performance and to make decisions about resources to be allocated.

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

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

Our Adjusted EBITDA metric for the Satellite and Space Communications and Terrestrial and Wireless Networks segments do not consider any allocation of indirect expense, or any of the following:

income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, 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 expenses and other.

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

Any amounts shown in the Adjusted EBITDA calculation for our Commercial Solutions and Government Solutions segments are directly attributable to those segments.

Any amounts shown in the Adjusted EBITDA calculation for our Satellite and Space Communications and Terrestrial and Wireless Networks segments are directly attributable to those segments.

Our Adjusted EBITDA is also used by our management in assessing the Company's operating results.

Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Credit Facility) utilized for financial covenant calculations and also 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.

Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Credit Facility and Amended Credit Facility) utilized for financial covenant calculations and also 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.

COMTECH TELECOMMUNICATIONS CORP.

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

Three months ended April 30, 2022

Commercial Solutions Government Solutions Unallocated Total

Three months ended October 31, 2022

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

Net sales $ 80,873,000 50,266,000 — $ 131,139,000

1 unchanged sentence

Net income (loss) $ 5,815,000 605,000 ( 17,516,000 ) $ ( 11,096,000 )

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

Benefit from income taxes ( 222,000 ) ( 165,000 ) ( 221,000 ) ( 608,000 )

Interest (income) and other ( 575,000 ) 304,000 16,000 ( 255,000 )

Change in fair value of convertible preferred stock purchase option liability

— — ( 302,000 ) ( 302,000 )

Interest expense ( 2,000 ) — 2,237,000 2,235,000

3 unchanged sentences

Amortization of cost to fulfill assets 240,000 — — 240,000

CEO transition costs — — 9,090,000 9,090,000

Restructuring costs 1,056,000 — 269,000 1,325,000

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

Strategic emerging technology costs 746,000 — — 746,000

1 unchanged sentence

Purchases of property, plant and equipment $ 4,435,000 2,542,000 244,000 $ 7,221,000

Total assets at April 30, 2022

Total assets at October 31, 2022

$ 486,636,000 467,594,000 23,595,000 $ 977,825,000

Three months ended April 30, 2021

Commercial Solutions Government Solutions Unallocated Total

Three months ended October 31, 2021

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

Net sales $ 64,560,000 52,199,000 $ 116,759,000

Operating income (loss) $ 9,318,000 768,000 ( 7,736,000 ) $ 2,350,000

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

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

Operating (loss) income $ ( 5,313,000 ) 6,102,000 ( 7,304,000 ) $ ( 6,515,000 )

Net (loss) income $ ( 5,074,000 ) 5,978,000 ( 6,888,000 ) $ ( 5,984,000 )

(Benefit from) provision for income taxes ( 599,000 ) 141,000 ( 1,595,000 ) ( 2,053,000 )

Interest (income) and other 247,000 ( 18,000 ) ( 10,000 ) 219,000

Change in fair value of convertible preferred stock purchase

option liability — — ( 304,000 ) ( 304,000 )

Interest expense 114,000 — 1,493,000 1,607,000

2 unchanged sentences

Depreciation 825,000 1,364,000 52,000 2,241,000

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

Restructuring costs 594,000 — — 594,000

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

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

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

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

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

Total assets at April 30, 2021

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine months ended April 30, 2022

Commercial Solutions Government Solutions Unallocated Total

Net sales $ 248,342,000 110,914,000 — $ 359,256,000

Operating income (loss) $ 14,179,000 ( 4,538,000 ) ( 41,312,000 ) $ ( 31,671,000 )

Net income (loss)

$ 13,251,000 ( 3,091,000 ) ( 38,043,000 ) $ ( 27,883,000 )

Provision for (benefit from) income taxes

869,000 ( 1,297,000 ) ( 5,672,000 ) ( 6,100,000 )

Interest (income) and other

53,000 ( 242,000 ) ( 71,000 ) ( 260,000 )

Change in fair value of convertible preferred stock purchase option liability

— — ( 1,004,000 ) ( 1,004,000 )

Interest expense 6,000 92,000 3,478,000 3,576,000

Amortization of stock-based compensation

— — 3,975,000 3,975,000

Amortization of intangibles

12,780,000 3,267,000 — 16,047,000

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

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

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

Proxy solicitation costs — — 2,162,000 2,162,000

1 unchanged sentence

COVID-19 related costs 674,000 — — 674,000

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

Adjusted EBITDA $ ( 1,273,000 ) 10,986,000 ( 4,169,000 ) $ 5,544,000

$ 36,789,000 2,132,000 ( 12,384,000 ) $ 26,537,000

Purchases of property, plant and equipment $ 1,037,000 2,601,000 — $ 3,638,000

$ 11,617,000 2,803,000 — $ 14,420,000

Total assets at April 30, 2022

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

Nine months ended April 30, 2021

Commercial Solutions Government Solutions Unallocated Total

Net sales $ 260,991,000 174,895,000 — $ 435,886,000

Operating income (loss) $ 27,439,000 8,813,000 ( 114,216,000 ) $ ( 77,964,000 )

Net income (loss)

$ 26,618,000 9,138,000 ( 116,599,000 ) $ ( 80,843,000 )

Provision for (benefit from) income taxes

858,000 ( 497,000 ) ( 2,439,000 ) ( 2,078,000 )

Interest (income) and other

( 40,000 ) 108,000 ( 344,000 ) ( 276,000 )

Interest expense 3,000 64,000 5,166,000 5,233,000

Amortization of stock-based compensation

— — 3,190,000 3,190,000

Amortization of intangibles

12,794,000 2,877,000 — 15,671,000

5,709,000 1,285,000 289,000 7,283,000

Acquisition plan expenses

( 1,052,000 ) — 100,859,000 99,807,000

Restructuring costs 1,195,000 — — 1,195,000

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

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

Adjusted EBITDA

$ 46,085,000 13,866,000 ( 9,878,000 ) $ 50,073,000

Purchases of property, plant and equipment

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

Long-lived assets acquired in connection with acquisitions

$ 45,597,000 2,443,000 — $ 48,040,000

Total assets at April 30, 2021

Total assets at October 31, 2021

$ 485,087,000 471,858,000 26,044,000 $ 982,989,000

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

During the three months ended October 31, 2022, we expensed $ 9,090,000 of CEO transition costs.

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

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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

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

During the three months ended October 31, 2022 and 2021, our Satellite and Space Communications segment recorded $ 1,056,000 and $ 712,000 , respectively, of restructuring costs incurred 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.

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

See Note (9) - " Credit Facility " for further discussion.

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

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

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

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

Intersegment sales for the three months ended October 31, 2022 and 2021 between the Satellite and Space Communications segment and the Terrestrial and Wireless Networks segment were nominal.

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

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

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

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

(14) Goodwill

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

Commercial Solutions Government Solutions Total

Balance as of July 31, 2021

$ 270,389,000 77,309,000 $ 347,698,000

UHP acquisition ( 6,000 ) — ( 6,000 )

Balance as of April 30, 2022

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

The following table represents goodwill by reportable operating segment as of October 31, 2022 and July 31, 2022.

Satellite and Space Communications Terrestrial and Wireless Networks Total

Goodwill $ 173,602,000 174,090,000 $ 347,692,000

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.

As discussed in Note (13) - "Segment Information, " 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.

We performed our quantitative assessment using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.

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

We also considered overall business conditions.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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.

Ultimately, 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 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.

Also, 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.

Additionally, the carrying value of goodwill was reallocated to our new reporting units based on their respective estimated relative fair value.

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

and internationally) could deteriorate from the current state, our current or prospective customers could materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we currently anticipate, or our common stock price could fluctuate.

Such fluctuation could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global activity.

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 assigned to the respective reporting units could be impaired.

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

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

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

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 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).

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

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

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

(15) Intangible Assets

Intangible assets with finite lives are as follows:

April 30, 2022

October 31, 2022

Weighted Average

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

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

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

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

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

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

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(16) Convertible Preferred Stock

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The adjusted conversion price for the shares issued in the Initial Issuance is $ 23.97 , and the adjusted conversion price for the Green Shoe is $ 31.21 subject to certain adjustments set forth in the Certificate of Designations filed with the Secretary of State of the State of Delaware.

The Convertible Preferred Stock ranks senior to the shares of our common stock, with respect to the payment of dividends and the distribution of assets upon a liquidation, dissolution or winding up of the Company.

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Such Participating Dividend results in the Convertible Preferred Stock meeting the definition of a "participating security" for purposes of our earnings per share calculations.

The Convertible Preferred Stock is convertible into shares of common stock at the option of the holders thereof at or following the earlier to occur of (a) the filing of our Annual Report on Form 10-K for the fiscal year ending July 31, 2022 but no later than October 19, 2022, or (b) immediately prior to (and conditioned upon) the consummation of a Change of Control.

Effective September 29, 2022, the Convertible Preferred Stock is convertible into shares of common stock at the option of the holders.

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 106,914,000 , which includes $ 6,338,000 of cumulative dividends paid in kind and $ 576,000 of accumulated and unpaid dividends.

As such, a total adjustment of $ 1,710,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings during the three months ended October 31, 2022.

(17) Stockholders’ Equity

Sale of Common Stock

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

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

Shelf Registration

On July 13, 2022, we filed a $ 200,000,000 shelf registration statement with the SEC for the sale of various types of securities, including debt.

The shelf registration was declared effective by the SEC as of July 25, 2022.

To-date, we have not issued any securities pursuant to our $ 200,000,000 shelf registration statement.

Common Stock Repurchase Program

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

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

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

Common Stock Dividends

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On September 29, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, which was paid on November 18, 2022.

On December 8, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, payable on February 17, 2023 to stockholders of record at the close of business on January 18, 2023.

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

(18) Legal Proceedings and Other Matters

Settled Litigation Related to the Convertible Preferred Stock Issuance

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

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

Other Matters

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Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the outcome of these other pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Employment Change of Control and Indemnification Agreements

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

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

On August 9, 2022, our Board of Directors appointed our Chairman of the Board, Ken Peterman, as President and CEO, and the Company entered an employment agreement with Mr.

Peterman generally providing for an annual salary, bonus award, sign-on bonus, equity incentive awards and, under certain termination of employment, severance payment.

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

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

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 termination of the employee.

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

What changed 10-Q

Item 1. Financial Statements