What changed in this filing

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Item 1. Financial Statements

2023-06-08 compared with 2023-03-09 · 212 added, 190 removed, 817 unchanged (33% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

Assets January 31, 2023 July 31, 2022

Assets April 30, 2023 July 31, 2022

Current assets:

31 unchanged sentences

authorized 125,000 shares;

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

issued 100,000 at April 30, 2023 and July 31, 2022 (includes accrued dividends of $ 595,000 and $ 566,000 , respectively)

110,417,000 105,204,000

4 unchanged sentences

authorized 100,000,000 shares;

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

issued 42,922,265 and 42,672,827 shares at April 30, 2023 and July 31, 2022, respectively

4,292,000 4,267,000

2 unchanged sentences

882,703,000 908,434,000

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

Treasury stock, at cost ( 15,033,317 shares at April 30, 2023 and July 31, 2022)

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

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

2023 2022 2023 2022

32 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Three months ended January 31, 2023 and 2022

Three months ended April 30, 2023 and 2022

Series A Convertible Preferred Stock Common Stock Additional

1 unchanged sentence

Shares Amount Shares Amount Shares Amount

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

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

Equity-classified stock award compensation

— — — — 1,071,000 — — — 1,071,000

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

Issuance of employee stock purchase plan shares — — 12,131 2,000 160,000 — — — 162,000

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

Net settlement of stock-based awards

6 unchanged sentences

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

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

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

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

Equity-classified stock award compensation

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Issuance of employee stock purchase plan shares — — 12,146 1,000 126,000 — — — 127,000

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

Net settlement of stock-based awards

1 unchanged sentence

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 1,766,000 — — — ( 1,766,000 ) — — ( 1,766,000 )

Cash dividends declared, net ($ 0.10 per share)

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

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

Reversal of dividend equivalents ($ 0.10 per share)

— — — — — 22,000 — — 22,000

Net loss — — — — — ( 7,458,000 ) — — ( 7,458,000 )

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

Balance as of April 30, 2023 100,000 $ 110,417,000 42,922,265 $ 4,292,000 $ 634,191,000 $ 244,220,000 15,033,317 $ ( 441,849,000 ) $ 440,854,000

See accompanying notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Six months ended January 31, 2023 and 2022

Nine months ended April 30, 2023 and 2022

Series A Convertible Preferred Stock Common Stock Additional

18 unchanged sentences

Net loss — — — — — ( 27,883,000 ) — — ( 27,883,000 )

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

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

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

12 unchanged sentences

Net loss — — — — — ( 23,359,000 ) — — ( 23,359,000 )

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

Balance as of April 30, 2023 100,000 $ 110,417,000 42,922,265 $ 4,292,000 $ 634,191,000 $ 244,220,000 15,033,317 $ ( 441,849,000 ) $ 440,854,000

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended January 31,

Nine months ended April 30,

Cash flows from operating activities:

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

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

Net cash provided by financing activities 14,800,000 7,969,000

Net (decrease) increase in cash and cash equivalents ( 250,000 ) 1,970,000

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six months ended January 31,

Nine months ended April 30,

Supplemental cash flow disclosures:

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Accrued deferred financing costs $ 17,000 —

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

Reclassification of finance lease right-of-use assets to property, plant and equipment $ 274,000 —

Issuance of restricted stock $ 9,000 13,000

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

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The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp.

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

and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and nine months ended April 30, 2023 and 2022 are unaudited.

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

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

See Note (13) - "Segment Information" for additional information.

CEO Transition Costs & Related

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

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

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

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

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

ASUs issued, but not effective until after April 30, 2023, are not expected to have a material impact on our condensed consolidated financial statements or disclosures.

COMTECH TELECOMMUNICATIONS CORP.

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

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

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

2023 2022 2023 2022

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state and local governments.

Except for the U.S.

government, there were no customers that represented more than 10.0% of consolidated net sales for the three months ended April 30, 2023.

Included in domestic sales are sales to Verizon Communications Inc.

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

("Verizon"), which accounted for 11.2 % of consolidated net sales for the nine months ended April 30, 2023 and 10.6 % and 11.1 % of consolidated net sales for the three and nine months ended April 30, 2022, respectively.

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

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

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

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three and nine months ended April 30, 2023 and 2022.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our Chief Operating Decision Maker ("CODM") for the three and nine months ended April 30, 2023 and 2022.

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

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

Three months ended April 30, 2023 Nine months ended April 30, 2023

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

17 unchanged sentences

Under ASC 606, unbilled receivables constitute contract assets.

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

There were no material impairment losses recognized on contract assets during the three and nine months ended April 30, 2023 and 2022, respectively.

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

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

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

Of the current contract liability balance of $ 64,601,000 at July 31, 2022 and $ 66,130,000 at July 31, 2021, $ 43,125,000 and $ 46,031,000 was recognized as revenue during the nine months ended April 30, 2023 and 2022, respectively.

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

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

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

During the nine months ended April 30, 2023 and 2022, incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

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

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

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

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

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

As of April 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 668,405,000 (which represents the amount of our consolidated funded backlog).

We estimate that a substantial portion of our remaining performance obligations at April 30, 2023 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During the nine months ended April 30, 2023, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(4) Fair Value Measurements and Financial Instruments

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

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

As of April 30, 2023 and July 31, 2022, other than the cash and cash equivalents discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

(5) Earnings Per Share

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

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

There were no repurchases of our common stock during the three or nine months ended April 30, 2023 or 2022.

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

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

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

Weighted average stock options, RSUs and restricted stock outstanding of 956,000 and 1,369,000 for the three months ended April 30, 2023 and 2022, respectively, and 1,001,000 and 1,463,000 shares for the nine months ended April 30, 2023 and 2022, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 429,000 and 339,000 weighted average performance shares outstanding for the three months ended April 30, 2023 and 2022, respectively, and 384,000 and 287,000 for the nine months ended April 30, 2023 and 2022, respectively, as the performance conditions have not yet been satisfied.

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

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

Weighted average common shares of 228,000 and 553,000 for the three months ended April 30, 2023 and 2022, respectively, and 293,000 and 455,000 for the nine months ended April 30, 2023 and 2022, respectively, related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Weighted average common shares underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, of 4,606,000 and 4,225,000 for the three months ended April 30, 2023 and 2022, respectively, and 4,533,000 and 2,969,000 for the nine months ended April 30, 2023 and 2022, respectively, were not included in our diluted EPS calculation for the respective periods because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for the three and nine months ended April 30, 2023 and 2022 is the respective net loss attributable to common stockholders.

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

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

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

2023 2022 2023 2022

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

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

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

As a result, our EPS calculations for the three and nine months ended April 30, 2023 and 2022 were based on the two-class method.

Given the net loss attributable to common stockholders for the three and nine months ended April 30, 2023 and 2022, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

(6) Accounts Receivable

Accounts receivable consist of the following at:

January 31, 2023 July 31, 2022

April 30, 2023 July 31, 2022

Receivables from commercial and international customers $ 63,924,000 59,922,000

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Accounts receivable, net $ 144,195,000 123,711,000

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

Unbilled receivables as of April 30, 2023 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

Under ASC 606, unbilled receivables constitute contract assets.

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

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

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

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

Management estimates that a substantial portion of the amounts not yet billed at April 30, 2023 will be billed and collected within one year.

Accounts receivable in the table above excludes $ 2,873,000 of long-term unbilled receivables presented within "Other assets, net" in the condensed consolidated balance sheet as of April 30, 2023.

As of April 30, 2023, except for the U.S.

government (and its agencies) and AT&T, which represented 22.5 % and 13.9 %, of total accounts receivable, respectively, there were no other customers which accounted for greater than 10% of total accounts receivable.

COMTECH TELECOMMUNICATIONS CORP.

5 unchanged sentences

Inventories consist of the following at:

January 31, 2023 July 31, 2022

April 30, 2023 July 31, 2022

Raw materials and components $ 89,400,000 78,478,000

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Inventories, net $ 107,311,000 96,317,000

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

As of April 30, 2023 and July 31, 2022, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 6,006,000 and $ 4,100,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 3,533,000 and $ 1,866,000 , respectively.

(8) Accrued Expenses and Other Current Liabilities

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

January 31, 2023 July 31, 2022

April 30, 2023 July 31, 2022

Accrued wages and benefits $ 19,180,000 25,675,000

Accrued warranty obligations 7,553,000 9,420,000

Accrued contract costs 14,255,000 15,921,000

Accrued warranty obligations 8,240,000 9,420,000

Accrued commissions and royalties 6,559,000 5,697,000

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

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

Accrued warranty obligations as of April 30, 2023 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Six months ended January 31,

Changes in our accrued warranty obligations during the nine months ended April 30, 2023 and 2022 were as follows:

Nine months ended April 30,

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

Provision for warranty obligations 555,000 587,000

Provision (benefit) for warranty obligations 1,756,000 ( 613,000 )

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

1 unchanged sentence

Balance at end of period $ 8,240,000 10,832,000

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

During the nine months ended April 30, 2023 and 2022, we recorded benefits of $ 1,500,000 and $ 2,500,000 , respectively, to cost of sales in our Terrestrial and Wireless Networks segment due to lower than expected warranty claims associated with previously acquired NG-911 technologies.

(9) Credit Facility

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In connection with entering the Credit Facility, we capitalized $ 3,809,000 of financing costs, and accounted for the amendment to the Credit Facility as a debt modification.

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

January 31, 2023

As of April 30, 2023, the amount outstanding under our Credit Facility was as follows:

April 30, 2023

Term Loan $ 48,750,000

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Non-current portion of long-term debt $ 155,254,000

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

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

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

At April 30, 2023, we had $ 1,049,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the nine months ended April 30, 2023, we had outstanding balances under the Credit Facility ranging from $ 130,000,000 to $ 182,375,000 .

As of April 30, 2023, total net deferred financing costs related to the Credit Facility were $ 3,565,000 and are being amortized over the term of our Credit Facility through the Maturity Date.

COMTECH TELECOMMUNICATIONS CORP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended April 30, 2023 and 2022 was $ 4,400,000 and $ 1,004,000 , respectively.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the nine months ended April 30, 2023 and 2022 was $ 10,401,000 and $ 3,478,000 , respectively.

Our blended interest rate approximated 10.10 % and 3.30 %, respectively, for the three months ended April 30, 2023 and 2022 and approximated 8.34 % and 3.20 %, respectively, for the nine months ended April 30, 2023 and 2022.

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

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The Credit Facility provides for, among other things:

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

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

(i) scheduled payments of principal under the Term Loan totaling $ 2,500,000 in the first year after closing (of which $ 1,250,000 was paid through April 30, 2023), and $ 5,000,000 in the second year after closing, with the remaining balance of the Term Loan due upon maturity;

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

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

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

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

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

As of April 30, 2023, our Secured Leverage Ratio was 3.73 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 4.00 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of April 30, 2023 was 4.11 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

Our Minimum Liquidity was $ 32,500,000 compared to the Minimum Liquidity requirement of $ 25,000,000 .

21 unchanged sentences

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

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

As of April 30, 2023, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

The components of lease expense are as follows:

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

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

2023 2022 2023 2022

1 unchanged sentence

Amortization of ROU assets $ 1,000 3,000 $ 5,000 10,000

Interest on lease liabilities — 1,000 — 1,000

Operating lease expense 2,495,000 2,933,000 8,088,000 8,797,000

7 unchanged sentences

Additional information related to leases is as follows:

Six months ended January 31,

Nine months ended April 30,

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

Operating leases - Operating cash outflows $ 8,183,000 $ 8,910,000

Finance leases - Operating cash outflows — 1,000

Finance leases - Financing cash outflows 4,000 14,000

1 unchanged sentence

Operating leases $ 2,850,000 $ 15,212,000

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

The following table is a reconciliation of future cash flows relating to operating lease liabilities presented on our Condensed Consolidated Balance Sheet as of April 30, 2023:

Remainder of fiscal 2023 $ 2,291,000

10 unchanged sentences

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

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

Lease payments made during the nine months ended April 30, 2023 and 2022 were $ 516,000 and $ 504,000 , respectively.

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

1 unchanged sentence

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

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

As of April 30, 2023, we do not have any material rental commitments that have not already commenced.

(11) Income Taxes

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

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

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

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

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

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

Our effective tax rate for the three months ended April 30, 2023 was 28.2 %, which includes a net discrete tax benefit of $ 1,203,000 primarily related to the reversal of tax contingencies no longer required due to the expiration of applicable statute of limitations, offset in part by the finalization of certain tax accounts in connection with our fiscal 2022 federal income tax return.

Our effective tax rate for the nine months ended April 30, 2023 was 13.9 %, which includes a net discrete tax benefit of $ 1,193,000 primarily related to the reversal of tax contingencies no longer required due to the expiration of applicable statute of limitations and the deductible portion of CEO transition costs, offset in part by the settlement of stock-based awards and the finalization of certain tax accounts in connection with our fiscal 2022 federal income tax return.

Our effective tax rate for the three months ended April 30, 2022 was 96.8 %, which includes a net discrete tax expense of $ 166,000 primarily related to the expiration of equity-based awards, offset in part by the finalization of certain tax accounts in connection with our fiscal 2021 federal income tax return.

Our effective tax rate for the nine months ended April 30, 2022 was 18.0 %, which includes a net discrete tax benefit of $ 3,506,000 primarily related to proxy solicitation costs, the deductible portion of CEO transition costs and the finalization of certain tax accounts in connection with our fiscal 2021 federal income tax return.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Excluding discrete items, our effective tax rate for the three and nine months ended April 30, 2023 and 2022 was 14.25 % and 28.25 %, respectively.

For purposes of determining our 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.

The 14.25 % reflects the recognition of a valuation allowance in a foreign jurisdiction, offset in part by the recognition of research and experimentation tax credits.

The 28.25 % reflects the recognition of research and experimentation tax credits, offset in part by nondeductible executive compensation.

At April 30, 2023 and July 31, 2022, total unrecognized tax benefits were $ 8,922,000 and $ 10,008,000 , respectively, including interest of $ 179,000 and $ 330,000 , respectively.

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

We believe it is reasonably possible that the gross unrecognized tax benefits could decrease by as much as $ 600,000 in the next twelve months due to the expiration of a statute of limitations related to federal, state and foreign tax positions.

federal income tax returns for fiscal 2020 through 2022 are subject to potential future Internal Revenue Service ("IRS") audit.

6 unchanged sentences

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

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

As of April 30, 2023, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 11,962,500 .

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

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

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

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

January 31, 2023

As of April 30, 2023, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 10,107,719 shares (net of 5,704,778 expired and canceled awards), of which an aggregate of 8,172,915 have been exercised or settled.

As of April 30, 2023, the following stock-based awards, by award type, were outstanding:

April 30, 2023

Stock options 290,320

4 unchanged sentences

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

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

Through April 30, 2023, we have cumulatively issued 985,515 shares of our common stock to participating employees in connection with our ESPP.

COMTECH TELECOMMUNICATIONS CORP.

2 unchanged sentences

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

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

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

2023 2022 2023 2022

8 unchanged sentences

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

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

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

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

At April 30, 2023, unrecognized stock-based compensation of $ 9,640,000 , net of estimated forfeitures of $ 681,000 , is expected to be recognized over a weighted average period of 2.5 years.

Total stock-based compensation capitalized and included in ending inventory at both April 30, 2023 and July 31, 2022 was $ 48,000 .

There are no liability-classified stock-based awards outstanding as of April 30, 2023 or July 31, 2022.

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

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

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

2023 2022 2023 2022

9 unchanged sentences

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

Stock-based compensation expense in the three months and nine months ended April 30, 2023 reflects our assumption that fully vested, unrestricted share units will be granted to certain employees in lieu of fiscal 2023 non-equity incentive compensation.

In fiscal 2022 and prior years, fully vested share units granted to certain employees in lieu of non-equity incentive compensation would not be settled until the one-year anniversary of the grant date.

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

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

Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of April 30, 2023 and July 31, 2022.

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

14 unchanged sentences

Outstanding at January 31, 2023 291,620 24.15

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

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

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

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

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

Expired/canceled ( 1,300 ) 25.51

Outstanding at April 30, 2023 290,320 $ 24.15 3.74 $ —

Exercisable at April 30, 2023 245,740 $ 25.28 3.18 $ —

Vested and expected to vest at April 30, 2023 288,205 $ 24.19 3.72 $ —

Stock options outstanding as of April 30, 2023 have exercise prices ranging from $ 17.88 - $ 33.94 , representing the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years .

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

There were no stock options exercised during the nine months ended April 30, 2023.

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

12 unchanged sentences

Outstanding at January 31, 2023 1,668,245 14.13

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

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

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

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

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

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

Granted 56,402 11.38

Settled ( 48,614 ) 14.45

Canceled/Forfeited ( 31,549 ) 17.11

Outstanding at April 30, 2023 1,644,484 $ 13.97 $ 17,020,000

Vested at April 30, 2023 534,171 $ 15.70 $ 5,529,000

Vested and expected to vest at April 30, 2023 1,597,645 $ 13.96 $ 16,536,000

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The total intrinsic value relating to fully-vested awards settled during the three and nine months ended April 30, 2023 was $ 669,000 and $ 3,633,000 , respectively.

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

As of April 30, 2023, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

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

1 unchanged sentence

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

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

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

Commencing in August 2022, such RSUs have a vesting period of three years .

Share units granted to certain employees in fiscal 2022 in lieu of non-equity incentive compensation are convertible into shares of our common stock on the one-year anniversary of the respective grant date.

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

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

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

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

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

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

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

During the three months ended April 30, 2023, we reversed $ 22,000 of previously accrued dividend equivalents due to forfeitures and paid out $ 13,000 .

During the nine months ended April 30, 2023, we accrued $ 342,000 of dividend equivalents (net of forfeitures) and paid out $ 363,000 .

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

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

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

As of April 30, 2023 and July 31, 2022, accrued dividend equivalents were $ 721,000 and $ 742,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and nine months ended April 30, 2023, we recorded an income tax expense of $ 15,000 and $ 560,000 , respectively, and during the three and nine months ended April 30, 2022, we recorded an income tax expense of $ 483,000 and $ 344,000 , respectively.

(13) Segment Information

4 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Satellite and Space Communications is organized into four technology areas:

5 unchanged sentences

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Terrestrial and Wireless Networks is organized into four service areas:

next generation 911 and call delivery, Solacom call handling solutions, trusted location and messaging solutions, and cyber security training and services.

and procurement and supply chain management of high reliability Electrical, Electronic and Electromechanical ("EEE") parts for satellite, launch vehicle and manned space applications.

Terrestrial and Wireless Networks is organized into three service areas:

next generation 911 and call delivery, Solacom call handling solutions, and trusted location and messaging solutions.

This segment offers customers:

4 unchanged sentences

wireless emergency alerts solutions for network operators;

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

and software and equipment for location-based and text messaging services for various applications, including for public safety, commercial and government services.

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

5 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three months ended January 31, 2023

Three months ended April 30, 2023

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

3 unchanged sentences

(Benefit from) provision for income taxes ( 1,188,000 ) 84,000 ( 1,828,000 ) ( 2,932,000 )

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

Interest expense ( 25,000 ) — 4,411,000 4,386,000

Interest (income) and other 600,000 174,000 ( 46,000 ) 728,000

Amortization of stock-based compensation — — 4,126,000 4,126,000

6 unchanged sentences

Purchases of property, plant and equipment $ 1,106,000 3,549,000 300,000 $ 4,955,000

Total assets at January 31, 2023

Total assets at April 30, 2023

$ 488,814,000 475,380,000 25,665,000 $ 989,859,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended January 31, 2022

Three months ended April 30, 2022

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

1 unchanged sentence

Operating (loss) income $ ( 120,000 ) 4,616,000 ( 5,062,000 ) $ ( 566,000 )

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

Net income (loss) $ 297,000 4,502,000 ( 4,824,000 ) $ ( 25,000 )

Provision for (benefit from) income taxes 59,000 98,000 ( 928,000 ) ( 771,000 )

Interest expense ( 22,000 ) — 1,003,000 981,000

Interest (income) and other ( 454,000 ) 16,000 ( 11,000 ) ( 449,000 )

1 unchanged sentence

— — ( 302,000 ) ( 302,000 )

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

Amortization of stock-based compensation — — 1,071,000 1,071,000

1 unchanged sentence

Depreciation 846,000 1,588,000 48,000 2,482,000

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

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

Restructuring costs 1,600,000 — — 1,600,000

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

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

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

Adjusted EBITDA $ 5,414,000 9,725,000 ( 3,943,000 ) $ 11,196,000

Purchases of property, plant and equipment $ 2,297,000 3,311,000 — $ 5,608,000

Total assets at January 31, 2022

Total assets at April 30, 2022

$ 485,620,000 469,075,000 28,942,000 $ 983,637,000

Six months ended January 31, 2023

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine months ended April 30, 2023

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

2 unchanged sentences

Net income (loss) $ 9,588,000 7,070,000 ( 40,017,000 ) $ ( 23,359,000 )

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

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

Benefit from income taxes ( 1,832,000 ) ( 197,000 ) ( 1,733,000 ) ( 3,762,000 )

Interest expense 2,000 — 10,410,000 10,412,000

Interest (income) and other 622,000 343,000 ( 37,000 ) 928,000

Amortization of stock-based compensation — — 6,298,000 6,298,000

2 unchanged sentences

Amortization of cost to fulfill assets 720,000 — — 720,000

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

Restructuring costs 4,336,000 548,000 2,080,000 6,964,000

Strategic emerging technology costs 2,513,000 — — 2,513,000

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

Adjusted EBITDA $ 24,490,000 23,906,000 ( 13,799,000 ) $ 34,597,000

Purchases of property, plant and equipment $ 5,660,000 8,505,000 708,000 $ 14,873,000

Total assets at January 31, 2023

Total assets at April 30, 2023

$ 488,814,000 475,380,000 25,665,000 $ 989,859,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six months ended January 31, 2022

Nine months ended April 30, 2022

Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total

2 unchanged sentences

Net (loss) income $ ( 7,285,000 ) 17,445,000 ( 38,043,000 ) $ ( 27,883,000 )

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

(Benefit from) provision for income taxes ( 458,000 ) 30,000 ( 5,672,000 ) ( 6,100,000 )

Interest expense 98,000 — 3,478,000 3,576,000

Interest (income) and other ( 287,000 ) 98,000 ( 71,000 ) ( 260,000 )

1 unchanged sentence

option liability — — ( 1,004,000 ) ( 1,004,000 )

Interest expense 120,000 2,475,000 2,595,000

Amortization of stock-based compensation — — 3,975,000 3,975,000

1 unchanged sentence

Depreciation 2,444,000 4,462,000 151,000 7,057,000

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

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

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

Restructuring costs 4,038,000 — — 4,038,000

COVID-19 related costs 1,144,000 — — 1,144,000

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

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

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

Adjusted EBITDA $ 6,323,000 32,598,000 ( 12,384,000 ) $ 26,537,000

Purchases of property, plant and equipment $ 6,522,000 7,898,000 — $ 14,420,000

Total assets at January 31, 2022

Total assets at April 30, 2022

$ 485,620,000 469,075,000 28,942,000 $ 983,637,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

There were no similar costs incurred in fiscal 2022.

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

During the three and nine months ended April 30, 2023, our Unallocated segment incurred $ 1,357,000 and $ 2,080,000 , respectively, of restructuring costs focused on streamlining our operations.

There were no similar costs incurred in fiscal 2022.

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

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

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

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

There were no similar costs incurred in fiscal 2023.

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

During the three and nine months ended April 30, 2023, our Satellite and Space Communications segment recorded $ 2,191,000 and $ 4,336,000 , respectively, of restructuring costs primarily incurred to streamline our operations and improve efficiency, including costs related to the relocation of certain of our satellite ground station production facilities to our new 146,000 square foot facility in Chandler, Arizona.

Similar restructuring costs of $ 1,600,000 and $ 4,038,000 were incurred during the three and nine months ended April 30, 2022, respectively.

In addition, during the three and nine months ended April 30, 2023, we incurred $ 1,029,000 and $ 2,513,000 of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

Similar strategic emerging technology costs of $ 912,000 were incurred during both the three and nine months ended April 30, 2022.

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

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

During both the three and nine months ended April 30, 2023, our Terrestrial and Wireless Networks segment recorded $ 548,000 of restructuring costs primarily incurred to streamline our operations and improve efficiency.

There were no similar costs incurred in fiscal 2022.

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

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

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

Intersegment sales for both the three and nine months ended April 30, 2023 and 2022 between the Satellite and Space Communications segment and the Terrestrial and Wireless Networks segment were nominal.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Unallocated assets at April 30, 2023 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

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

(14) Goodwill

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

The following table represents goodwill by reportable operating segment as of April 30, 2023 and July 31, 2022.

Satellite and Space Communications Terrestrial and Wireless Networks Total

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As discussed in Note (13) - "Segment Information, " as a result of our segment restructuring in the fourth quarter of fiscal 2022 from the Commercial Solutions and Government Solutions segments to the Satellite and Space Communications and Terrestrial and Wireless Networks segments, we performed an interim quantitative assessment as of July 29, 2022 and estimated the fair value of each of our reporting units, both before and after the change, using a combination of the income and market approaches.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2023 (the start of our fiscal 2024).

In any event, we are required to perform our next annual goodwill impairment analysis on August 1, 2023 (the start of our fiscal 2024).

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(15) Intangible Assets

Intangible assets with finite lives are as follows:

January 31, 2023

April 30, 2023

Weighted Average

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

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

Amortization expense for both the three months ended April 30, 2023 and 2022 was $ 5,349,000 and for both the nine months ended April 30, 2023 and 2022 was $ 16,047,000 .

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

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2027 18,534,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of April 30, 2023.

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

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

The Investors have a one-time option exercisable at any time on or prior to March 31, 2023 to purchase additional shares of Convertible Preferred Stock for an aggregate purchase price of $ 25,000,000 .

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

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

The Investors had a one-time option exercisable at any time on or prior to March 31, 2023 to purchase additional shares of Convertible Preferred Stock for an aggregate purchase price of $ 25,000,000 .

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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Holders of the Convertible Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis, as well as are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Convertible Preferred Stock, authorizations or issuances of securities of the Company, the payment of dividends other than dividends on common stock in the ordinary course consistent with past practice on a quarterly basis in an amount not to exceed our current dividend rate of $ 0.10 per share per quarter, related party transactions, repurchases or redemptions of securities of the Company (other than the repurchase of up to $ 25,000,000 of shares of common stock), dispositions of businesses or assets, the incurrence of certain indebtedness and certain amendments or extensions of our existing Credit Facility.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

As such, we established an initial convertible preferred stock purchase option liability of $ 1,005,000 and reduced the proceeds from the Initial Issuance by such amount.

The liability will be remeasured to its estimated fair value each reporting period until such instrument is exercised or expires.

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

The liability was remeasured to its estimated fair value each reporting period until such instrument expired.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 110,417,000 , which includes $ 9,822,000 of cumulative dividends paid in kind and $ 595,000 of accumulated and unpaid dividends.

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

As such, a total adjustment of $ 5,213,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings during the nine months ended April 30, 2023.

(17) Stockholders’ Equity

Shelf Registration

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

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

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

This shelf registration statement was declared effective by the SEC as of July 25, 2022 and expires on July 25, 2025.

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

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

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

There were no repurchases of our common stock during the nine months ended April 30, 2023 or 2022.

Common Stock Dividends

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(18) Legal Proceedings and Other Matters

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Employment Change of Control and Indemnification Agreements

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

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

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

We have also entered into legacy change of control agreements prior to 2022 with certain of our executive officers and certain key employees.

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

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

What changed 10-Q

Item 1. Financial Statements