What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-03-09 compared with 2022-12-08 · 436 added, 189 removed, 429 unchanged (59% 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," "predict," "estimate," "expect," "strategy," "future," "potential," "likely," "may," "should," "could," "would," "will," "continue," "target," and similar references to future periods.

"anticipate," "believe," "continue," "could," "estimate," "expect," "future," "goal," "intend," "likely," "may," "plan," "potential," "predict," "project," "seek," "should," "strategy," "target," "will," "would," 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:

the possibility that the expected synergies and benefits from recent acquisitions will not be fully realized, or will not be realized within the anticipated time periods;

the risk that the acquired businesses will not be integrated with Comtech successfully;

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 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 possibility that the expected synergies and benefits from acquisitions will not be fully realized, or will not be realized within the anticipated time periods;

the risk that the acquired businesses will not be integrated successfully;

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

the risk that we will be unsuccessful in implementing our "One Comtech" transformation and integration of individual businesses into two segments;

the risk that we will be unsuccessful in implementing a tactical shift in our Satellite and Space Communications segment away from bidding on large commodity service contracts and toward pursuing contracts for our niche products and solutions 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 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 Amended Credit Facility;

risks associated with our legal proceedings, customer claims for indemnification, and other similar matters;

risks associated with our obligations under our credit facility;

risks associated with our large contracts;

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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.

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 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).

As of January 31, 2023, 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 January 31, 2023, net intangibles recorded on our Condensed Consolidated Balance Sheet aggregated $236.6 million (of which $68.7 million relates to our Satellite and Space Communications segment and $167.9 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.

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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 October 31, 2022.

We believe that the carrying values of our net intangible assets were recoverable as of January 31, 2023.

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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In light of ongoing tight credit market conditions, we continue to see requests from our customers for higher credit limits and longer payment terms.

Because of our strong cash position and the nominal amount of interest we are earning on our cash and cash equivalents, we have, on a limited basis, approved certain customer requests.

Because of our cash position and the nominal amount of interest we are earning on our cash and cash equivalents, we have, on a limited basis, approved certain customer requests.

We continue to monitor our accounts receivable credit portfolio.

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

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;

Second Quarter Highlights and Business Outlook

Financial highlights for the second quarter of fiscal 2023 include:

• Consolidated net sales were $133.7 million, up 2.0% sequentially from the first quarter of fiscal 2023 and up 11.0% from the second quarter of fiscal 2022;

• Gross margin was 34.3%, compared to 35.7% in our first quarter of fiscal 2023 and 38.1% in our second quarter of fiscal 2022;

• GAAP net loss attributable to common stockholders was $6.5 million, and included $1.5 million of restructuring costs and $0.7 million of strategic emerging technology costs for next-generation satellite technology;

• GAAP EPS loss of $0.23 and Non-GAAP EPS income of $0.09;

• 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;

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $11.3 million, or 8.5% of consolidated net sales, a sequential increase from the $10.7 million, or 8.2% of consolidated net sales for the first quarter of fiscal 2023;

• New bookings (also referred to as orders) of $167.5 million, representing a 62.7% increase from the second quarter of fiscal 2022 and a quarterly book-to-bill ratio of 1.25x (a measure defined as bookings divided by net sales);

• Backlog of $702.0 million as of January 31, 2023, compared to $668.2 million as of October 31, 2022 and $611.1 million as of January 31, 2022;

• Revenue visibility of approximately $1.1 billion.

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• Cash flows used in operating activities of $10.6 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 October 31, 2022 and 2021 ."

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended January 31, 2023 and 2022" and "Comparison of the Results of Operations for the Six Months Ended January 31, 2023 and 2022 ."

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

Prior to such appointment, in May 2022, Mr.

Peterman joined our Board of Directors as Chairman.

With over forty years in the defense sector, Mr.

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

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

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.

To advance our CEO’s initiatives to further strengthen and grow our business, we continue to move forward on the operational and cultural transformation that we call "One Comtech."

In our first quarter of fiscal 2023, we enhanced our leadership team with key appointments designed to maximize our ability to compete and deliver across our global market segments.

In our second quarter of fiscal 2023, we celebrated the rebranding and launch of Comtech’s new logo, representing our commitment to delivering software-centric, cloud native communications solutions.

We made progress on our capital equipment and building improvement initiatives, including entering the final stage of our migration to a new 146,000 square-foot facility in Chandler, Arizona.

We were awarded several key orders, including but not limited to:

a multi-million-dollar contract to deliver satellite communication technologies and terrestrial location-based services for end users of a large international satellite constellation network;

multiple orders from the U.S.

Army for VSAT equipment;

and a contract with one of the largest mobile network operators in the U.S.

to assist in moving its 5G mobile network to the Microsoft cloud.

Finally, on November 30, 2022, we entered into a Second Amended and Restated Credit Agreement (the “Credit Facility”) with the existing lenders to our First Amended and Restated Credit Agreement.

For additional information, see " Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit Facility.

Over the past several months, we have established EVOKE as Comtech’s innovation foundry, which is dedicated to creating and accelerating transformational changes in global technologies.

We believe that EVOKE will not only enhance our existing technologies and service offerings (e.g., cloud-native satellite ecosystems, 5G advanced services and “as-a-service” business models), but will also allow us to pioneer entirely new ideas and opportunities with the benefit of multiple perspectives, industry backgrounds and areas of expertise.

We were pleased to recently announce that Sirqul, Inc.

(“Sirqul”) became our first EVOKE technology partner.

Sirqul is an Internet of Things (“IoT”) platform provider with over 80 modular services and over 400 application programming interfaces (“APIs”).

Together, Comtech and Sirqul are working on “Smart Operations,” where enterprises will be able to make business decisions with real time IoT data.

Through our collective efforts, we are working to bring robust mobile, web, social, voice, IoT, and other technologies to a variety of global markets.

We are very encouraged by this partnership with Sirqul, and may seek similar partnerships in the future.

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 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.

Finally, encouraged by the progress that we have made related to our One Comtech transformation, our launch of EVOKE and our emerging growth opportunities, during the third quarter of fiscal 2023, the Board, together with management, adjusted the Company’s capital allocation plans 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.

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

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 are continuing to impact our business.

Nevertheless, despite these business conditions and resulting challenges and although we anticipate some variability from time to time as we move through our One Comtech transformational change, for our third quarter of fiscal 2023, we are targeting consolidated net sales to sequentially increase approximately 1.0% to 3.0% and for our consolidated Adjusted EBITDA margin to range between 8.5% and 10.0%.

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

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.

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 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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended January 31, 2023 and 2022" and " Comparison of the Results of Operations for the Six Months Ended January 31, 2023 and 2022."

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2023 AND 2022

Consolidated net sales were $133.7 million and $120.4 million for the three months ended January 31, 2023 and 2022, respectively, representing an increase of $13.3 million, or 11.0%.

The period-over-period increase in net sales reflects higher net sales in both of our segments, 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.

Net sales in our Satellite and Space Communications segment were $80.4 million for the three months ended January 31, 2023 as compared to $69.2 million for the three months ended January 31, 2022, an increase of $11.2 million or 16.2%.

Net sales for the three months ended January 31, 2023 primarily reflect increased sales of our troposcatter and SATCOM solutions and 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 60.1% of consolidated net sales for the three months ended January 31, 2023 as compared to 57.5% for the three months ended January 31, 2022.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended January 31, 2023 was 1.71x.

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.

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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.

Net sales in our Terrestrial and Wireless Networks segment were $53.3 million for the three months ended January 31, 2023, as compared to $51.2 million for the three months ended January 31, 2022, an increase of $2.1 million, or 4.1%.

Net sales in the three months ended January 31, 2023 reflect higher sales of our NG-911 solutions and services, offset in part by lower sales of our trusted location and messaging solutions.

Our Terrestrial and Wireless Networks segment represented 39.9% of consolidated net sales for the three months ended January 31, 2023 as compared to 42.5% for the three months ended January 31, 2022.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended January 31, 2023 was 0.56x.

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.

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Geography and Customer Type

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

Three months ended October 31,

Sales by geography and customer type, as a percentage of related sales, for the three months ended January 31, 2023 and 2022 are as follows:

Three months ended January 31,

2023 2022 2023 2022 2023 2022

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Sales to U.S.

government customers include sales to the DoD, intelligence and civilian agencies, as well as sales directly to or through prime contractors.

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 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.

Included in domestic sales are sales to Verizon, which accounted for 11.3% and 11.1% of consolidated net sales for the three months ended January 31, 2023 and 2022, respectively.

International sales for the three months ended January 31, 2023 and 2022 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $31.4 million and $30.5 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 October 31, 2022 and 2021.

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for the three months ended January 31, 2023 and 2022.

Gross Profit.

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%.

Gross profit was $45.9 million for both the three months ended January 31, 2023 and 2022.

Gross profit, as a percentage of consolidated net sales, for the three months ended January 31, 2023 was 34.3% as compared to 38.1% for the three months ended January 31, 2022.

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.

In addition, during the three months ended January 31, 2023 and 2022, respectively, we recorded a $1.5 million and $2.5 million benefit to cost of sales as we reduced a warranty accrual due to lower than expected warranty claims in our NG-911 product line.

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

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

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.

Our Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for the three months ended January 31, 2023 was comparable with the three months ended January 31, 2022 and reflects changes in product and services mix, as discussed above.

Also, during the three months ended January 31, 2022, we incurred $0.4 million of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

Similar operating costs were not incurred in the three months ended January 31, 2023.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for the three months ended January 31, 2023 decreased in comparison to the three months ended January 31, 2022.

The gross profit percentage in the most recent quarter primarily reflects changes in products and services mix and lower than expected warranty claims, as discussed above.

Included in consolidated cost of sales for the three months ended January 31, 2023 and 2022 are provisions for excess and obsolete inventory of $0.4 million and $1.1 million, respectively.

As discussed in "Item 2.

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Selling, General and Administrative Expenses .

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.

Selling, general and administrative expenses were $28.9 million and $29.8 million for the three months ended January 31, 2023 and 2022, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 21.6% and 24.8% for the three months ended January 31, 2023 and 2022, respectively.

During the three months ended January 31, 2023 and 2022, we incurred $1.5 million and $1.7 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 January 31, 2023 and 2022 would have been $27.4 million, or 20.5%, and $28.1 million, or 23.3%, 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 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.

Such spending is expected to continue throughout the remainder of fiscal 2023.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $1.0 million in the three months ended January 31, 2023 as compared to $1.8 million in the three months ended January 31, 2022.

Such amortization for the prior year period includes $0.8 million related to the retirement, in December 2021, of three long-sta nding members of the Board of Directors.

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

Research and Development Expenses.

Research and development expenses were $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.

Research and development expenses were $12.4 million and $12.6 million for the three months ended January 31, 2023 and 2022, respectively.

As a percentage of consolidated net sales, research and development expenses were 9.3% and 10.5% for the three months ended January 31, 2023 and 2022, respectively.

For the three months ended January 31, 2023 and 2022, research and development expenses of $5.6 million and $6.4 million, respectively, related to our Satellite and Space Communications segment, and $6.7 million and $6.1 million, respectively, related to our Terrestrial and Wireless Networks segment.

The remaining research and development expenses of $0.1 million in both the three months ended January 31, 2023 and 2022 related to the amortization of stock-based compensation expense.

During the three months ended January 31, 2023, we incurred $0.7 million of strategic emerging technology costs in our Satellite and Space Communications segment for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

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

1 unchanged sentence

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

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.

During the three months ended January 31, 2023 and 2022, customers reimbursed us $3.4 million and $2.7 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 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).

Amortization relating to intangible assets with finite lives for both the three months ended January 31, 2023 and 2022 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 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 the three months ended January 31, 2022, we incurred $9.1 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now-settled proxy contest initiated by a shareholder.

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

There were no similar costs during the three months ended January 31, 2023.

CEO Transition Costs .

In the second quarter of fiscal 2022, we incurred CEO transition costs related to Fred Kornberg of $13.6 million, all of which were expensed in our Unallocated segment.

Of such amount, $10.3 million related to our former CEO's severance payments and benefits upon termination of his employment;

the remainder related to our former CEO agreeing to serve as a Senior Technology Advisor for a minimum of two years.

There were no similar costs in the three months ended January 31, 2023.

Operating Income (Loss).

Operating loss for the three months ended January 31, 2023 and 2022 was $0.8 and $24.6 million, respectively.

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

Three months ended January 31,

2023 2022 2023 2022 2023 2022 2023 2022

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

Operating income (loss) $ 3.3 (2.5) 3.3 6.9 (7.4) (28.9) $ (0.8) (24.6)

Percentage of related

net sales 4.1 % NA 6.2 % 13.5 % NA NA NA NA

Our GAAP operating loss of $0.8 million for the three months ended January 31, 2023 reflects:

(i) $5.3 million of amortization of intangibles;

(ii) $1.5 million of restructuring costs (of which $1.1 million and $0.5 million related to our Satellite and Space Communications and Unallocated segments, respectively);

(iii) $1.3 million of amortization of stock-based compensation;

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

and (v) $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 January 31, 2023 would have been $8.4 million.

Our GAAP operating loss of $24.6 million for the three months ended January 31, 2022 reflects:

(i) $13.6 million of CEO transition costs;

(ii) $9.1 million of proxy solicitation costs;

(iii) $5.3 million of amortization of intangibles;

(iv) $2.0 of amortization of stock-based compensation;

(v) $1.7 million of restructuring costs (all of which related to our Satellite and Space Communications segment);

and (vi) $0.4 million of incremental operating costs due to the impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating income for the three months ended January 31, 2022 would have been $7.5 million.

The increase in operating income excluding the above items from $7.5 million to $8.4 million in the most recent quarter was primarily due to higher consolidated net sales, offset in part by a lower gross profit percentage, as discussed above.

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

The increase in our Satellite and Space Communications segment operating income, both in dollars and as a percentage of related segment net sales, for the three months ended January 31, 2023 was driven primarily by an increase in related segment net sales and lower selling, general and administrative and research and development expenses, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of related segment net sales, for the three months ended January 31, 2023 was driven primarily by a lower gross profit percentage on higher related segment net sales and higher research and development expenses, as discussed above.

Excluding the impact of CEO transition costs, proxy solicitation costs and its respective portion of restructuring charges, Unallocated expenses for the second quarter of fiscal 2022 would have been $6.2 million, as compared to $6.9 million for the second quarter of fiscal 2023.

The increase in Unallocated expenses, excluding such items, was primarily due our increased investments in marketing, including new social media activities, and other investments we are making to achieve our long-term business goals, offset in part by lower amortization of stock-based compensation, as discussed above.

Interest Expense and Other.

Interest expense was $3.8 million and $1.0 million for the three months ended January 31, 2023 and 2022, respectively.

The increase is due to a higher average debt balance outstanding during the most recent quarter, as well as higher interest rates under our Credit Facility that we entered into in November 2022.

Our effective interest rate (including amortization of deferred financing costs) in the three months ended January 31, 2023 was approximately 8.8%, as compared to 3.4% in the prior year period.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our Credit Facility approximates 8.4%, as compared to 1.9% in the prior year period.

Interest (Income) and Other.

Interest (income) and other for both the three months ended January 31, 2023 and 2022 was nominal.

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

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

During the three months ended January 31, 2022, we recorded a $0.4 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability.

There was no similar adjustment during the three months ended January 31, 2023.

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

Benefit from Income Taxes.

For the three months ended January 31, 2023 and 2022, we recorded a tax benefit of $0.2 million and $3.3 million, respectively.

Our effective tax rate (excluding discrete tax items) for the three months ended January 31, 2023 and 2022 was 11.00% and 19.75%, respectively.

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

For purposes of determining our 11.00% 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 January 31, 2023, we recorded a net discrete tax expense of $0.1 million, primarily related to the settlement of stock-based awards, partially offset by the finalization of certain tax accounts in connection with the filing of our fiscal 2022 Canadian income tax returns.

During the three months ended January 31, 2022, we recorded a net discrete tax benefit of $3.3 million, primarily related to proxy solicitation costs and the deductible portion of CEO transition costs.

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

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

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

Net Loss Attributable to Common Stockholders.

During the three months ended January 31, 2023, consolidated net loss attributable to common stockholders was $6.5 million as compared to a net loss attributable to common stockholders of $23.5 million during the three months ended January 31, 2022.

Adjusted EBITDA.

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the three months ended January 31, 2023 and 2022 are shown in the table below with a reconciliation to net income (numbers in the table may not foot due to rounding):

Three months ended January 31,

2023 2022 2023 2022 2023 2022 2023 2022

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

Net income (loss) $ 3.1 (2.5) 3.6 7.0 (11.5) (26.3) $ (4.8) (21.9)

(Benefit from) provision for income taxes (0.4) 0.1 (0.1) (0.2) 0.3 (3.1) (0.2) (3.3)

Interest expense — — — — 3.8 1.0 3.8 1.0

Interest (income) and other 0.6 (0.1) (0.1) 0.1 — (0.1) 0.5 —

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

Amortization of stock-based compensation — — — — 1.3 2.0 1.3 2.0

Amortization of intangibles 1.8 1.8 3.5 3.5 — — 5.3 5.3

Depreciation 1.0 0.8 1.9 1.5 — 0.1 3.0 2.3

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

Restructuring costs 1.1 1.7 — — 0.5 — 1.5 1.7

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

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

CEO transition costs — — — — — 13.6 — 13.6

Proxy solicitation costs — — — — — 9.1 — 9.1

Adjusted EBITDA $ 8.2 2.2 8.8 11.9 (5.7) (4.3) $ 11.3 9.8

Percentage of related net sales 10.2 % 3.2 % 16.5 % 23.2 % NA NA 8.5 % 8.1 %

The increase in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the three months ended January 31, 2023 as compared to the three months ended January 31, 2022 is primarily attributable to higher consolidated net sales, offset in part by a lower gross profit percentage, 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 higher related segment net sales and lower selling, general and administrative and research and development expenses, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is primarily due to a lower gross profit percentage on higher related segment net sales and higher research and development expenses, 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):

($ in millions) Fiscal Year 2022

Reconciliation of GAAP Net Loss to Adjusted EBITDA:

Net loss $ (33.1)

Benefit from income taxes (4.0)

Interest (income) and other (0.7)

Change in fair value of convertible preferred stock purchase

option liability (1.0)

Interest expense 5.0

Amortization of stock-based compensation 7.8

Amortization of intangibles 21.4

Depreciation 10.3

Amortization of cost to fulfill assets 0.5

CEO transition costs 13.6

Proxy solicitation costs 11.2

Restructuring costs 6.0

COVID-19 related costs 1.1

Strategic emerging technology costs 1.2

Adjusted EBITDA $ 39.3

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before 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 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, 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 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 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 third 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.

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

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the three months ended January 31, 2023 and 2022 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 non-GAAP 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 net (loss) income per diluted common share for the three months ended January 31, 2023 and 2022 was computed using weighted average diluted shares outstanding of 28,361,000 and 27,087,000, respectively, during the period.

Three months ended January 31, 2023

($ 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

$ (0.8) $ (6.5) $ (0.23)

Adjustments to reflect redemption value of convertible preferred stock

Amortization of intangibles

Restructuring costs

Amortization of stock-based compensation

Strategic emerging technology costs 0.7 0.7 0.02

Amortization of costs to fulfill assets 0.2 0.2 0.01

Net discrete tax expense

Non-GAAP measures $ 8.4 $ 2.5 $ 0.09

Three months ended January 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:

GAAP measures, as reported

$ (24.6) $ (23.5) $ (0.89)

Adjustments to reflect redemption value of convertible preferred stock

CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

Amortization of intangibles

Amortization of stock-based compensation

Restructuring costs

COVID-19 related costs

Change in fair value of convertible preferred stock purchase option

liability — (0.4) (0.02)

Net discrete tax benefit

— (0.1) (0.01)

Non-GAAP measures $ 7.5 $ 4.9 $ 0.18

COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 2023 AND 2022

Consolidated net sales were $264.9 million and $237.1 million for the six months ended January 31, 2023 and 2022, respectively, representing an increase of $27.8 million, or 11.7%.

The period-over-period increase in consolidated 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 $161.3 million for the six months ended January 31, 2023 as compared to $133.7 million for the six months ended January 31, 2022, an increase of $27.6 million or 20.6%.

Related segment net sales for the six months ended January 31, 2023 primarily reflect increased sales of our troposcatter and SATCOM solutions and 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 60.9% of consolidated net sales for the six months ended January 31, 2023 as compared to 56.4% for the six months ended January 31, 2022.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the six months ended January 31, 2023 was 1.69x.

and international government customers.

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

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

Terrestrial and Wireless Networks

Net sales in our Terrestrial and Wireless Networks segment were $103.6 million for the six months ended January 31, 2023, as compared to $103.4 million for the six months ended January 31, 2022, a slight increase of $0.2 million, or 0.2%.

Related segment net sales for the six months ended January 31, 2023 primarily reflect higher sales of our NG-911 solutions and services, offset in part by lower sales of our trusted location and messaging solutions and cyber security training services.

Our Terrestrial and Wireless Networks segment represented 39.1% of consolidated net sales for the six months ended January 31, 2023 as compared to 43.6% for the six months ended January 31, 2022.

Our book-to-bill ratio in this segment for the six months ended January 31, 2023 was 0.73x.

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.

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 six months ended January 31, 2023 and 2022 are as follows:

Six months ended January 31,

2023 2022 2023 2022 2023 2022

Satellite and Space Communications Terrestrial and Wireless Networks Consolidated

government 49.6 % 48.7 % 1.9 % 2.6 % 30.9 % 28.6 %

Domestic 18.4 % 17.2 % 90.8 % 87.8 % 46.7 % 48.0 %

68.0 % 65.9 % 92.7 % 90.4 % 77.6 % 76.6 %

International 32.0 % 34.1 % 7.3 % 9.6 % 22.4 % 23.4 %

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

Sales to U.S.

government customers include sales to the 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 11.9% and 11.4% of consolidated net sales for the six months ended January 31, 2023 and 2022, respectively.

International sales for the six months ended January 31, 2023 and 2022 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $59.3 million and $55.5 million, respectively.

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

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for the six months ended January 31, 2023 and 2022.

Gross Profit.

Gross profit was $92.7 million and $87.6 million for the six months ended January 31, 2023 and 2022, respectively, an increase of $5.1 million.

Gross profit, as a percentage of consolidated net sales, for the six months ended January 31, 2023 was 35.0% as compared to 36.9% for the six months ended January 31, 2022.

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.

In addition, during the six months ended January 31, 2023 and 2022, respectively, we recorded a $1.5 million and $2.5 million benefit to cost of sales as we reduced a warranty accrual due to lower than expected warranty claims in our NG-911 product line.

Our gross profit in both periods 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 Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for the six months ended January 31, 2023 increased in comparison to the six months ended January 31, 2022 and reflects changes in products and services mix, as discussed above.

Also, during the six months ended January 31, 2022, we incurred $1.0 million of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

Similar operating costs were not incurred in the six months ended January 31, 2023.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for the six months ended January 31, 2023 decreased in comparison to the six months ended January 31, 2022.

The gross profit percentage in the most recent six-month period primarily reflects changes in products and services mix and lower than expected warranty claims, as discussed above.

Included in consolidated cost of sales for the six months ended January 31, 2023 and 2022 are provisions for excess and obsolete inventory of $1.3 million and $2.2 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 $58.3 million and $58.1 million for the six months ended January 31, 2023 and 2022, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 22.0% and 24.5% for the six months ended January 31, 2023 and 2022, respectively.

During the six months ended January 31, 2023 and 2022, we incurred $2.9 million and $2.4 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 six months ended January 31, 2023 and 2022 would have been $55.4 million or 20.9% and $55.7 million or 23.5%, 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 throughout the remainder of fiscal 2023.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $1.7 million in the six months ended January 31, 2023 as compared to $2.6 million in the six months ended January 31, 2022.

Such amortization for the prior year period includes $0.8 million related to the retirement, in December 2021, of three long-standing members of the Board of Directors.

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

Research and Development Expenses.

Research and development expenses were $25.2 million and $25.1 million for the six months ended January 31, 2023 and 2022, respectively, representing a slight increase of $0.1 million or 0.4%.

As a percentage of consolidated net sales, research and development expenses were 9.5% and 10.6% for the six months ended January 31, 2023 and 2022, respectively.

For the six months ended January 31, 2023 and 2022, research and development expenses of $12.0 million and $13.3 million, respectively, related to our Satellite and Space Communications segment and $13.0 million and $11.7 million, respectively, related to our Terrestrial and Wireless Networks segment.

The remaining research and development expenses of $0.2 million and $0.1 million for the six months ended January 31, 2023 and 2022, respectively, related to the amortization of stock-based compensation expense.

During the six months ended January 31, 2023, we incurred $1.5 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 six months ended January 31, 2023 and 2022, customers reimbursed us $5.6 million and $5.3 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 for both the six months ended January 31, 2023 and 2022 was $10.7 million (of which $3.7 million was for the Satellite and Space Communications segment and $7.0 million was for the Terrestrial and Wireless Networks segment).

Proxy Solicitation Costs .

During the six months ended January 31, 2022, we incurred $11.2 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now settled proxy contest initiated by a shareholder.

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

There were no similar costs during the six months ended January 31, 2023.

CEO Transition Costs .

CEO transition costs were $9.1 million for the six months ended January 31, 2023.

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

5 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 $1.0 million 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 $1.0 million expense related to a cash sign-on bonus, which was paid in January 2023.

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.

Peterman were expensed in our Unallocated segment.

CEO transition costs were $13.6 million for the six months ended January 31, 2022 and related to our former CEO, Fred Kornberg.

Of such amount, $10.3 million related to Mr.

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

the remainder related to him agreeing to serve as a Senior Technology Advisor for a minimum of two years.

CEO transition costs related to Mr.

Kornberg were expensed in our Unallocated segment.

Operating Income (Loss).

Operating loss for the six months ended January 31, 2023 and 2022 was $10.5 million and $31.1 million, respectively.

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

Three months ended October 31,

Six months ended January 31,

2023 2022 2023 2022 2023 2022 2023 2022

3 unchanged sentences

net sales 5.1 % NA 4.0 % 12.6 % NA NA NA NA

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;

Our GAAP operating loss of $10.5 million for the six months ended January 31, 2023 reflects:

(i) $10.7 million of amortization of intangibles;

(ii) $9.1 million of CEO transition costs;

(iii) $2.9 million of restructuring costs (of which $2.2 million and $0.7 million related to our Satellite and Space Communications and Unallocated segments, respectively);

(iv) $2.2 million of amortization of stock-based compensation;

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and (vi) $0.5 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;

Excluding such items, our consolidated operating income for the six

months ended January 31, 2023 would have been $16.3 million, or 6.1% of consolidated net sales.

Our GAAP operating loss of $31.1 million for the six months ended January 31, 2022 reflects:

(i) $13.6 million of CEO transition costs;

(ii) $11.2 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.

(iii) $10.7 million of amortization of intangibles;

(iv) $2.9 million of amortization of stock-based compensation;

(v) $2.4 million of restructuring costs (all of which related to our Satellite and Space Communications segment);

and (vi) $1.0 million of incremental operating costs due to the impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating income for the six months ended January 31, 2022 would have been $10.8 million, or 4.5% of consolidated net sales.

The increase in operating income excluding the above items from $10.8 million to $16.3 million for the more recent period was primarily due to higher consolidated net sales, as discussed above.

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

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.

The increase in our Satellite and Space Communications segment operating income, both in dollars and as a percentage of the related segment net sales, for the six months ended January 31, 2023 was driven primarily by an increase in related segment net sales and gross profit percentage and lower selling, general and administrative and research and development expenses, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for the six months ended January 31, 2023 was driven primarily by changes in products and services mix and higher research and development expenses, as discussed above.

Excluding the impact of CEO transition costs, proxy solicitation costs and its respective portion of restructuring charges, Unallocated expenses for the six months ended January 31, 2022 would have been $11.5 million, as compared to $13.1 million for the six months ended January 31, 2023.

The increase in Unallocated expenses excluding such items was primarily due our increased investments in marketing, including new social media activities, and other investments we are making to achieve our long-term business goals, offset in part by lower amortization of stock-based compensation, as discussed above.

Interest Expense and Other.

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 expense was $6.0 million and $2.6 million for the six months ended January 31, 2023 and 2022, respectively.

The increase is due to a higher average debt balance outstanding during the most recent period, as well as higher interest rates under our Credit Facility that we entered into in November 2022.

Our effective interest rate (including amortization of deferred financing costs) in the six months ended January 31, 2023 was approximately 7.4%, as compared to 3.1% in the prior year period.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility approximates 8.4%, as compared to 1.9% in the prior year period.

Interest (Income) and Other.

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

Interest (income) and other for both the six months ended January 31, 2023 and 2022 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 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.

During the six months ended January 31, 2022, we recorded a $0.7 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability.

There was no similar adjustment during the six months ended January 31, 2023.

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

Benefit from Income Taxes.

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.

For the six months ended January 31, 2023 and 2022, we recorded a tax benefit of $0.8 million and $5.3 million, respectively.

Our effective tax rate (excluding discrete tax items) for the six months ended January 31, 2023 and 2022 was 11.00% and 19.75%, respectively.

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

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.

During the six months ended January 31, 2023, we recorded a nominal, net discrete tax expense primarily related to the settlement of stock-based awards, partially offset by the deductible portion of CEO transition costs.

During the six months ended January 31, 2022, we recorded a net discrete tax benefit of $3.7 million, primarily related to proxy solicitation costs and deductible portion of CEO transition costs.

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

During the six months ended January 31, 2023 and 2022, consolidated net loss attributable to common stockholders was $19.3 million and $34.7 million, respectively.

Adjusted EBITDA.

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,

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the six months ended January 31, 2023 and 2022 are shown in the table below (numbers in the table may not foot due to rounding):

Six months ended January 31,

2023 2022 2023 2022 2023 2022 2023 2022

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Adjusted EBITDA $ 18.1 0.9 14.8 22.9 (10.8) (8.4) $ 22.1 15.3

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.

Percentage of related net sales 11.2 % 0.7 % 14.3 % 22.1 % NA NA 8.3 % 6.5 %

The increase in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the six months ended January 31, 2023 as compared to the six months ended January 31, 2022 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 related segment net sales and gross profit percentage and lower selling, general and administrative and research and development expenses, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is primarily due changes in products and services mix and higher research and development expenses, 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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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.

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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 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).

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.

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the six months ended January 31, 2023 and 2022 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).

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 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 addition, due to the GAAP net loss for the period, Non-GAAP net (loss) income per diluted common share for the six months ended January 31, 2023 and 2022 was computed using weighted average diluted shares outstanding of 28,262,000 and 27,004,000, respectively, during the period.

Six months ended January 31, 2023

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

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Adjustments to reflect redemption value of convertible preferred stock

CEO transition costs

Amortization of intangibles

10.7 8.3 0.30

CEO transition costs

Restructuring costs

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Non-GAAP measures $ 16.3 $ 7.1 $ 0.25

Three months ended October 31, 2021

Six months ended January 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

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Adjustment to reflect redemption value of convertible preferred stock

Amortization of intangibles

CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

11.2 8.7 0.33

Amortization of intangibles

10.7 8.2 0.31

Amortization of stock-based compensation

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Change in fair value of convertible preferred stock purchase option liability

— (0.7) (0.03)

Net discrete tax benefit

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LIQUIDITY AND CAPITAL RESOURCES

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.

Our cash and cash equivalents were $21.5 million and $21.7 million at January 31, 2023 and July 31, 2022, respectively.

For the six months ended January 31, 2023, our cash flows reflect the following:

• Net cash used in operating activities was $16.8 million for the six months ended January 31, 2023 as compared to net cash provided by operating activities of $9.6 million for the six months ended January 31, 2022.

During the six months ended January 31, 2023, we paid $5.6 million in total CEO transition costs.

Excluding such payments, net cash used in operating activities would have been $11.2 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 investing activities for the six months ended January 31, 2023 and 2022 was $9.9 million and $8.8 million, respectively.

Net cash used in investing activities for the six months ended January 31, 2023 primarily reflects capital expenditures to build-out cloud-based computer networks to support our previously announced 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 (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.

• Net cash provided by financing activities was $26.6 million for the six months ended January 31, 2023 compared to $0.7 million of net cash used in financing activities for the six months ended January 31, 2022.

During the six months ended January 31, 2023, we had net borrowings under our Credit Facility of $38.4 million, as compared to net payments under our Credit Facility of $86.5 million during the six months ended January 31, 2022.

During the six months ended January 31, 2022, we received an aggregate of $100.0 million in proceeds related to the issuance of a new series of Convertible Preferred Stock to certain investors.

During the six months ended January 31, 2023, we paid deferred financing costs of $3.6 million in connection with the amendment of our Credit Facility.

During the six months ended January 31, 2023 and 2022, we paid $5.9 million and $5.8 million, respectively, in cash dividends to our common stockholders.

We also made $2.5 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 six months ended January 31, 2023 and 2022, respectively.

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

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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.

We expect capital investments for these and other initiatives to continue for the remainder of 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 securities.

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

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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 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 common stock and dividends related to our Convertible Preferred Stock, which are payable in kind or in cash at our election.

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

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.

Encouraged by the progress that we have made related to our One Comtech transformation, our launch of EVOKE and our emerging growth opportunities, during the third quarter of fiscal 2023, the Board, together with management, adjusted the Company’s capital allocation plans and determined to forgo a common stock dividend, thereby increasing our financial flexibility.

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

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

In our first quarter of fiscal 2022, we secured a $100.0 million strategic growth investment to enhance our financial flexibility and strengthen our ability to capitalize on 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.

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

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

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

Also, in light of our 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.

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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 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.

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.

See " Notes to Condensed Consolidated Financial Statements – Note (9) – Credit Facility " for further information.

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

As of January 31, 2023, the amount outstanding under our Credit Facility was $168.4 million, comprised of $119.0 million under the Revolving Loan Facility and $49.4 million under the Term Loan.

At January 31, 2023, we had $0.3 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the six months ended January 31, 2023, we had outstanding balances under the Credit Facility ranging from $130.0 million to $181.0 million.

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

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

Our Minimum Liquidity was $40.5 million compared to the Minimum Liquidity requirement of $25.0 million.

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

Convertible Preferred Stock

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

We do not expect that these commitments, as of 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:

We do not expect that these commitments, as of January 31, 2023, will materially adversely affect our liquidity.

At January 31, 2023, 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

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Credit Facility - interest payments 24,929 14,240

Operating and finance lease obligations 63,045 9,513

Operating lease obligations 61,167 9,496

Dividends payable 2,775 2,775

Contractual cash obligations $ 257,246 29,636

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

The commitments under our Credit Facility are described in detail 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 (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.

As discussed above and 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, which was paid on February 17, 2023.

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

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

Our Condensed Consolidated Balance Sheet at 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.

Our Condensed Consolidated Balance Sheet at January 31, 2023 includes total liabilities of $10.4 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 (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.

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 January 31, 2023, 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