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Item 1. Financial Statements

2023-03-09 compared with 2022-12-08 · 312 added, 205 removed, 695 unchanged (43% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

Assets October 31, 2022 July 31, 2022

Assets January 31, 2023 July 31, 2022

Current assets:

15 unchanged sentences

Accrued expenses and other current liabilities 68,655,000 72,662,000

Current portion of long-term debt 3,125,000 —

Operating lease liabilities, current 8,218,000 8,685,000

13 unchanged sentences

authorized 125,000 shares;

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

issued 100,000 at January 31, 2023 and July 31, 2022 (includes accrued dividends of $ 585,000 and $ 566,000 , respectively)

108,651,000 105,204,000

4 unchanged sentences

authorized 100,000,000 shares;

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

issued 42,900,871 and 42,672,827 shares at January 31, 2023 and July 31, 2022, respectively

4,290,000 4,267,000

2 unchanged sentences

887,945,000 908,434,000

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

Treasury stock, at cost ( 15,033,317 shares at January 31, 2023 and July 31, 2022)

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

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended October 31,

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

2023 2022 2023 2022

Net sales $ 133,725,000 120,381,000 $ 264,864,000 237,140,000

11 unchanged sentences

Interest (income) and other 455,000 ( 30,000 ) 200,000 189,000

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

Change in fair value of convertible preferred

stock purchase option liability — ( 398,000 ) — ( 702,000 )

Loss before benefit from income taxes ( 5,027,000 ) ( 25,150,000 ) ( 16,731,000 ) ( 33,187,000 )

4 unchanged sentences

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

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

Establishment of initial convertible preferred

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

Net loss attributable to common stockholders $ ( 6,542,000 ) ( 23,506,000 ) $ ( 19,348,000 ) ( 34,737,000 )

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Three months ended October 31, 2022 and 2021

Three months ended January 31, 2023 and 2022

Series A Convertible Preferred Stock Common Stock Additional

1 unchanged sentence

Shares Amount Shares Amount Shares Amount

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

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

Equity-classified stock award compensation

— — — — 1,983,000 — — — 1,983,000

Proceeds from issuance of employee stock purchase plan shares

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

Issuance of employee stock purchase plan shares — — 11,136 1,000 224,000 — — — 225,000

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

Net settlement of stock-based awards

— — 42,441 4,000 ( 1,255,000 ) — — — ( 1,251,000 )

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) 1,632,000 — — — ( 1,632,000 ) — — ( 1,632,000 )

Cash dividends declared, net ($ 0.10 per share)

— — — — — ( 2,640,000 ) — — ( 2,640,000 )

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

— — — — — ( 129,000 ) — — ( 129,000 )

Net loss — — — — — ( 21,874,000 ) — — ( 21,874,000 )

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

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

Equity-classified stock award compensation

— — — — 1,268,000 — — — 1,268,000

Issuance of employee stock purchase plan shares — — 14,443 1,000 87,000 — — — 88,000

Issuance of restricted stock, net of forfeiture — — 82,373 8,000 ( 8,000 ) — — — —

1 unchanged sentence

— — ( 6,791 ) — ( 141,000 ) — — — ( 141,000 )

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 1,737,000 — — — ( 1,737,000 ) — — ( 1,737,000 )

Cash dividends declared, net ($ 0.10 per share)

— — — — — ( 2,775,000 ) — — ( 2,775,000 )

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

— — — — — ( 163,000 ) — — ( 163,000 )

Net loss — — — — — ( 4,805,000 ) — — ( 4,805,000 )

Balance as of January 31, 2023 100,000 $ 108,651,000 42,900,871 $ 4,290,000 $ 630,233,000 $ 253,422,000 15,033,317 $ ( 441,849,000 ) $ 446,096,000

See accompanying notes to condensed consolidated financial statements.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Six months ended January 31, 2023 and 2022

Series A Convertible Preferred Stock Common Stock Additional

Paid-in Capital Retained Earnings Treasury Stock Stockholders'

Shares Amount Shares Amount Shares Amount

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

Equity-classified stock award compensation

— — — — 2,904,000 — — — 2,904,000

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

Issuance of employee stock purchase plan shares — — 21,676 2,000 452,000 — — — 454,000

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

Net settlement of stock-based awards

— — 116,902 12,000 ( 3,390,000 ) — — — ( 3,378,000 )

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

7 unchanged sentences

Net loss — — — — — ( 27,858,000 ) — — ( 27,858,000 )

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

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

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

2 unchanged sentences

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

Proceeds from issuance of employee stock purchase plan shares

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

Issuance of employee stock purchase plan shares — — 29,460 3,000 204,000 — — — 207,000

Issuance of restricted stock, net of forfeiture — — 93,091 9,000 ( 9,000 ) — — — —

7 unchanged sentences

Net loss — — — — — ( 15,901,000 ) — — ( 15,901,000 )

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

Balance as of January 31, 2023 100,000 $ 108,651,000 42,900,871 $ 4,290,000 $ 630,233,000 $ 253,422,000 15,033,317 $ ( 441,849,000 ) $ 446,096,000

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended October 31,

Six months ended January 31,

Cash flows from operating activities:

9 unchanged sentences

Changes in other liabilities ( 2,067,000 ) ( 2,066,000 )

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

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

Loss (gain) on disposal of property, plant and equipment 78,000 ( 147,000 )

Provision for allowance for doubtful accounts 553,000 12,000

Provision for excess and obsolete inventory 1,276,000 2,241,000

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

Deferred income tax benefit ( 2,034,000 ) ( 2,049,000 )

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

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Cash flows from financing activities:

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

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

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

Net borrowings (payments) of long-term debt under Revolving Loan Facility 39,000,000 ( 86,500,000 )

Repayment of debt under Term Loan ( 625,000 ) —

Cash dividends paid on common stock ( 5,870,000 ) ( 5,755,000 )

Payment of convertible preferred stock issuance costs — ( 530,000 )

Payment of deferred financing costs ( 3,616,000 ) ( 140,000 )

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

Payment of shelf registration costs ( 101,000 ) —

Remittance of employees' statutory tax withholding for stock awards ( 2,473,000 ) ( 4,724,000 )

Proceeds from issuance of employee stock purchase plan shares 243,000 454,000

Payment of shelf registration costs ( 101,000 ) —

Repayment of principal amounts under finance lease liabilities ( 4,000 ) ( 11,000 )

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

Payment of convertible preferred stock issuance costs — ( 4,007,000 )

Net cash provided by (used in) financing activities 26,554,000 ( 683,000 )

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three months ended October 31,

Six months ended January 31,

Supplemental cash flow disclosures:

6 unchanged sentences

dividend equivalents) $ 3,139,000 2,857,000

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

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

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

Adjustment to reflect redemption value of convertible preferred stock $ 3,447,000 6,879,000

Accrued deferred financing costs $ 173,000 —

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

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

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp.

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

and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the six months ended January 31, 2023 and 2022 are unaudited.

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

5 unchanged sentences

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

CEO Transition Costs

CEO Transition Costs & Related

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

4 unchanged sentences

Also, in connection with Mr.

Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $ 1,000,000 expense related to a cash sign-on bonus.

Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $ 1,000,000 expense related to a cash sign-on bonus, which was paid to Mr.

Peterman in January 2023.

CEO transition costs related to Mr.

1 unchanged sentence

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

During fiscal 2022, we expensed $ 13,554,000 of transition costs related to another former CEO, Fred Kornberg.

Since being appointed President and CEO, Mr.

Peterman, along with his senior leadership team, has been driving transformational changes at Comtech to, among other things, integrate our individual businesses into two segments and improve operational performance.

This transformation, which we refer to as “One Comtech,” has provided insight into opportunities to manage costs, streamline operations, improve efficiency, and accelerate decision making by eliminating management layers and other redundancies – resulting in a reduction in our workforce during the third quarter of fiscal 2023.

Severance costs relating to these actions are not anticipated to be material to our results of operations.

(2) Adoption of Accounting Standards and Updates

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

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.

ASUs issued, but not effective until after January 31, 2023, are not expected to have a material impact on our condensed consolidated financial statements or disclosures.

COMTECH TELECOMMUNICATIONS CORP.

72 unchanged sentences

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

Three months ended October 31,

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

2023 2022 2023 2022

United States

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Included in domestic sales are sales to Verizon Communications Inc.

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

("Verizon"), which accounted for 11.3 % and 11.9 % of consolidated net sales for the three and six months ended January 31, 2023, respectively, and 11.1 % and 11.4 % of consolidated net sales for the three and six months ended January 31, 2022, respectively.

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

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

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

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three and six months ended January 31, 2023 and 2022.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our Chief Operating Decision Maker ("CODM") for the three and six months ended January 31, 2023 and 2022.

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

Three months ended October 31, 2022

Satellite and Space Communications Terrestrial and Wireless Networks Total

Three months ended January 31, 2023 Six months ended January 31, 2023

Satellite and Space Communications Terrestrial and Wireless Networks Total Satellite and Space Communications Terrestrial and Wireless Networks Total

Geographical region and customer type

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended October 31, 2021

Satellite and Space Communications Terrestrial and Wireless Networks Total

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

Satellite and Space Communications Terrestrial and Wireless Networks Total Satellite and Space Communications Terrestrial and Wireless Networks Total

Geographical region and customer type

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Under ASC 606, unbilled receivables constitute contract assets.

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

There were no material impairment losses recognized on contract assets during the three and six months ended January 31, 2023 and 2022, respectively.

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

3 unchanged sentences

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

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

Of the contract liability balance of $ 64,601,000 at July 31, 2022 and $ 66,130,000 at July 31, 2021, $ 34,126,000 and $ 35,517,000 was recognized as revenue during the six months ended January 31, 2023 and 2022, respectively.

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

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

During the three 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.

During the six months ended January 31, 2023 and 2022, incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

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

6 unchanged sentences

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

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

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

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

As of January 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 701,955,000 (which represents the amount of our consolidated funded backlog).

We estimate that a substantial portion of our remaining performance obligations at January 31, 2023 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During the six months ended January 31, 2023, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(4) Fair Value Measurements and Financial Instruments

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We believe that the carrying amounts of our other current financial assets (such as accounts receivable) and other current liabilities (including accounts payable and accrued expenses) approximate their fair values due to their short-term maturities.

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

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

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

The fair value of the non-current portion of our credit facility approximates its carrying amount due to its variable interest rate and pricing grid that is dependent upon our leverage ratio as of the end of each fiscal quarter.

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

As of January 31, 2023 and July 31, 2022, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

(5) Earnings Per Share

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

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

There were no repurchases of our common stock during the three or six months ended January 31, 2023 or 2022.

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

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

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

Weighted average stock options, RSUs and restricted stock outstanding of 967,000 and 1,467,000 for the three months ended January 31, 2023 and 2022, respectively, and 1,023,000 and 1,498,000 shares for the six months ended January 31, 2023 and 2022, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 431,000 and 273,000 weighted average performance shares outstanding for the three months ended January 31, 2023 and 2022, respectively, and 352,000 and 258,000 for the six months ended January 31, 2023 and 2022, respectively, as the performance conditions have not yet been satisfied.

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

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

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

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

Weighted average common shares of 324,000 and 477,000 for the three months ended January 31, 2023 and 2022, respectively, and 324,000 and 409,000 for the six months ended January 31, 2023 and 2022, respectively, related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Weighted average common shares underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, of 4,533,000 and 4,158,000 for the three months ended January 31, 2023 and 2022, respectively, and 4,496,000 and 2,358,000 for the six months ended January 31, 2023 and 2022, respectively, were not included in our diluted EPS calculation for the respective periods because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for the three and six months ended January 31, 2023 and 2022 is the respective net loss attributable to common stockholders.

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

Three months ended October 31,

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

2023 2022 2023 2022

Net loss $ ( 4,805,000 ) ( 21,874,000 ) $ ( 15,901,000 ) ( 27,858,000 )

Dividend on convertible preferred stock ( 1,737,000 ) ( 1,632,000 ) ( 3,447,000 ) ( 1,867,000 )

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

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

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

Net loss attributable to common stockholders $ ( 6,542,000 ) ( 23,506,000 ) $ ( 19,348,000 ) ( 34,737,000 )

1 unchanged sentence

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

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

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

As a result, our EPS calculations for the three and six months ended January 31, 2023 and 2022 were based on the two-class method.

Given the net loss attributable to common stockholders for the three and six months ended January 31, 2023 and 2022, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

(6) Accounts Receivable

Accounts receivable consist of the following at:

October 31, 2022 July 31, 2022

January 31, 2023 July 31, 2022

Receivables from commercial and international customers $ 63,169,000 59,922,000

7 unchanged sentences

Accounts receivable, net $ 134,922,000 123,711,000

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

Unbilled receivables as of January 31, 2023 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

Under ASC 606, unbilled receivables constitute contract assets.

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

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

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

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

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

Management estimates that a substantial portion of the amounts not yet billed at January 31, 2023 will be billed and collected within one year.

Accounts receivable in the table above excludes $ 2,584,000 of long-term unbilled receivables presented within "Other assets, net" in the condensed consolidated balance sheet as of January 31, 2023.

As of January 31, 2023, except for the U.S.

government (and its agencies), AT&T and Verizon, which represented 21.1 %, 11.9 % and 11.6 %, of total accounts receivable, respectively, there were no other customers which accounted for greater than 10% of total accounts receivable.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(7) Inventories

Inventories consist of the following at:

October 31, 2022 July 31, 2022

January 31, 2023 July 31, 2022

Raw materials and components $ 82,469,000 78,478,000

3 unchanged sentences

Inventories, net $ 100,130,000 96,317,000

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

As of January 31, 2023 and July 31, 2022, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 5,492,000 and $ 4,100,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 2,361,000 and $ 1,866,000 , respectively.

(8) Accrued Expenses and Other Current Liabilities

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

October 31, 2022 July 31, 2022

January 31, 2023 July 31, 2022

Accrued wages and benefits $ 23,048,000 25,675,000

6 unchanged sentences

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

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

Accrued warranty obligations as of January 31, 2023 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

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

1 unchanged sentence

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

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

Three months ended October 31,

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Changes in our accrued warranty obligations during the six months ended January 31, 2023 and 2022 were as follows:

Six months ended January 31,

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

Provision for warranty obligations 555,000 587,000

Adjustments for changes in estimates ( 1,500,000 ) ( 2,500,000 )

Charges incurred ( 922,000 ) ( 1,956,000 )

Balance at end of period $ 7,553,000 13,731,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three and six months ended January 31, 2023 and 2022, we recorded benefits of $ 1,500,000 and $ 2,500,000 , respectively, to cost of sales in our Terrestrial and Wireless Networks segment due to lower than expected warranty claims associated with previously acquired NG-911 technologies.

(9) Credit Facility

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

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

See “ Subsequent Event ” below for further information.

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

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

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

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

(iii) a $ 35,000,000 letter of credit sublimit;

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

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

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

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

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

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

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

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

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

Subsequent Event

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

As of July 31, 2022, the amount outstanding under our Credit Facility was $ 130,000,000 , which is reflected in the non-current portion of long-term debt on our condensed consolidated balance sheet.

On November 30, 2022, we refinanced the amount outstanding under the Credit Facility by entering into a Second Amended and Restated Credit Agreement (also referred to herein as the “Credit Facility”) with the existing lenders.

The Credit Facility provides a senior secured loan facility of up to $ 300,000,000 consisting of:

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

1 unchanged sentence

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

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

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

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

(i) Alternate Base Rate borrowings, which would bear interest from the applicable borrowing date at a rate per annum equal to (x) the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 0.50 % and (c) the Adjusted Term SOFR for a one-month tenor in effect on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00 %, plus (y) the Applicable Rate, or (ii) SOFR borrowings, which would bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted Term SOFR for such interest period plus (y) the Applicable Rate.

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

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

In connection with entering the Credit Facility, we capitalized $ 3,789,000 of financing costs, and accounted for the amendment to the Credit Facility as a debt modification.

As of January 31, 2023, the amount outstanding under our Credit Facility was as follows:

January 31, 2023

Term Loan $ 49,375,000

Less unamortized deferred financing costs related to Term Loan 865,000

Term Loan, net 48,510,000

Revolving Loan Facility 119,000,000

Amount outstanding under Credit Facility, net 167,510,000

Less current portion of long-term debt 3,125,000

Non-current portion of long-term debt $ 164,385,000

At January 31, 2023, we had $ 319,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the six months ended January 31, 2023, we had outstanding balances under the Credit Facility ranging from $ 130,000,000 to $ 181,000,000 .

As of January 31, 2023, total net deferred financing costs related to the Credit Facility were $ 4,139,000 and are being amortized over the term of our Credit Facility through the Maturity Date.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended January 31, 2023 and 2022 was $ 3,761,000 and $ 981,000 , respectively.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the six months ended January 31, 2023 and 2022 was $ 6,001,000 and $ 2,474,000 , respectively.

Our blended interest rate approximated 8.80 % and 3.40 %, respectively, for the three months ended January 31, 2023 and 2022 and approximated 7.40 % and 3.10 %, respectively, for the six months ended January 31, 2023 and 2022.

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

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

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

The Amended Credit Facility provides for, among other things:

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

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

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

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

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

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

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

As of January 31, 2023, our Secured Leverage Ratio was 3.81 x TTM Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") compared to the maximum allowable Secured Leverage Ratio of 4.25 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of January 31, 2023 was 5.98 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

Our Minimum Liquidity was $ 40,500,000 compared to the Minimum Liquidity requirement of $ 25,000,000 .

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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

As of January 31, 2023, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

The components of lease expense are as follows:

Three months ended October 31,

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

2023 2022 2023 2022

Finance lease expense:

Amortization of ROU assets $ 1,000 3,000 $ 4,000 7,000

Interest on lease liabilities — —

Operating lease expense 2,756,000 2,940,000 5,593,000 5,864,000

3 unchanged sentences

Total lease expense $ 3,869,000 4,186,000 $ 7,880,000 8,367,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Additional information related to leases is as follows:

Three months ended October 31,

Six months ended January 31,

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

3 unchanged sentences

Operating leases $ 2,838,000 $ 14,812,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Operating Finance Total

The following table is a reconciliation of future cash flows relating to operating lease liabilities presented on our Condensed Consolidated Balance Sheet as of January 31, 2023:

Remainder of fiscal 2023 $ 4,892,000

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

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

Lease payments made during the six months ended January 31, 2023 and 2022 were $ 343,000 and $ 333,000 , respectively.

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

1 unchanged sentence

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

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

As of January 31, 2023, we do not have any material rental commitments that have not already commenced.

(11) Income Taxes

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

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

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

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

At January 31, 2023 and July 31, 2022, total unrecognized tax benefits were $ 10,365,000 and $ 10,008,000 , respectively, including interest of $ 440,000 and $ 330,000 , respectively.

At January 31, 2023 and July 31, 2022, $ 3,468,000 and $ 3,007,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets.

The remaining unrecognized tax benefits of $ 6,897,000 and $ 7,001,000 at January 31, 2023 and July 31, 2022, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets.

Of the total unrecognized tax benefits, $ 9,272,000 and $ 9,034,000 at January 31, 2023 and July 31, 2022, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

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

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

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

(12) Stock-Based Compensation

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

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

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

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

As of January 31, 2023, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 11,962,500 .

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

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

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

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

October 31, 2022

As of January 31, 2023, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 10,084,166 shares (net of 5,671,929 expired and canceled awards), of which an aggregate of 8,124,301 have been exercised or settled.

As of January 31, 2023, the following stock-based awards, by award type, were outstanding:

January 31, 2023

Stock options 291,620

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

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

Through January 31, 2023, we have cumulatively issued 973,369 shares of our common stock to participating employees in connection with our ESPP.

COMTECH TELECOMMUNICATIONS CORP.

2 unchanged sentences

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

Three months ended October 31,

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

2023 2022 2023 2022

Cost of sales $ 153,000 76,000 $ 311,000 149,000

7 unchanged sentences

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

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

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

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

At January 31, 2023, unrecognized stock-based compensation of $ 10,669,000 , net of estimated forfeitures of $ 789,000 , is expected to be recognized over a weighted average period of 2.6 years.

Total stock-based compensation capitalized and included in ending inventory at both January 31, 2023 and July 31, 2022 was $ 48,000 .

There are no liability-classified stock-based awards outstanding as of January 31, 2023 or July 31, 2022.

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

Three months ended October 31,

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

2023 2022 2023 2022

Stock options $ 19,000 364,000 $ 44,000 442,000

9 unchanged sentences

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

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

Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of January 31, 2023 and July 31, 2022.

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

12 unchanged sentences

Outstanding at October 31, 2022 474,020 24.38

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

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

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

Expired/canceled ( 182,400 ) 24.75

Outstanding at January 31, 2023 291,620 $ 24.15 4.11 $ —

Exercisable at January 31, 2023 246,740 $ 25.29 3.53 $ —

Vested and expected to vest at January 31, 2023 289,009 $ 24.21 4.08 $ —

Stock options outstanding as of January 31, 2023 have exercise prices ranging from $ 17.88 - $ 33.94 , representing the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years .

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

There were no stock options exercised during the six months ended January 31, 2023.

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

8 unchanged sentences

Outstanding at October 31, 2022 1,601,968 14.35

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

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

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

Granted 105,887 12.40

Settled ( 16,374 ) 19.01

Canceled/Forfeited ( 23,236 ) 17.98

Outstanding at January 31, 2023 1,668,245 $ 14.13 $ 26,458,000

Vested at January 31, 2023 533,735 $ 15.70 $ 8,465,000

Vested and expected to vest at January 31, 2023 1,617,569 $ 14.09 $ 25,655,000

The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2023 was $ 195,000 and $ 2,964,000 , respectively.

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

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

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

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

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

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

As of January 31, 2023, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

During the three and six months ended January 31, 2023, we accrued $ 163,000 and $ 364,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 4,000 and $ 350,000 , respectively.

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

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

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

Subsequent Event

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

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

See Proposal Nos.

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

As of January 31, 2023 and July 31, 2022, accrued dividend equivalents were $ 756,000 and $ 742,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and six months ended January 31, 2023, we recorded an income tax expense of $ 182,000 and $ 545,000 , respectively, and during the three and six months ended January 31, 2022, we recorded an income tax benefit of $ 86,000 and $ 139,000 , respectively.

(13) Segment Information

4 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Satellite and Space Communications is organized into four technology areas:

6 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Terrestrial and Wireless Networks is organized into four service areas:

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

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

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

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

1 unchanged sentence

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

Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Credit Facility and Amended Credit Facility) utilized for financial covenant calculations and also may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and, therefore, may not be comparable to similarly titled measures used by other companies.

Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Credit Facility) utilized for financial covenant calculations and also may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and, therefore, may not be comparable to similarly titled measures used by other companies.

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

Three months ended January 31, 2023

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

Net sales $ 80,407,000 53,318,000 — $ 133,725,000

Operating income (loss) $ 3,327,000 3,312,000 ( 7,420,000 ) $ ( 781,000 )

Net income (loss) $ 3,123,000 3,563,000 ( 11,491,000 ) $ ( 4,805,000 )

(Benefit from) provision for income taxes ( 422,000 ) ( 116,000 ) 316,000 ( 222,000 )

Interest (income) and other 597,000 ( 135,000 ) ( 7,000 ) 455,000

Interest expense 29,000 — 3,762,000 3,791,000

Amortization of stock-based compensation — — 1,268,000 1,268,000

Amortization of intangibles 1,828,000 3,521,000 — 5,349,000

Depreciation 1,010,000 1,921,000 36,000 2,967,000

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

Restructuring costs 1,089,000 — 454,000 1,543,000

Strategic emerging technology costs 738,000 — — 738,000

Adjusted EBITDA $ 8,232,000 8,754,000 ( 5,662,000 ) $ 11,324,000

Purchases of property, plant and equipment $ 119,000 2,414,000 164,000 $ 2,697,000

Total assets at January 31, 2023

$ 486,426,000 471,358,000 25,888,000 $ 983,672,000

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three months ended October 31, 2022

Three months ended January 31, 2022

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

Net sales $ 69,180,000 51,201,000 — $ 120,381,000

Operating (loss) income $ ( 2,500,000 ) 6,856,000 ( 28,946,000 ) $ ( 24,590,000 )

Net (loss) income $ ( 2,508,000 ) 6,965,000 ( 26,331,000 ) $ ( 21,874,000 )

Provision for (benefit from) income taxes 82,000 ( 209,000 ) ( 3,149,000 ) ( 3,276,000 )

Interest (income) and other ( 80,000 ) 100,000 ( 50,000 ) ( 30,000 )

Change in fair value of convertible preferred stock purchase option liability

— — ( 398,000 ) ( 398,000 )

Interest expense 6,000 — 982,000 988,000

Amortization of stock-based compensation — — 1,983,000 1,983,000

Amortization of intangibles 1,828,000 3,521,000 — 5,349,000

Depreciation 773,000 1,510,000 51,000 2,334,000

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

Restructuring costs 1,726,000 — — 1,726,000

COVID-19 related costs 355,000 — — 355,000

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

Adjusted EBITDA $ 2,182,000 11,887,000 ( 4,272,000 ) $ 9,797,000

Purchases of property, plant and equipment $ 3,187,000 1,986,000 — $ 5,173,000

Total assets at January 31, 2022

$ 482,989,000 485,155,000 26,710,000 $ 994,854,000

Six months ended January 31, 2023

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

Net sales $ 161,280,000 103,584,000 — $ 264,864,000

Operating income (loss) $ 8,343,000 4,056,000 ( 22,904,000 ) $ ( 10,505,000 )

Net income (loss) $ 8,938,000 4,168,000 ( 29,007,000 ) $ ( 15,901,000 )

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

(Benefit from) provision for income taxes ( 644,000 ) ( 281,000 ) 95,000 ( 830,000 )

Interest (income) and other 22,000 169,000 9,000 200,000

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Purchases of property, plant and equipment $ 4,554,000 4,956,000 408,000 $ 9,918,000

Total assets at October 31, 2022

Total assets at January 31, 2023

$ 486,426,000 471,358,000 25,888,000 $ 983,672,000

Three months ended October 31, 2021

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six months ended January 31, 2022

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

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Net (loss) income $ ( 7,582,000 ) 12,943,000 ( 33,219,000 ) $ ( 27,858,000 )

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

Benefit from income taxes ( 517,000 ) ( 68,000 ) ( 4,744,000 ) ( 5,329,000 )

Interest (income) and other 167,000 82,000 ( 60,000 ) 189,000

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Depreciation 1,598,000 2,874,000 103,000 4,575,000

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

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

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Purchases of property, plant and equipment $ 4,224,000 4,587,000 — $ 8,811,000

Total assets at October 31, 2021

Total assets at January 31, 2022

$ 482,989,000 485,155,000 26,710,000 $ 994,854,000

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended October 31, 2022 and 2021, our Satellite and Space Communications segment recorded $ 1,056,000 and $ 712,000 , respectively, of restructuring costs incurred to streamline our operations, including costs related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

See Note (1) - " General - CEO Transition Costs & Related " for information related to such costs.

During the three and six months ended January 31, 2023, our Unallocated segment incurred $ 454,000 and $ 723,000 , respectively, of restructuring costs focused on streamlining our operations.

There were no similar costs incurred in fiscal 2022.

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

There were no similar costs incurred in fiscal 2023.

During the three and six months ended January 31, 2023, our Satellite and Space Communications segment recorded $ 1,089,000 and $ 2,145,000 , respectively, of restructuring costs primarily incurred to streamline our operations, including costs related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

Similar restructuring costs of $ 1,726,000 and $ 2,438,000 were incurred during the three and six months ended January 31, 2022, respectively.

In addition, during the three and six months ended January 31, 2023, we incurred $ 738,000 and $ 1,484,000 of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

There were no similar costs incurred in fiscal 2022.

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

There were no similar incremental operating costs during the corresponding periods in fiscal 2023.

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

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

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

Intersegment sales for both the three and six months ended January 31, 2023 and 2022 between the Satellite and Space Communications segment and the Terrestrial and Wireless Networks segment were nominal.

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unallocated assets at January 31, 2023 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

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

(14) Goodwill

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

The following table represents goodwill by reportable operating segment as of January 31, 2023 and July 31, 2022.

Satellite and Space Communications Terrestrial and Wireless Networks Total

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We also considered overall business conditions.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(15) Intangible Assets

Intangible assets with finite lives are as follows:

October 31, 2022

January 31, 2023

Weighted Average

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

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

Amortization expense for both the three months ended January 31, 2023 and 2022 was $ 5,349,000 and for both the six months ended January 31, 2023 and 2022 was $ 10,698,000 .

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

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2027 18,534,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of January 31, 2023.

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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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 $ 25,000,000 of shares of common stock), dispositions of businesses or assets, the incurrence of certain indebtedness and certain amendments or extensions of our existing Credit Facility.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Holders will 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.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 108,651,000 , which includes $ 8,066,000 of cumulative dividends paid in kind and $ 585,000 of accumulated and unpaid dividends.

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

As such, a total adjustment of $ 1,737,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings during the six months ended January 31, 2023.

(17) Stockholders’ Equity

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

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

There were no repurchases of our common stock during the six months ended January 31, 2023 or 2022.

Common Stock Dividends

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

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

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

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

On September 29, 2022 and December 8, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, which was paid on November 18, 2022 and February 17, 2023, respectively.

In connection with our CEO transition and One Comtech transformation, discussed further in Note (1) – “General – CEO Transition Costs & Related ,” the Board, together with management, adjusted the Company’s capital allocation plans during the third quarter of fiscal 2023 and determined to forgo a common stock dividend, thereby increasing our financial flexibility.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(18) Legal Proceedings and Other Matters

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however, we cannot be sure that we will be able to maintain or obtain insurance coverage at acceptable costs or in sufficient amounts or that our insurer will not disclaim coverage as to such claims.

Accordingly, pending or future claims asserted against us by a party that we agree 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.

Accordingly, pending or future claims asserted against us by a party that we are obligated 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.

There are certain other pending and threatened legal actions which arise in the normal course of business.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Employment Change of Control and Indemnification Agreements

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

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

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

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

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

What changed 10-Q

Item 1. Financial Statements