What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-08 compared with 2022-06-09 · 286 added, 620 removed, 332 unchanged (73% of the section changed)

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

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

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

"anticipate," "intend," "plan," "goal," "seek," "believe," "project," "predict," "estimate," "expect," "strategy," "future," "potential," "likely," "may," "should," "could," "would," "will," "continue," "target," and similar references to future periods.

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

These factors include, among other things:

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the possibility of disruption from recent acquisitions, making it more difficult to maintain business and operational relationships or retain key personnel;

the risk that Comtech will be unsuccessful in implementing a tactical shift in its Government Solutions segment away from bidding on large commodity service contracts and toward pursuing contracts for its niche products with higher margins;

the risk that Comtech will be unsuccessful in implementing a tactical shift in its Satellite and Space Communications segment away from bidding on large commodity service contracts and toward pursuing contracts for its niche products with higher margins;

the nature and timing of our receipt of, and our performance on, new or existing orders that can cause significant fluctuations in net sales and operating results;

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changes in the price of oil in global markets;

changes in foreign currency exchange rates;

changes in prevailing interest rates and foreign currency exchange rates;

risks associated with Comtech's legal proceedings, customer claims for indemnification, and other similar matters;

risks associated with our obligations under our Credit Facility;

risks associated with our obligations under our Amended Credit Facility;

risks associated with our large contracts;

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and other factors described in this and our other filings with the Securities and Exchange Commission ("SEC").

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

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

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

This includes the critical communications infrastructure that people, businesses, and governments rely on when durable, trusted connectivity is required, no matter where they are – on land, at sea, or in the air – and no matter what the circumstances – from armed conflict to a natural disaster.

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

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

We provide our solutions to both commercial and governmental customers.

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

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

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

For more information and for financial information about our business segments, including net sales, operating income, Adjusted EBITDA (a non-GAAP financial measure), total assets, and our operations outside the United States, refer to " Notes to Consolidated Financial Statements - Note (13) Segment Information" included in "Part I - Item 1 - Notes to Condensed Consolidated Financial Statements (Unaudited).

We manage our business through two reportable operating segments:

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

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

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

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

• 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;

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

Emergency Services IP Network transport infrastructure for emergency services communications and support of next generation 911 services;

call handling applications for Public Safety Answering Points;

wireless emergency alerts solutions for network operators;

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

Our Quarterly Financial Information

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

Our contracts with the U.S.

In particular, our contracts with the U.S.

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

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

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

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

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

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

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

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 public safety and location technologies product line, we also recognize revenue over time.

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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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Impairment of Goodwill and Other Intangible Assets .

As of April 30, 2022, total goodwill recorded on our Condensed Consolidated Balance Sheet aggregated $347.7 million (of which $270.4 million relates to our Commercial Solutions segment and $77.3 million relates to our Government Solutions segment).

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

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

Additionally, as of October 31, 2022, net intangibles recorded on our Condensed Consolidated Balance Sheet aggregated $242.0 million (of which $70.6 million relates to our Satellite and Space Communications segment and $171.4 million relates to our Terrestrial and Wireless Networks segment).

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

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

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

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

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

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

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

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

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.

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 assessments, we determined that our Satellite and Space Communications and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least and 18.4% and 11.6%, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment.

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 and intangibles 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.

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

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

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

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

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

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

In any event, we are required to perform our 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.

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

We believe that the carrying values of our net intangible assets were recoverable as of April 30, 2022.

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

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

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

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

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

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Future changes to the estimated allowance for doubtful accounts could be material to our results of operations and financial condition.

Business Outlook for Fiscal 2022

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

Our financial highlights for the quarter include:

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

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

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

First Quarter Highlights and Business Outlook

Fiscal 2023 is off to a strong start, as we exceeded our consolidated net sales and Adjusted EBITDA expectations for the first quarter of fiscal 2023.

Financial highlights for the first quarter include:

• Consolidated net sales were $131.1 million, up 3.3% sequentially from the fourth quarter of fiscal 2022 and up 12.2% from the first quarter of fiscal 2022;

• Gross margin was 35.7%, comparable with gross margins in both our first and fourth quarters of fiscal 2022;

• GAAP net loss attributable to common stockholders was $12.8 million, and included $9.1 million of CEO transition costs, $1.3 million of restructuring costs and $0.7 million of strategic emerging technology costs for next-generation satellite technology;

• GAAP EPS loss of $0.46 and Non-GAAP EPS income of $0.16;

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

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

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

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $10.7 million, or 8.2% of consolidated net sales, an increase from the $5.5 million, or 4.7% of consolidated net sales for the first quarter of fiscal 2022;

• New bookings (also referred to as orders) of $181.2 million, representing a 26.9% sequential quarterly increase and a quarterly book-to-bill ratio of 1.38x (a measure defined as bookings divided by net sales);

• Backlog of $668.2 million as of October 31, 2022, compared to $618.1 million as of July 31, 2022 and $628.5 million as of October 31, 2021;

• Revenue visibility of approximately $1.1 billion.

We measure this revenue visibility as the sum of our $602.3 million backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders;

We measure this revenue visibility as the sum of our $668.2 million of backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders;

• Cash flows used in operating activities of $6.2 million.

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

Excluding $3.8 million in aggregate payments related to our CEO transition, cash used in operating activities would have been $2.4 million.

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

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

This continues to be a transformative time for Comtech.

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

Hedden and Mr.

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

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

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

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

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

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

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

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

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

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

Prior to such appointment, in May 2022, Mr.

Peterman joined our Board of Directors as Chairman.

With over forty years in the defense sector, Mr.

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

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

During the third quarter, we also continued to execute on our plans to deploy the proceeds of our $100.0 million strategic growth investment and continued to solidify our position as a leading solutions provider in our two key end-markets:

Next Generation 911 Public Safety and Satellite and Space Communications.

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

Considering this outlook, we pressed forward during the most recent quarter on our investments in capital equipment and building improvements in connection with the opening of a new 146,000 square-foot facility in Chandler, Arizona, and the establishment of a 56,000 square-foot facility in Basingstoke, United Kingdom.

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

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

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

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

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

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

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

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

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

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

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

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

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

and NATO allied government customers.

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

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

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

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

There continues to be order and production delays, disruptions in component availability, increased pricing both for labor and parts, lower levels of factory utilization and higher logistics and operational costs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

To execute our new CEO’s initiatives to further strengthen and grow our businesses, we continue to enhance our leadership team with the intent to effectively move our company forward and, at the same time, maximize our ability to compete and deliver across our global market segments.

To that end we created the roles of Chief Strategy Officer – Defense and Chief Strategy Officer – Commercial to help realize our business objectives in each of these respective markets.

Daniel Gizinski and Jay Whitehurst, respectively, were appointed to these two new positions.

Gizinski has been with Comtech for three years, most recently serving as President of Comtech Network Systems, Inc.

Whitehurst has been with Comtech for eleven years, most recently serving as President of Comtech’s Trusted Location and Messaging Solutions business.

Also, in connection with the re-segmentation of our reportable operating segments, Tim Jenkins was appointed President of our Terrestrial and Wireless Networks segment and Justin Wexler was appointed President of our Satellite and Space Communications segment.

Jenkins has been with Comtech for three years, most recently serving as President of our former Safety and Security Technologies product group.

Wexler joined Comtech in November 2022 and most recently served as Chief Operating Officer of Clear Align and, prior to that, spent fifteen years with L3 Technologies in multiple leadership roles.

Additionally, to elevate our position as an integrated services and solutions provider across both segments, Doug Houston was named Vice President of Global Support.

Houston has been with Comtech for ten years, most recently serving as President of Comtech Systems, Inc.

With these and other key positions filled, we believe we can further improve efficiencies and streamline our operations into “One Comtech.”

During the first quarter of fiscal 2023, we moved forward on our investments in capital equipment and building improvements in connection with the opening of a new 146,000 square-foot facility in Chandler, Arizona, and the establishment of a 56,000 square-foot facility in Basingstoke, United Kingdom.

Although COVID-19 and supply chain issues have extended our original build-out schedules, particularly as it relates to our Chandler, Arizona facility, both manufacturing centers are expected to support production of next-generation broadband satellite technology and should be fully operational in fiscal 2023 as we enter the final stages of the build-out.

We experienced strong order flow during the three months ended October 31, 2022.

Key bookings include:

a $50.0 million plus award of incremental funding on an existing contract to provide next generation troposcatter systems in support of the U.S.

enhanced 911 call routing services, valued in excess of $30.0 million, for one of the largest wireless carriers in the United States;

and a large multi-million dollar Foreign Military Sales (“FMS”) contract for beyond line-of-sight communications terminals and upgrades to the Ukrainian government’s existing systems.

While our business continues to face near-term challenges and continued uncertainties, as further discussed below, we are pleased with our strong bookings performance in the first quarter, as it represented our fourth consecutive quarter of sequential growth and restored our funded backlog to a level not reported since July 2021.

As we enter the second quarter of fiscal 2023, business conditions continue to be challenging, and the operating environment is largely unpredictable, including factors such as inflation, interest rate hikes, the repercussions of the military conflict between Russia and Ukraine and a potential global recession.

There also continues to be order and production delays, disruptions in component availability, increased pricing both for labor and parts, lower levels of factory utilization and higher logistics and operational costs.

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

We do not provide forward-looking guidance for GAAP results because we are unable to predict certain items contained in the GAAP measure without unreasonable efforts.

Please refer to the discussion below under "Adjusted EBITDA" for more information.

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

On December 8, 2022, our Board of Directors declared a cash 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 common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval and certain voting rights of holders of our Series A Convertible Preferred Stock.

Additional information related to our Business Outlook for fiscal 2023 and a definition and explanation of Adjusted EBITDA is included in the below section " Item 2.

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

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

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

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

Commercial Solutions

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

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

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

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

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

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

Our satellite earth station product line has been impacted by overall challenging business conditions, including the COVID-19 pandemic's effect on customer demand, particularly in international markets, which historically represents a large majority of end-users for this product line.

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

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

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

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

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

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

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

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

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

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

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

Government Solutions

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

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

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

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

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

Net sales during the three months ended April 30, 2021 also included revenue related to our performance on our 10-year, $211.0 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of the U.S.

Marine Corps.

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

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

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

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

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

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

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

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

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

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

Consolidated net sales were $131.1 million and $116.8 million for the three months ended October 31, 2022 and 2021, respectively, representing an increase of $14.3 million, or 12.2%.

The period-over-period increase in net sales primarily reflects higher net sales in our Satellite and Space Communications segment, as further discussed below.

Satellite and Space Communications

Net sales in our Satellite and Space Communications segment were $80.9 million for the three months ended October 31, 2022 as compared to $64.6 million for the three months ended October 31, 2021, an increase of $16.3 million or 25.2%.

Net sales for the three months ended October 31, 2022 primarily reflect sales related to a recently awarded FMS contract for beyond line-of-sight communications terminals and upgrades to the Ukrainian government’s existing systems and a period-over-period increase in sales of our satellite ground station technologies, offset in part by lower sales of our high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components.

Our Satellite and Space Communications segment represented 61.7% of consolidated net sales for the three months ended October 31, 2022 as compared to 55.3% for the three months ended October 31, 2021.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended October 31, 2022 was 1.68x.

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

and international government customers.

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

Geography and Customer Type

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

Three months ended April 30,

2022 2021 2022 2021 2022 2021

Commercial Solutions Government Solutions Consolidated

government 9.3 % 16.5 % 59.7 % 65.0 % 23.3 % 33.2 %

Domestic 61.7 % 61.2 % 14.5 % 18.9 % 48.6 % 46.6 %

71.0 % 77.7 % 74.2 % 83.9 % 71.9 % 79.8 %

International 29.0 % 22.3 % 25.8 % 16.1 % 28.1 % 20.2 %

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

Sales to U.S.

government customers include sales to the U.S.

Department of Defense ("DoD"), intelligence and civilian agencies, as well as sales directly to or through prime contractors.

Domestic sales include sales to commercial customers, as well as to U.S.

state and local governments.

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

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

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

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

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

Gross Profit.

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

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

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

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

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

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

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

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

The gross profit percentage in the most recent quarter primarily reflects changes in products and services mix, offset in part by lower levels of factory utilization and higher logistics and operational costs resulting from global supply chain constraints.

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for the three months ended April 30, 2022 decreased in comparison to the three months ended April 30, 2021 and reflects changes in product and services mix in the most recent quarter, as discussed above.

Also, during the three months ended April 30, 2022 and 2021, we incurred $0.1 million and $0.4 million, respectively, of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

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

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

As discussed in "Item 2.

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

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

Selling, General and Administrative Expenses .

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

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

During the three months ended April 30, 2022 and 2021, we incurred $1.6 million and $0.6 million, respectively, of restructuring costs to streamline our operations, including costs related to the ongoing relocation of certain of our satellite earth station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

Excluding restructuring costs, selling, general and administrative expenses for the three months ended April 30, 2022 and 2021 would have been $26.0 million, or 21.3%, and $26.4 million, or 18.9%, respectively, of consolidated net sales.

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

Our selling, general and administrative expenses in the most recent quarter also reflect higher labor costs associated with a tight global labor market, increased investments in marketing, including new social media activities and other investments we are making to achieve our long term business goals.

Such spending is expected to continue during our fourth quarter of fiscal 2022.

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

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

Research and Development Expenses.

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

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

For the three months ended April 30, 2022 and 2021, research and development expenses of $12.3 million and $10.9 million, respectively, related to our Commercial Solutions segment, and $1.9 million and $2.1 million, respectively, related to our Government Solutions segment.

The remaining research and development expenses of $0.1 million in both the three months ended April 30, 2022 and 2021 related to the amortization of stock-based compensation expense.

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

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

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

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

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

During the three months ended April 30, 2022 and 2021, customers reimbursed us $2.7 million and $3.7 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

Amortization of Intangibles.

Amortization relating to intangible assets with finite lives was $5.3 million (of which $4.2 million was for the Commercial Solutions segment and $1.1 million was for the Government Solutions segment) for the three months ended April 30, 2022 and $5.3 million (of which $4.2 million was for the Commercial Solutions segment and $1.1 million was for the Government Solutions segment) for the three months ended April 30, 2021.

Acquisition Plan Expenses.

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

There were no similar costs incurred during the three months ended April 30, 2022.

Operating Income (Loss).

Operating loss for the three months ended April 30, 2022 was $0.6 million as compared to operating income of $2.4 million for the three months ended April 30, 2021.

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

Three months ended April 30,

2022 2021 2022 2021 2022 2021 2022 2021

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

Operating income (loss) $ 7.4 9.3 (2.9) 0.8 (5.1) (7.7) $ (0.6) 2.4

Percentage of related

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

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

(i) $1.6 million of restructuring costs;

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

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

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

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

(i) $5.3 million of acquisition plan expenses;

(ii) $0.6 million of restructuring costs;

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

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

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

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

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

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

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

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

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

Interest Expense and Other.

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

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

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

Interest (Income) and Other.

Interest (income) and other for both the three months ended April 30, 2022 and 2021 was nominal.

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

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

During the three months ended April 30, 2022, we recorded a $0.3 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability.

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

Benefit from Income Taxes.

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

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

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

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

For purposes of determining our 28.25% estimated annual effective tax rate for fiscal 2022, former CEO transition costs and proxy solicitation costs are considered significant, unusual or infrequently occurring discrete tax items and are excluded from the computation of our effective tax rate.

During the three months ended April 30, 2022, we recorded a net discrete tax expense of $0.2 million, primarily related to the expiration of equity based awards, partially offset by the finalization of certain tax accounts in connection with the filing of our fiscal 2021 federal income tax return.

During the three months ended April 30, 2021, we recorded a net discrete tax expense of $0.2 million, primarily related to updating our effective tax rate for the fiscal year, as well as the finalization of certain tax accounts in connection with the filing of our fiscal 2020 U.S.

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

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

None of our state income tax returns prior to fiscal 2017 are subject to audit.

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

Net (Loss) Income Attributable to Common Stockholders.

During the three months ended April 30, 2022, consolidated net loss attributable to common stockholders was $1.7 million as compared to net income attributable to common stockholders of $0.8 million during the three months ended April 30, 2021.

Adjusted EBITDA.

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

Three months ended April 30,

2022 2021 2022 2021 2022 2021 2022 2021

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

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

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

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

Change in fair value of convertible preferred stock purchase option liability — — — — (0.3) — (0.3) —

Interest expense — — — — 1.0 1.5 1.0 1.5

Amortization of stock-based compensation — — — — 1.1 1.2 1.1 1.2

Amortization of intangibles 4.2 4.2 1.1 1.1 — — 5.3 5.3

Depreciation 2.0 1.8 0.4 0.4 — 0.1 2.5 2.3

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

Restructuring costs 1.3 0.6 0.3 — — — 1.6 0.6

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

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

Acquisition plan expenses — — — — — 5.3 — 5.3

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

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

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

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

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

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

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

($ in millions) Fiscal Year 2021

Reconciliation of GAAP Net Loss to Adjusted EBITDA:

Net loss $ (73.5)

Benefit from income taxes (1.5)

Interest (income) and other (0.1)

Interest expense 6.8

Amortization of stock-based compensation 10.0

Amortization of intangibles 21.0

Depreciation 9.4

Acquisition plan expenses 100.3

Restructuring costs 2.8

COVID-19 related costs 1.0

Strategic emerging technology costs 0.3

Adjusted EBITDA $ 76.5

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

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

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

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

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

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

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

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

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

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

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

Accordingly, reconciliations to the Non-GAAP forward looking metrics are not available without unreasonable effort and such unavailable reconciling items could significantly impact our financial results.

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the three months ended April 30, 2022 and 2021 to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding).

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

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

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

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

Three months ended April 30, 2022

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

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported

$ (0.6) $ (1.7) $ (0.06)

Adjustments to reflect redemption value of convertible preferred stock

Restructuring costs

COVID-19 related costs 0.1 0.1 —

Strategic emerging technology costs 0.9 0.7 0.03

Change in fair value of convertible preferred stock purchase option

liability — (0.3) (0.01)

Net discrete tax expense

Non-GAAP measures $ 2.1 $ 1.7 $ 0.06

Three months ended April 30, 2021

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

Diluted Share

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported

$ 2.4 $ 0.8 $ 0.03

Acquisition plan expenses

Restructuring costs

COVID-19 related costs

Strategic emerging technology costs

Net discrete tax expense

Non-GAAP measures $ 8.9 $ 6.8 $ 0.26

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

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

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

Commercial Solutions

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

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

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

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

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

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

government customers.

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

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

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

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

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

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

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

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

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

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

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

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

Government Solutions

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

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

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

Terrestrial and Wireless Networks

Net sales in our Terrestrial and Wireless Networks segment were $50.3 million for the three months ended October 31, 2022, as compared to $52.2 million for the three months ended October 31, 2021, a decrease of $1.9 million, or 3.6%.

Net sales in the three months ended October 31, 2022 reflect lower sales of our trusted location and messaging solutions and cyber security training services, offset in part by higher sales of our NG-911 solutions.

Our Terrestrial and Wireless Networks segment represented 38.3% of consolidated net sales for the three months ended October 31, 2022 as compared to 44.7% for the three months ended October 31, 2021.

Our book-to-bill ratio for this segment was 0.90x.

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

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

Net sales for the nine months ended April 30, 2022 primarily reflect significantly lower sales of global field support services, advanced VSAT products and other programs to the U.S.

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

Net sales during the nine months ended April 30, 2021 included revenue related to our performance on our 10-year, $211.0 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of the U.S.

Marine Corps.

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

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

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

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

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

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

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

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

and international government customers.

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

Geography and Customer Type

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

Nine months ended April 30,

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

Three months ended October 31,

2022 2021 2022 2021 2022 2021

Commercial Solutions Government Solutions Consolidated

Satellite and Space Communications Terrestrial and Wireless Networks Consolidated

government 50.7 % 52.5 % 2.1 % 2.4 % 32.1 % 30.1 %

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state and local governments.

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

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

Included in domestic sales are sales to Verizon, which accounted for 12.5% and 11.7% of consolidated net sales for the three months ended October 31, 2022 and 2021, respectively.

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

domestic companies for inclusion in products that are sold to international customers) were $27.8 million and $25.0 million, respectively.

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

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for the 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% of consolidated net sales for the three months ended October 31, 2022 and 2021.

Gross Profit.

Gross profit was $134.3 million and $158.9 million for the nine months ended April 30, 2022 and 2021, respectively.

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

During the nine months ended April 30, 2022, we recorded a $2.5 million benefit to cost of sales as we reduced a warranty accrual due to lower than expected warranty claims in our NG-911 product line.

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

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

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

Gross profit was $46.8 million and $41.7 million for the three months ended October 31, 2022 and 2021, respectively, an increase of $5.1 million.

Gross profit in each period, as a percentage of consolidated net sales, was 35.7%.

Our gross profit (both in dollars and as a percentage of consolidated net sales) reflects an increase in net sales and overall product mix changes, as discussed above.

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

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

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

Our Government Solutions segment's gross profit, as a percentage of related segment net sales, for the nine months ended April 30, 2022 decreased in comparison to the nine months ended April 30, 2021 and reflects changes in products and services mix, as discussed above.

Also, during the nine months ended April 30, 2022 and 2021, we incurred $1.1 million and $0.6 million, respectively, of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

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

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

Our Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for the three months ended October 31, 2022 increased in comparison to the three months ended October 31, 2021 and reflects changes in products and services mix, as discussed above.

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

There were no such costs in the three months ended October 31, 2022.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for the three months ended October 31, 2022 decreased in comparison to the three months ended October 31, 2021.

The gross profit percentage in the most recent three-month period primarily reflects changes in products and services mix, as discussed above.

Included in consolidated cost of sales for the three months ended October 31, 2022 and 2021 are provisions for excess and obsolete inventory of $0.8 million and $1.2 million, respectively.

As discussed in "Item 2.

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Selling, General and Administrative Expenses .

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

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

During the nine months ended April 30, 2022 and 2021, we incurred $4.0 million and $1.2 million, respectively, of restructuring costs to streamline our operations, including costs related to the ongoing relocation of certain of our satellite earth station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

Excluding restructuring costs, selling, general and administrative expenses for the nine months ended April 30, 2022 and 2021 would have been $81.7 million or 22.7% and $82.8 million or 19.0%, respectively, of consolidated net sales.

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

Selling, general and administrative expenses were $29.3 million and $28.2 million for the three months ended October 31, 2022 and 2021, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 22.3% and 24.1% for the three months ended October 31, 2022 and 2021, respectively.

During the three months ended October 31, 2022 and 2021, we incurred $1.3 million and $0.7 million, respectively, of restructuring costs primarily to streamline our operations, including costs related to the ongoing relocation of certain of our satellite earth station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

Excluding restructuring costs, selling, general and administrative expenses for the three months ended October 31, 2022 and 2021 would have been $28.0 million or 21.4% and $27.5 million or 23.6%, respectively, of consolidated net sales.

The decrease in our selling, general and administrative expenses, as a percentage of consolidated net sales, is primarily due to higher consolidated net sales, as discussed above.

Our selling, general and administrative expenses in the most recent period also reflect higher labor costs associated with a tight global labor market, increased investments in marketing, including new social media activities and other investments we are making to achieve our long term business goals.

Such spending is expected to continue during our fourth quarter of fiscal 2022.

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

Such amortization for the nine months ended April 30, 2022 includes $0.8 million related to the retirement, in December 2021, of three, long-standing members of the Board of Directors.

Such spending is expected to continue in fiscal 2023.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $0.6 million in the three months ended October 31, 2022 as compared to $0.8 million in the three months ended October 31, 2021.

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

Research and Development Expenses.

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

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

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

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

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

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

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

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

Research and development expenses were $12.8 million and $12.5 million for the three months ended October 31, 2022 and 2021, respectively, representing an increase of $0.3 million or 2.0%.

As a percentage of consolidated net sales, research and development expenses were 9.8% and 10.7% for the three months ended October 31, 2022 and 2021, respectively.

For the three months ended October 31, 2022 and 2021, research and development expenses of $6.4 million and $6.8 million, respectively, related to our Satellite and Space Communications segment and $6.3 million and $5.6 million, respectively, related to our Terrestrial and Wireless Networks segment.

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

During the three months ended October 31, 2022, we incurred $0.7 million of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations, all of which was incurred in our Satellite and Space Communications segment.

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

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

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

During the nine months ended April 30, 2022 and 2021, customers reimbursed us $8.0 million and $11.0 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

During the three months ended October 31, 2022 and 2021, customers reimbursed us $2.2 million and $2.6 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

Amortization of Intangibles .

Amortization relating to intangible assets with finite lives was $16.0 million (of which $12.8 million was for the Commercial Solutions segment and $3.2 million was for the Government Solutions segment) for the nine months ended April 30, 2022 and $15.7 million (of which $12.8 million was for the Commercial Solutions segment and $2.9 million was for the Government Solutions segment) for the nine months ended April 30, 2021.

Amortization relating to intangible assets with finite lives for both the three months ended October 31, 2022 and 2021 was $5.3 million (of which $1.8 million was for the Satellite and Space Communications segment and $3.5 million was for the Terrestrial and Wireless Networks segment).

Proxy Solicitation Costs .

During the nine months ended April 30, 2022, we incurred $11.2 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022.

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

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

Former CEO Transition Costs .

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

Porcelain as CEO.

Prior to that, Mr.

Porcelain served as our President and COO.

Transition costs related to our former CEO, Mr.

Kornberg, were $13.6 million and all expensed in our Unallocated segment in the nine months ended April 30, 2022.

Of such amount, $10.3 million related to Mr.

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

the remainder related to Mr.

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

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

Acquisition Plan Expenses.

During the nine months ended April 30, 2021, we incurred $99.8 million of acquisition plan expenses, of which $88.3 million related to the previously announced litigation and merger termination with Gilat, including $70.0 million paid in cash to Gilat.

The remaining costs primarily related to the acquisition of TDMA satellite networking technologies and GD NG-911 acquisition-related litigation.

These expenses are primarily recorded in our Unallocated segment.

There were no similar costs incurred during the nine months ended April 30, 2022.

Operating Income (Loss).

Operating loss for the nine months ended April 30, 2022 and 2021 was $31.7 million and $78.0 million, respectively.

During the three months ended October 31, 2021, we incurred $2.2 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now settled proxy contest initiated by a shareholder.

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

CEO Transition Costs .

On August 9, 2022, our Board of Directors appointed our Chairman of the Board, Mr.

Peterman, as President and CEO.

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

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

The cash portion of the transition costs of $3.6 million 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 $1.0 million 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.

Operating Loss.

Operating loss for the three months ended October 31, 2022 and 2021 was $9.7 million and $6.5 million, respectively.

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

Nine months ended April 30,

Three months ended October 31,

2022 2021 2022 2021 2022 2021 2022 2021

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

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

Operating income (loss) $ 5.0 (5.3) 0.7 6.1 (15.5) (7.3) $ (9.7) (6.5)

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net sales 6.2 % NA 1.5 % 11.7 % NA NA NA NA

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

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

(ii) $11.2 million of proxy solicitation costs;

Our GAAP operating loss of $9.7 million for the three months ended October 31, 2022 reflects:

(i) $9.1 million of CEO transition costs;

(ii) $5.3 million of amortization of intangibles;

(iii) $1.3 million of restructuring costs;

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

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

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

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

(i) $99.8 million of acquisition plan expenses;

(ii) $1.2 million of restructuring costs;

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

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

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

The decrease in operating income from $23.9 million for the nine months ended April 30, 2021 to an operating loss of $0.8 million for the nine months ended April 30, 2022 was primarily due to lower consolidated net sales, as discussed above.

(iv) $0.9 million of amortization of stock-based compensation;

(v) $0.7 million of strategic emerging technology costs;

and (vi) $0.2 million of amortization of cost to fulfill assets, as discussed above.

Excluding such items, our consolidated operating income for the three months ended October 31, 2022 would have been $7.9 million, or 6.0% of consolidated net sales.

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

(i) $5.3 million of amortization of intangibles;

(ii) $2.2 million of proxy solicitation costs;

(iii) $0.9 million of amortization of stock-based compensation;

(iv) $0.7 million of restructuring costs;

and (v) $0.7 million of incremental operating costs due to the impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating income for the three months ended October 31, 2021 would have been $3.3 million, or 2.8% of consolidated net sales.

The increase in operating income for the three months ended October 31, 2022, excluding such items in each respective period, was primarily due to higher consolidated net sales, as discussed above.

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

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

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

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

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

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

Excluding the impact of former CEO transition costs, proxy solicitation costs, the higher amortization of stock-based compensation expense and acquisition plan expenses in their respective periods, unallocated expenses would have been $15.7 million and $13.4 million, respectively, for the nine months ended April 30, 2022 and 2021.

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

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

The increase in our Satellite and Space Communications segment operating income for the three months ended October 31, 2022 was driven primarily by an increase in related segment net sales and gross profit percentage, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for the three months ended October 31, 2022 was driven primarily by a decrease in related segment net sales and gross profit percentage, as discussed above.

The increase in unallocated expenses for the three months ended October 31, 2022 as compared to the three months ended October 31, 2021 was driven primarily by CEO transition costs incurred during the most recent quarter, as discussed above.

Amortization of stock-based compensation was $0.9 million, for both the three months ended October 31, 2022 and 2021.

Excluding the impact of CEO transition costs and proxy solicitation costs in their respective periods, unallocated expenses would have been $6.4 million and $5.1 million, respectively, for the three months ended October 31, 2022 and 2021.

Interest Expense and Other.

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

Interest expense for the nine months ended April 30, 2021 includes $1.2 million of incremental interest expense related to a now terminated financing commitment letter.

Our effective interest rate (including amortization of deferred financing costs) in the nine months ended April 30, 2022 was approximately 3.2%.

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

Interest expense was $2.2 million and $1.6 million for the three months ended October 31, 2022 and 2021, respectively.

Our effective interest rate (including amortization of deferred financing costs) in the three months ended October 31, 2022 was approximately 5.9%.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Amended Credit Facility approximates 7.9%.

Interest (Income) and Other.

Interest (income) and other for both the nine months ended April 30, 2022 and 2021 was nominal.

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

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

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

During the nine months ended April 30, 2022, we recorded a $1.0 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability.

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

There was no similar adjustment during the three months ended October 31, 2022.

See "Notes to Condensed Consolidated Financial Statements - Note (16) - Convertible Preferred Stock" for more information.

Benefit from Income Taxes.

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

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

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

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

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

federal income tax return.

For the three months ended October 31, 2022 and 2021, we recorded a tax benefit of $0.6 million and $2.1 million, respectively.

Our effective tax rate (excluding discrete tax items) for the three months ended October 31, 2022 and 2021 was 19.0% and 21.0%, respectively.

The decrease in the rate is primarily due to expected product and geographical mix changes reflected in our fiscal 2023 business outlook.

For purposes of determining our 19.0% estimated annual effective tax rate for fiscal 2023, CEO transition costs are considered significant, unusual or infrequently occurring discrete tax items and are excluded from the computation of our effective tax rate.

During the three months ended October 31, 2022, we recorded a net discrete tax benefit of $0.1 million primarily related to the deductible portion of CEO transition costs, partially offset by the settlement of stock-based awards.

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

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

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Net Loss Attributable to Common Stockholders.

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

During the three months ended October 31, 2022 and 2021, consolidated net loss attributable to common stockholders was $12.8 million and $11.2 million, respectively.

Adjusted EBITDA.

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

Nine months ended April 30,

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

Three months ended October 31,

2022 2021 2022 2021 2022 2021 2022 2021

($ in millions) Commercial Solutions Government Solutions Unallocated Consolidated

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

Net income (loss) $ 5.8 (5.1) 0.6 6.0 (17.5) (6.9) $ (11.1) (6.0)

Provision for (benefit from) income taxes 0.9 0.9 (1.3) (0.5) (5.7) (2.4) (6.1) (2.1)

(Benefit from) provision for income taxes (0.2) (0.6) (0.2) 0.1 (0.2) (1.6) (0.6) (2.1)

Interest expense — 0.1 — — 2.2 1.5 2.2 1.6

Interest (income) and other (0.6) 0.2 0.3 — — — (0.3) 0.2

Change in fair value of convertible preferred stock purchase option liability — — — — — (0.3) — (0.3)

Interest expense — — 0.1 0.1 3.5 5.2 3.6 5.2

Amortization of stock-based compensation — — — — 0.9 0.9 0.9 0.9

Amortization of intangibles 12.8 12.8 3.2 2.9 — — 16.0 15.7

Depreciation 1.0 0.8 1.7 1.4 — 0.1 2.8 2.2

Amortization of intangibles 1.8 1.8 3.5 3.5 — — 5.3 5.3

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

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

Proxy solicitation costs — — — — 11.2 — 11.2 —

Restructuring costs 1.1 0.7 — — 0.3 — 1.3 0.7

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Strategic emerging technology costs 0.7 — — — — — 0.7 —

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

CEO transition costs — — — — 9.1 — 9.1 —

Proxy solicitation costs — — — — — 2.2 — 2.2

Adjusted EBITDA $ 9.9 (1.3) 6.0 11.0 (5.2) (4.2) $ 10.7 5.5

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

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

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

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

Percentage of related net sales 12.2 % NA 11.9 % 21.1 % NA NA 8.2 % 4.7 %

The increase in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the three months ended October 31, 2022 as compared to the three months ended October 31, 2021 is primarily attributable to higher consolidated net sales, as discussed above.

The increase in our Satellite and Space Communications segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is primarily due to an increase in that segment's net sales and gross profit percentage, as discussed above.

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

A reconciliation of our fiscal 2022 GAAP net loss to Adjusted EBITDA is shown in the table below (numbers in the table may not foot due to rounding):

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Interest (income) and other (0.7)

Change in fair value of convertible preferred stock purchase

option liability (1.0)

Interest expense 5.0

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Depreciation 10.3

Acquisition plan expenses 100.3

Amortization of cost to fulfill assets 0.5

CEO transition costs 13.6

Proxy solicitation costs 11.2

Restructuring costs 6.0

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Adjusted EBITDA $ 39.3

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

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

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

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

During the first quarter of fiscal 2023, we changed the computation of our Non-GAAP measures of operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share to adjust for amortization of intangibles (including cost to fulfill assets) and stock-based compensation.

This change was made to improve the comparability of our results with our peers.

Prior period Non-GAAP results have been restated in the tables below to reflect this change.

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

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

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

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

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

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the nine months ended April 30, 2022 and 2021 to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding).

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

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

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

Nine months ended April 30, 2022

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

In addition, due to the GAAP net loss for the period, Non-GAAP EPS for the three months ended October 31, 2022 and 2021 was computed using weighted average diluted shares outstanding of 28,271,000 and 26,875,000 during the respective period.

Three months ended October 31, 2022

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

Reconciliation of GAAP to Non-GAAP Earnings:

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Adjustments to reflect redemption value of convertible preferred stock

Former CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

11.2 8.7 0.33

CEO transition costs

Amortization of intangibles

Restructuring costs

COVID-19 related costs

Amortization of stock-based compensation

Strategic emerging technology costs

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

Net discrete tax benefit

— (0.3) (0.01)

Amortization of cost to fulfill assets

Net discrete tax expense

Non-GAAP measures $ 7.9 $ 4.6 $ 0.16

Nine months ended April 30, 2021

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

Three months ended October 31, 2021

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

Reconciliation of GAAP to Non-GAAP Earnings:

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$ (6.5) $ (11.2) $ (0.43)

Acquisition plan expenses

99.8 96.4 3.70

Adjustment to reflect redemption value of convertible preferred stock

Amortization of intangibles

Proxy solicitation costs

Amortization of stock-based compensation

Restructuring costs

COVID-19 related costs

Strategic emerging technology costs

Interest expense

Change in fair value of convertible preferred stock purchase option liability — (0.3) (0.01)

Net discrete tax benefit

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LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

During the nine months ended April 30, 2021, in connection with an agreement to terminate our acquisition of Gilat, we made a $70.0 million payment to Gilat.

Excluding such payment, net cash provided by operating activities would have been $13.4 million.

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

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

Net cash used in the nine months ended April 30, 2022 primarily reflects capital expenditures to build-out cloud-based computer networks to support our recent NG-911 contract wins and capital investments and building improvements in connection with the opening of our new high-volume technology manufacturing centers.

Our cash and cash equivalents were $21.5 million and $21.7 million at October 31, 2022 and July 31, 2022, respectively.

For the three months ended October 31, 2022, our cash flows reflect the following:

• Net cash used in operating activities was $6.2 million for the three months ended October 31, 2022 as compared to net cash provided by operating activities of $4.8 million for the three months ended October 31, 2021.

During the three months ended October 31, 2022, we paid $3.8 million in total CEO transition costs.

Excluding such payments, net cash used in operating activities would have been $2.4 million.

The period-over-period decrease in cash flow from operating activities (which excludes the payments of CEO transition costs) reflects overall changes in net working capital requirements, principally the timing of shipments, billings and payments.

• Net cash used in investing activities for the three months ended October 31, 2022 and 2021 was $7.2 million and $3.6 million, respectively.

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

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

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

During the nine months ended April 30, 2022, we received an aggregate of $100.0 million in proceeds related to the issuance of a new series of Convertible Preferred Stock to certain investors.

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

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

We also made $6.1 million and $2.8 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during the nine months ended April 30, 2022 and 2021, respectively.

• Net cash provided by (used in) financing activities was $13.3 million and $1.1 million for the three months ended October 31, 2022 and 2021, respectively.

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

During the three months ended October 31, 2022, we had net borrowings under our Credit Facility of $18.7 million as compared to net payments under our Credit Facility of $93.0 million during the three months ended October 31, 2021.

During the three months ended October 31, 2022 and 2021, we paid $3.1 million and $2.9 million, respectively, in cash dividends to our common stockholders.

We also made $2.3 million and $4.7 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during the three months ended October 31, 2022 and 2021, respectively.

The Credit Facility is discussed below and in " Notes to Condensed Consolidated Financial Statements – Note (9) – Credit Facility.

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

In addition to capital investments for our two new high-volume manufacturing centers, we have been making significant capital expenditures and building out cloud-based computer networks to support our previously announced NG-911 contract wins for the states of Pennsylvania, South Carolina and Arizona.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In addition to making capital investments for our new high-volume manufacturing centers, we have been making significant capital expenditures and building out cloud-based computer networks to support our previously announced NG-911 contract wins for the states of Pennsylvania, South Carolina and Arizona.

We expect capital investments for these and other initiatives to continue in fiscal 2023 as we look to complete such projects.

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

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

On September 29, 2020, our Board of Directors authorized a new $100.0 million stock repurchase program, which replaced our prior program.

The new $100.0 million stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws.

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

Also, in light of our new CEO's initiatives to grow the Company, we continue to review and evaluate our capital allocation plans.

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

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

Credit Facility

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

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

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

(ii) an accordion feature allowing us to make a request to borrow up to an additional $250.0 million subject to satisfaction of specified conditions, including approval by our lenders;

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

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

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

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

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

At April 30, 2022, we had $0.9 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the nine months ended April 30, 2022, we had outstanding balances under the Credit Facility ranging from $100.0 million to $212.0 million.

Borrowings under the Credit Facility shall be either:

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

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

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

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

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

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

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

The Credit Facility provides for, among other things:

(i) no scheduled payments of principal until maturity;

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

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

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

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

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

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

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

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

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

See “ Subsequent Event - Amended Credit Facility ” 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.

As of October 31, 2022, the amount outstanding under our Credit Facility was $148.7 million, which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet.

At October 31, 2022, we had $0.5 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the three months ended October 31, 2022, we had outstanding balances under the Credit Facility ranging from $130.0 million to $155.5 million.

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

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

Subsequent Event - Amended Credit Facility

On November 30, 2022, we entered into the Amended Credit Facility which provides a senior secured loan facility of up to $300.0 million consisting of:

(i) a revolving loan facility (“Revolving Loan Facility”) with a borrowing limit of $150.0 million, including a $20.0 million letter of credit sublimit and a swingline loan credit sublimit of $15.0 million;

(ii) a $50.0 million term loan A (“Term Loan”);

and (iii) an accordion feature allowing us to make a request to borrow up to an additional $100.0 million 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”).

In addition, 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.

The Amended Credit Facility provides for, among other things:

(i) scheduled payments of principal under the Term Loan totaling $2.5 million in the first year after closing and $5.0 million in the second year after closing, with the remaining balance of the Term Loan due upon maturity;

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

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

and (iv) Minimum Liquidity of $25.0 million.

Given our expected future business performance, we anticipate maintaining compliance with the terms and financial covenants in our Amended Credit Facility for the foreseeable future, however there can be no assurance that we will be able to satisfy these covenants.

Convertible Preferred Stock

On October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value $0.10 per share (the "Convertible Preferred Stock"), for an aggregate purchase price of up to $125.0 million, or $1,000 per share.

As discussed further in " Notes to Condensed Consolidated Financial Statements - Note (16) - Convertible Preferred Stock, " on October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value $0.10 per share (the "Convertible Preferred Stock"), for an aggregate purchase price of up to $125.0 million, or $1,000 per share.

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

The Investors have a one-time option exercisable at any time on or prior to March 31, 2023 to purchase additional shares of Convertible Preferred Stock for an aggregate purchase price of $25.0 million.

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.

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.

The Convertible Preferred Stock initially had a liquidation preference of $1,000 per share with each share entitled to a cumulative dividend (the “Dividend”) at the rate of 6.5% per annum, compounding quarterly, paid-in-kind or paid in cash, at our election.

For any quarter in which we elect not to pay the Dividend in cash with respect to a share of Convertible Preferred Stock, such Dividend becomes part of the liquidation preference of such share.

In addition, no dividend or other distribution on our common stock in excess of $0.10 per share per quarter will be declared or paid on the common stock unless, at the time of such declaration and payment, an equivalent dividend or distribution is declared and paid on the Convertible Preferred Stock (the “Participating Dividend”), provided that in the case of any such dividend in the form of cash, in lieu of a cash payment, such Participating Dividend will become part of the liquidation preference of the shares of the Convertible Preferred Stock.

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 and (b) immediately prior to (and conditioned upon) the consummation of a Change of Control.

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

Holders of the Convertible Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis, as well as are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Convertible Preferred Stock, authorizations or issuances of securities of the Company, the payment of dividends other than dividends on common stock in the ordinary course consistent with past practice on a quarterly basis in an amount not to exceed our current dividend rate of $0.10 per share per quarter, related party transactions, repurchases or redemptions of securities of the Company (other than the repurchase of up to $25.0 million of shares of common stock), dispositions of businesses or assets, the incurrence of indebtedness and certain amendments or extensions of our existing Credit Facility.

Holders have the right to require the Company to repurchase such holder's Convertible Preferred Stock on a date occurring either (a) on or after October 19, 2026 (the “Optional Repurchase Trigger Date”) at a price equal to the liquidation preference or (b) in connection with a conversion of Convertible Preferred Stock, pursuant to which the number of shares of common stock issuable upon such conversion would exceed 19.99% of the issued and outstanding shares of common stock as of October 18, 2021 (such excess shares, "Excess Conversion Shares"), at any time after the date that is 91 days after the maturity date of the Company's existing Credit Facility, at a price per share equal to the number of Excess Conversion Shares multiplied by the Last Reported Sales Price (as defined) of common stock on the applicable conversion date.

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

In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment.

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

At April 30, 2022, cash payments due under long-term obligations (including estimated interest expense on our Credit Facility), excluding purchase orders that we entered into in our normal course of business, are as follows:

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

Remainder of 2022 2023

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

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

Total Due Within 1 Year

Credit Facility - principal payments $ 148,700 —

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Operating and finance lease obligations 63,045 9,513

Dividends payable 2,774 2,774

Contractual cash obligations $ 222,947 20,715

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

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

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

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

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

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

(ii) an accordion feature allowing us to make a request to borrow up to an additional $250.0 million subject to satisfaction of specified conditions including approval by our lenders;

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

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

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

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

At April 30, 2022, we have approximately $0.9 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts.

Such amounts are not included in the above table.

The commitments under our Credit Facility and Amended Credit Facility are described in details above.

As discussed in " Notes to Condensed Consolidated Financial Statements - Note (16) - Convertible Preferred Stock ," the holders of the Convertible Preferred Stock have the option to redeem such shares for cash commencing in October 2026.

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

As discussed further in " Notes to Condensed Consolidated Financial Statements - Note (18) - Stockholders’ Equity ," on June 9, 2022, our Board of Directors declared a dividend of $0.10 per common share, payable on August 19, 2022 to stockholders of record at the close of business on July 20, 2022.

As discussed further in " Notes to Condensed Consolidated Financial Statements - Note (17) - Stockholders’ Equity ," 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.

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

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

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

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

We have 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.

Our Condensed Consolidated Balance Sheet at April 30, 2022 includes total liabilities of $9.8 million for uncertain tax positions, including interest, any or all of which may result in a cash payment.

Our Condensed Consolidated Balance Sheet at October 31, 2022 includes total liabilities of $10.3 million for uncertain tax positions, including interest, any or all of which may result in a cash payment.

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

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

As further discussed in " Notes to Condensed Consolidated Financial Statements – Note (3) - Adoption of Accounting Standards and Updates " during the 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 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 early 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.

As further discussed in " Notes to Condensed Consolidated Financial Statements – Note (2) - Adoption of Accounting Standards and Updates, " 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis