What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-06-08 compared with 2023-03-09 · 271 added, 412 removed, 453 unchanged (60% of the section changed)

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

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

• Terrestrial and Wireless Networks - is organized into four service areas:

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

This segment offers customers SMS text to 911 services, providing alternate paths for individuals who need to request assistance (via text messaging) a method to reach Public Safety Answering Points;

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 SMS text to 911 services, providing alternate paths for individuals who need to request assistance (via text messaging) a method to reach Public Safety Answering Points ("PSAPs");

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

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

call handling applications for Public Safety Answering Points;

call handling applications for PSAPs;

wireless emergency alerts solutions for network operators;

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

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

Our Quarterly Financial Information

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In accordance with FASB ASC 606 - Revenue from Contracts with Customers ("ASC 606"), we record revenue in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers.

Under ASC 606, we follow a five-step model to:

(1) identify the contract with our customer;

(2) identify our performance obligations in our contract;

(3) determine the transaction price for our contract;

(4) allocate the transaction price to our performance obligations;

and (5) recognize revenue using one of the following two methods:

• Over time - We recognize revenue using the over time method when there is a continuous transfer of control to the customer over the contractual period of performance.

This generally occurs when we enter into a long-term contract relating to the design, development or manufacture of complex equipment or technology platforms to a buyer’s specification (or to provide services related to the performance of such contracts).

Continuous transfer of control is typically supported by contract clauses which allow our customers to unilaterally terminate a contract for convenience, pay for costs incurred plus a reasonable profit and take control of work-in-process.

Revenue recognized over time is generally based on the extent of progress toward completion of the related performance obligations.

The selection of the method to measure progress requires judgment and is based on the nature of the products or services provided.

In certain instances, typically for firm fixed-price contracts, we use the cost-to-cost measure because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts.

Under the cost-to-cost measure, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion, including warranty costs.

Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred.

Costs to fulfill generally include direct labor, materials, subcontractor costs, other direct costs and an allocation of indirect costs.

When these contracts are modified, the additional goods or services are generally not distinct from those already provided.

As a result, these modifications form part of an existing contract and we must update the transaction price and our measure of progress for the single performance obligation and recognize a cumulative catch-up to revenue and gross profits.

For over time contracts using a cost-to-cost measure of progress, we have an estimate at completion ("EAC") process in which management reviews the progress and execution of our performance obligations.

This EAC process requires management judgment relative to assessing risks, estimating contract revenue and costs, and making assumptions for schedule and technical issues.

Since certain contracts extend over a long period of time, the impact of revisions in revenue and or cost estimates during the progress of work may impact current period earnings through a cumulative adjustment.

Additionally, if the EAC process indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident.

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

The cost-to-cost method is principally used to account for contracts in our Satellite and Space Communications segment and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line within our Terrestrial and Wireless Networks segment.

For service-based contracts in our public safety and location technologies product line, we also recognize revenue over time.

These services are typically recognized as a series of services performed over the contract term using the straight-line method, or based on our customers’ actual usage of the networks and platforms which we provide.

• Point in time - When a performance obligation is not satisfied over time, we must record revenue using the point in time accounting method which generally results in revenue being recognized upon shipment or delivery of a promised good or service to a customer.

This generally occurs when we enter into short-term contracts or purchase orders where items are provided to customers with relatively quick turn-around times.

Modifications to such contracts and or purchase orders, which typically provide for additional quantities or services, are accounted for as a new contract because the pricing for these additional quantities or services are based on standalone selling prices.

Point in time accounting is principally applied to contracts in our satellite ground station technologies product line (which includes satellite modems, solid-state and traveling wave tube amplifiers) and certain contracts for our solid-state, high-power RF amplifiers.

The contracts related to these product lines do not meet the requirements for over time revenue recognition because our customers cannot utilize the equipment for its intended purpose during any phase of our manufacturing process;

customers do not simultaneously receive and or consume the benefits provided by our performance;

customers do not control the asset (i.e., prior to delivery, customers cannot direct the use of the asset, sell or exchange the equipment, etc.);

and, although many of our contracts have termination for convenience clauses and or an enforceable right to payment for performance completed to date, our performance creates an asset with an alternative use through the point of delivery.

In determining that our equipment has alternative use, we considered the underlying manufacturing process for our products.

In the early phases of manufacturing, raw materials and work in process (including subassemblies) consist of common parts that are highly fungible among many different types of products and customer applications.

Finished products are either configured to our standard configuration or based on our customers’ specifications.

Finished products, whether built to our standard specification or to a customers’ specification, can be sold to a variety of customers and across many different end use applications with minimal rework, if needed, and without incurring a significant economic loss.

When identifying a contract with our customer, we consider when it has approval and commitment from both parties, if the rights of the parties are identified, if the payment terms are identified, if it has commercial substance and if collectability is probable.

When identifying performance obligations, we consider whether there are multiple promises and how to account for them.

In our contracts, multiple promises are separated if they are distinct, both individually and in the context of the contract.

If multiple promises in a contract are highly interrelated or comprise a series of distinct services performed over time, they are combined into a single performance obligation.

In some cases, we may also provide the customer with an additional service-type warranty, which we recognize as a separate performance obligation.

Service-type warranties do not represent a significant portion of our consolidated net sales.

When service-type warranties represent a separate performance obligation, the revenue is deferred and recognized ratably over the extended warranty period.

Our contracts, from time-to-time, may also include options for additional goods and services.

To date, these options have not represented material rights to the customer as the pricing for them reflects standalone selling prices.

As a result, we do not consider options we offer to be performance obligations for which we must allocate a portion of the transaction price.

In many cases, we provide assurance-type warranty coverage for some of our products for a period of at least one year from the date of delivery.

When identifying the transaction price, we typically utilize the contract's stated price as a starting point.

The transaction price in certain arrangements may include estimated amounts of variable consideration, including award fees, incentive fees or other provisions that can either increase or decrease the transaction price.

We estimate variable consideration as the amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the estimation uncertainty is resolved.

The estimation of this variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (e.g., historical, current and forecasted) that is reasonably available to us.

When allocating the contract’s transaction price, we consider each distinct performance obligation.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

We determine standalone selling price based on the price at which the performance obligation is sold separately.

If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions, including geographic or regional specific factors, competitive positioning, internal costs, profit objectives and internally approved pricing guidelines related to the performance obligations.

Most of our contracts with customers are denominated in U.S.

dollars and typically are either firm fixed-price or cost reimbursable type contracts (including fixed-fee, incentive-fee and time-and-material type contracts).

In almost all of our contracts with customers, we are the principal in the arrangement and report revenue on a gross basis.

Transaction prices for contracts with U.S.

domestic and international customers are usually based on specific negotiations with each customer and in the case of the U.S.

government, sometimes based on estimated or actual costs of providing the goods or services in accordance with applicable regulations.

The timing of revenue recognition, billings and collections results in receivables, unbilled receivables and contract liabilities on our Condensed Consolidated Balance Sheet.

Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones.

For certain contracts with provisions that are intended to protect customers in the event we do not satisfy our performance obligations, billings occur subsequent to revenue recognition, resulting in unbilled receivables.

Under ASC 606, unbilled receivables constitute contract assets.

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.

Under ASC 606, payments received from customers in excess of revenue recognized to date results in a contract liability.

These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract.

Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract.

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.

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.

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.

As for commissions payable to our third-party sales representatives related to long-term contracts, we do consider these types of commissions both direct and incremental costs to obtain and fulfill such contracts.

Therefore, such types of commissions are included in total estimated costs at completion for such contracts and expensed over time through cost of sales on our Condensed Consolidated Statements of Operations.

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the end of a fiscal period.

Remaining performance obligations, which we refer to as backlog, exclude unexercised contract options and potential orders under IDIQ contracts.

See " Notes to Condensed Consolidated Financial Statements - Note (3) - Revenue Recognition " for further information.

Impairment of Goodwill and Other Intangible Assets .

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.

As of April 30, 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 April 30, 2023, net intangibles recorded on our Condensed Consolidated Balance Sheet aggregated $231.3 million (of which $66.9 million relates to our Satellite and Space Communications segment and $164.4 million relates to our Terrestrial and Wireless Networks segment).

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

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

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

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

If we fail the quantitative assessment of goodwill impairment ("quantitative assessment"), we would be required to recognize an impairment loss equal to the amount that a reporting unit's carrying value exceeded its fair value;

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

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

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

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

We also considered overall business conditions.

The income approach, also known as the discounted cash flow ("DCF") method, utilizes the present value of cash flows to estimate fair value.

The future cash flows for our reporting units were projected based on our estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures).

For purposes of conducting our impairment analysis, we assumed revenue growth rates and cash flow projections that are below our actual long-term expectations.

The discount rates used in our DCF method were based on a weighted-average cost of capital ("WACC") determined from relevant market comparisons, adjusted upward for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows).

A terminal value growth rate was applied to the final year of the projected period, which reflects our estimate of stable, perpetual growth.

We then calculated a present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the income approach.

Under the market approach, we estimated a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium.

Finally, we compared our estimates of fair values to our total public market capitalization and assessed implied control premiums based on our common stock price of $11.62 as of the date of testing.

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

Also, given its proximity to our next regularly scheduled annual goodwill impairment testing date, we utilized our July 29, 2022 interim quantitative assessment to conclude that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment as of August 1, 2022.

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

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

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

A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal 2023 or beyond.

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

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

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

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

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

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

See " Notes to Condensed Consolidated Financial Statements - Note (14) - Goodwill and Note (15) - Intangible Assets " for further information.

Provision for Warranty Obligations.

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

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;

Third Quarter Highlights and Business Outlook

Financial highlights for the third quarter of fiscal 2023 include:

• Consolidated net sales were $136.3 million, up 1.9% sequentially from the second quarter of fiscal 2023 and up 11.6% from the third quarter of fiscal 2022;

• Gross margin was 31.7%, compared to 34.3% in our second quarter of fiscal 2023 and 38.2% in our third quarter of fiscal 2022;

• GAAP net loss attributable to common stockholders was $9.2 million, and included $4.1 million of restructuring costs and $1.0 million of strategic emerging technology costs for next-generation satellite technology;

• GAAP EPS loss of $0.33 and Non-GAAP EPS income of $0.11;

• 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;

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $12.5 million, or 9.2% of consolidated net sales, a sequential increase from the $11.3 million, or 8.5% of consolidated net sales for the second quarter of fiscal 2023;

• New bookings (also referred to as orders) of $102.8 million, representing a quarterly book-to-bill ratio of 0.75x (a measure defined as bookings divided by net sales);

• Backlog of $668.4 million as of April 30, 2023, compared to $702.0 million as of January 31, 2023 and $602.3 million as of April 30, 2022;

• Revenue visibility of approximately $1.1 billion.

We measure this revenue visibility as the sum of our $702.0 million of backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders;

• Cash flows used in operating activities of $10.6 million.

We measure this revenue visibility as the sum of our $668.4 million of funded backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders;

• Cash flows provided by operating activities of $16.6 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 January 31, 2023 and 2022" and "Comparison of the Results of Operations for the Six Months Ended January 31, 2023 and 2022 ."

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended April 30, 2023 and 2022" and "Comparison of the Results of Operations for the Nine Months Ended April 30, 2023 and 2022 ."

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

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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.

In our third quarter of fiscal 2023, as part of our comprehensive and company-wide "people strategy," we continued to enhance our leadership team with key appointments designed to maximize our ability to compete and deliver across our global market segments.

In April 2023, Donald Walther was appointed as Comtech’s new Chief Legal Officer and Nicole Robinson was appointed as Chief Strategy Officer.

Walther has significant technology and aerospace industry experience in both public and private companies in the commercial and defense sectors with his previous experience at ITT Inc.

and the Boeing Company.

He will focus on ensuring Comtech's competitive differentiation through contracts is preserved and protected.

Prior to joining Comtech, Ms.

Robinson served as President of Ursa Space Systems, a leading satellite intelligence and data analytics provider.

Robinson also served as Senior Vice President of Global Government for SES, one of the largest commercial satellite operators in the world.

Robinson will focus on creating and implementing priority space business pursuits;

oversee the development and implementation of new technologies;

orchestrate global growth initiatives and lead other priorities related to geospatial imagery and data, as well as space communications in both U.S.

and international markets.

Notably, our people strategy extends beyond the organic development of our talent pipeline and the addition of proven leaders to our team.

Our strategy also includes regular assessments of the capabilities, experiences and skill sets of our Board members to ensure continued alignment with our short and long-term goals and objectives.

To that end, we are very excited to have both Lieutenant General (Retired) Bruce T.

Crawford and the Honorable Ellen M.

Lord join our Board of Directors, effective June 15, 2023.

As planned, during the three months ended April 30, 2023, we completed our migration to our new 146,000 square-foot facility in Chandler, Arizona.

We also continued to integrate our individual businesses into two segments and improve operational performance.

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 believe that these actions will further streamline and optimize our organization and cost structure as we approach the start of our fiscal 2024.

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

We believe that EVOKE will enhance our existing technologies and service offerings (e.g., cloud-native satellite ecosystems, 5G advanced services and “as-a-service” business models) as well as allow us to pioneer entirely new ideas and opportunities with the benefit of multiple perspectives, industry backgrounds and areas of expertise.

During our third quarter of fiscal 2023, we were pleased to announce that we added several new partners to EVOKE’s growing roster, including Aarna Networks, Descartes Labs, Inc.

and WishKnish Corp.

By combining Aarna Networks’ technologies with Comtech’s Dynamic Cloud Platform, the companies anticipate enabling customers to easily add and manage a variety of open architecture cloud-based applications across private, hybrid and public networks, in both terrestrial and non-terrestrial environments.

Descartes Labs will work with Comtech to infuse the power of artificial intelligence, machine learning, predictive intelligence and insight monitoring across Comtech’s product offerings.

We plan to collaborate with WishKnish on integrating highly secure, flexible distributed ledger (blockchain) technologies across diverse commercial and government applications.

As we enter the fourth 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.

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 fourth quarter of fiscal 2023, we are targeting consolidated net sales to sequentially increase approximately 2.0% to 4.0% and for our consolidated Adjusted EBITDA margin to range between 9.5% and 10.5%.

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.

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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 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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended April 30, 2023 and 2022" and " Comparison of the Results of Operations for the Nine Months Ended April 30, 2023 and 2022."

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2023 AND 2022

Consolidated net sales were $136.3 million and $122.1 million for the three months ended April 30, 2023 and 2022, respectively, representing an increase of $14.2 million, or 11.6%.

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

Satellite and Space Communications

Net sales in our Satellite and Space Communications segment were $80.4 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.

Net sales in our Satellite and Space Communications segment were $82.2 million for the three months ended April 30, 2023 as compared to $69.2 million for the three months ended April 30, 2022, an increase of $13.0 million or 18.9%.

Net sales for the three months ended April 30, 2023 primarily reflect significantly higher net sales of our troposcatter and SATCOM solutions to U.S.

government customers (including VSAT equipment for the U.S.

Army, progress toward delivering next-generation troposcatter terminals to the U.S.

Marine Corps and delivery of our COMET TM troposcatter terminals to an international customer), offset in part by lower sales of our satellite ground station technologies, solid-state, RF microwave high-power amplifiers and control components and high reliability EEE satellite-based space components.

Our Satellite and Space Communications segment represented 60.3% of consolidated net sales for the three months ended April 30, 2023 as compared to 56.6% for the three months ended April 30, 2022.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended April 30, 2023 was 0.94x.

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 $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.

Net sales in our Terrestrial and Wireless Networks segment were $54.1 million for the three months ended April 30, 2023, as compared to $53.0 million for the three months ended April 30, 2022, an increase of $1.1 million, or 2.1%.

Net sales in the three months ended April 30, 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 39.7% of consolidated net sales for the three months ended April 30, 2023 as compared to 43.4% for the three months ended April 30, 2022.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended April 30, 2023 was 0.47x.

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 January 31, 2023 and 2022 are as follows:

Three months ended January 31,

Sales by geography and customer type, as a percentage of related sales, for the three months ended April 30, 2023 and 2022 are as follows:

Three months ended April 30,

2023 2022 2023 2022 2023 2022

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state and local governments.

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.

No commercial customer accounted for greater than 10% of consolidated net sales for the three months ended April 30, 2023.

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

International sales for the three months ended April 30, 2023 and 2022 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $37.0 million and $34.3 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 January 31, 2023 and 2022.

domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for the three months ended April 30, 2023 and 2022.

Gross Profit.

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 was $43.1 million and $46.7 million for the three months ended April 30, 2023 and 2022, respectively.

Gross profit, as a percentage of consolidated net sales, for the three months ended April 30, 2023 was 31.7% as compared to 38.2% for the three months ended April 30, 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, including significantly higher net sales of our troposcatter and SATCOM solutions to U.S.

government customers, as discussed above.

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.

In addition, gross profit during the three months ended April 30, 2022 reflects a lower provision for warranty obligations in light of the reduced level of sales activity during that period.

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 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.

Our Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for the three months ended April 30, 2023 decreased in comparison to the three months ended April 30, 2022 and reflects changes in product and services mix, as discussed above.

Also, during the three months ended April 30, 2022, we incurred $0.1 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 April 30, 2023.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for the three months ended April 30, 2023 decreased in comparison to the three months ended April 30, 2022.

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

Included in consolidated cost of sales for the three months ended April 30, 2023 and 2022 are provisions for excess and obsolete inventory of $1.5 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 $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.

Selling, general and administrative expenses were $31.4 million and $27.6 million for the three months ended April 30, 2023 and 2022, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 23.0% and 22.6% for the three months ended April 30, 2023 and 2022, respectively.

During the three months ended April 30, 2023 and 2022, we incurred $4.1 million and $1.6 million, respectively, of restructuring costs primarily to streamline our operations and improve efficiency, including severance and 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.

Excluding restructuring costs, selling, general and administrative expenses for the three months ended April 30, 2023 and 2022 would have been $27.3 million, or 20.0%, and $26.0 million, or 21.3%, 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.

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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 expense recorded as selling, general and administrative expenses was $3.9 million in the three months ended April 30, 2023 as compared to $0.9 million in the three months ended April 30, 2022.

Such increase 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.

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

Research and Development Expenses.

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.

Research and development expenses were $11.7 million and $14.3 million for the three months ended April 30, 2023 and 2022, respectively.

As a percentage of consolidated net sales, research and development expenses were 8.6% and 11.7% for the three months ended April 30, 2023 and 2022, respectively.

For the three months ended April 30, 2023 and 2022, research and development expenses of $5.3 million and $7.4 million, respectively, related to our Satellite and Space Communications segment, and $6.3 million and $6.8 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 April 30, 2023 and 2022 related to the amortization of stock-based compensation expense.

During the three months ended April 30, 2023 and 2022, we incurred $1.0 million and $0.9 million, respectively, 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.

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 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.

During the three months ended April 30, 2023 and 2022, customers reimbursed us $4.5 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 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 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.

Amortization relating to intangible assets with finite lives for both the three months ended April 30, 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).

Operating Income (Loss).

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

Operating loss for the three months ended April 30, 2023 and 2022 was $5.3 and $0.6 million, respectively.

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

Three months ended January 31,

Three months ended April 30,

2023 2022 2023 2022 2023 2022 2023 2022

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Operating income (loss) $ 0.1 (0.1) 3.1 4.6 (8.5) (5.1) $ (5.3) (0.6)

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:

Percentage of related net sales 0.1 % NA 5.8 % 8.7 % NA NA NA NA

Our GAAP operating loss of $5.3 million for the three months ended April 30, 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);

(ii) $4.1 million of restructuring costs (of which $2.2 million, $0.5 million and $1.4 million related to our Satellite and Space Communications, Terrestrial and Wireless Networks and Unallocated segments, respectively);

(iii) $4.1 million of amortization of stock-based compensation;

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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);

Excluding such items, our consolidated operating income for the three months ended April 30, 2023 would have been $9.6 million.

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

(i) $5.3 million of amortization of intangibles;

(ii) $1.6 million of restructuring costs (all of which related to our Satellite and Space Communications segment);

(iii) $1.1 million of amortization of stock-based compensation;

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

(v) $0.2 million of amortization of cost to fulfill assets;

and (vi) $0.1 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.

Excluding such items, our consolidated operating income for the three months ended April 30, 2022 would have been $8.7 million.

The increase in operating income, excluding the above items, from $8.7 million to $9.6 million for the most recent period reflects the benefit of our One Comtech lean initiatives implemented through April 30, 2023, offset in part by a lower gross profit percentage on higher 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, 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.

The slight 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 April 30, 2023 was driven primarily by lower research and development expenses, offset in part by a lower gross profit percentage on significantly higher related segment net sales and higher restructuring costs, 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 April 30, 2023 was driven primarily by a lower gross profit percentage on higher related segment net sales, offset in part by lower research and development expenses, as discussed above.

Excluding the impact of its respective portion of restructuring charges, Unallocated expenses for the three months ended April 30, 2023 would have been $7.1 million, as compared to $5.1 million for the three months ended April 30, 2022.

The increase in Unallocated expenses, excluding such items, was primarily due to our increased investments in marketing, including new social media activities, and other investments we are making to achieve our long-term business goals.

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.

Interest expense was $4.4 million and $1.0 million for the three months ended April 30, 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 effective interest rate (including amortization of deferred financing costs) in the three months ended April 30, 2023 was approximately 10.1%, as compared to 3.3% in the prior year period.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our Credit Facility approximates 8.9%, as compared to 2.5% 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.

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

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

There was no similar adjustment during the three months ended April 30, 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 the three months ended April 30, 2023 and 2022, we recorded a tax benefit of $2.9 million and $0.8 million, respectively.

Our effective tax rate (excluding discrete tax items) for the three months ended April 30, 2023 and 2022 was 14.25% and 28.25%, respectively.

The decrease in the rate is primarily due to the recognition of a valuation allowance in a foreign jurisdiction.

For purposes of determining our 14.25% 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.

During the three months ended April 30, 2023, we recorded a net discrete tax benefit of $1.2 million 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.

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

federal income tax returns for fiscal 2020 through 2022 are subject to potential future IRS audit.

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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.

During the three months ended April 30, 2023 and 2022, consolidated net loss attributable to common stockholders was $9.2 million and $1.7 million, respectively.

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,

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the three months ended April 30, 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 April 30,

2023 2022 2023 2022 2023 2022 2023 2022

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Strategic emerging technology costs 1.0 0.9 — — — — 1.0 0.9

CEO transition costs — — — — — 13.6 — 13.6

Proxy solicitation costs — — — — — 9.1 — 9.1

Adjusted EBITDA $ 6.4 5.4 9.2 9.7 (3.0) (3.9) $ 12.5 11.2

Percentage of related net sales 7.7 % 7.8 % 16.9 % 18.4 % NA NA 9.2 % 9.2 %

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.

The increase in consolidated Adjusted EBITDA, in dollars, for the three months ended April 30, 2023 as compared to the three months ended April 30, 2022 reflects the benefit of our One Comtech lean initiatives implemented through April 30, 2023, offset in part by a lower gross profit percentage, as discussed above.

The increase in our Satellite and Space Communications segment's Adjusted EBITDA, in dollars, is primarily due to lower research and development expenses, offset in part by a lower gross profit percentage on significantly higher related segment net sales, 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, offset in part by lower selling, general and administrative and research and development expenses, as discussed above.

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

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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 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.

We have not quantitatively reconciled our fourth 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).

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the three months ended April 30, 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.

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

In addition, due to the GAAP net loss for the period, Non-GAAP 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 addition, due to the GAAP net loss for the period, Non-GAAP net (loss) income per diluted common share for the three months ended April 30, 2023 and 2022 was computed using weighted average diluted shares outstanding of 28,498,000 and 27,225,000, respectively, during the period.

Three months ended April 30, 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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Amortization of intangibles

Restructuring costs

Amortization of stock-based compensation

Restructuring costs

Strategic emerging technology costs 1.0 0.9 0.03

Amortization of costs to fulfill assets 0.2 0.2 0.01

Net discrete tax expense

Net discrete tax benefit

— (1.2) (0.04)

Non-GAAP measures $ 9.6 $ 3.0 $ 0.11

Three months ended January 31, 2022

Three months ended April 30, 2022

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

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Adjustments to reflect redemption value of convertible preferred stock

CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

Amortization of intangibles

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Restructuring costs

Strategic emerging technology costs 0.9 0.7 0.03

Amortization of costs to fulfill assets 0.2 0.2 0.01

COVID-19 related costs

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liability — (0.3) (0.01)

Net discrete tax benefit

— (0.1) (0.01)

Net discrete tax expense

Non-GAAP measures $ 8.7 $ 6.9 $ 0.25

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.

COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED APRIL 30, 2023 AND 2022

Consolidated net sales were $401.2 million and $359.3 million for the nine months ended April 30, 2023 and 2022, respectively, representing an increase of $41.9 million, or 11.7%.

The period-over-period increase in consolidated net sales primarily reflects significantly 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.

Net sales in our Satellite and Space Communications segment were $243.5 million for the nine months ended April 30, 2023 as compared to $202.9 million for the nine months ended April 30, 2022, an increase of $40.6 million or 20.0%.

Related segment net sales for the nine months ended April 30, 2023 primarily reflect significantly higher net sales of our troposcatter and SATCOM solutions to U.S.

government customers (including delivery of our COMET TM troposcatter terminals to international customers, VSAT equipment for the U.S.

Army and progress toward delivering next-generation troposcatter terminals to the U.S.

Marine Corps) and satellite ground station technologies, offset in part by lower sales of our solid-state, RF microwave high-power amplifiers and control components and high reliability EEE satellite-based space components.

Our Satellite and Space Communications segment represented 60.7% of consolidated net sales for the nine months ended April 30, 2023 as compared to 56.5% for the nine months ended April 30, 2022.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the nine months ended April 30, 2023 was 1.44x.

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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.

Net sales in our Terrestrial and Wireless Networks segment were $157.7 million for the nine months ended April 30, 2023, as compared to $156.4 million for the nine months ended April 30, 2022, an increase of $1.3 million, or 0.8%.

Related segment net sales for the nine months ended April 30, 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 39.3% of consolidated net sales for the nine months ended April 30, 2023 as compared to 43.5% for the nine months ended April 30, 2022.

Our book-to-bill ratio in this segment for the nine months ended April 30, 2023 was 0.64x.

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

Six months ended January 31,

Sales by geography and customer type, as a percentage of related sales, for the nine months ended April 30, 2023 and 2022 are as follows:

Nine months ended April 30,

2023 2022 2023 2022 2023 2022

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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.

Included in domestic sales are sales to Verizon, which accounted for 11.2% and 11.1% of consolidated net sales for the nine months ended April 30, 2023 and 2022, respectively.

International sales for the nine months ended April 30, 2023 and 2022 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $96.2 million and $89.9 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.

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

Gross profit was $135.9 million and $134.3 million for the nine months ended April 30, 2023 and 2022, respectively, an increase of $1.6 million.

Gross profit, as a percentage of consolidated net sales, for the nine months ended April 30, 2023 was 33.9% as compared to 37.4% for the nine months ended April 30, 2022.

government customers, as discussed above.

In addition, during the nine months ended April 30, 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.

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.

Our Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for the nine months ended April 30, 2023 is comparable to the nine months ended April 30, 2022 and reflects changes in products and services mix, as discussed above.

Also, during the nine months ended April 30, 2022, we incurred $1.1 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 nine months ended April 30, 2023.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for the nine months ended April 30, 2023 decreased in comparison to the nine months ended April 30, 2022.

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

Included in consolidated cost of sales for the nine months ended April 30, 2023 and 2022 are provisions for excess and obsolete inventory of $2.8 million and $3.3 million, respectively.

As discussed in "Item 2.

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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.

Selling, general and administrative expenses were $89.6 million and $85.7 million for the nine months ended April 30, 2023 and 2022, respectively.

As a percentage of consolidated net sales, selling, general and administrative expenses were 22.3% and 23.9% for the nine months ended April 30, 2023 and 2022, respectively.

During the nine months ended April 30, 2023 and 2022, we incurred $7.0 million and $4.0 million, respectively, of restructuring costs primarily to streamline our operations and improve efficiency, including severance and 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.

Excluding restructuring costs, selling, general and administrative expenses for the nine months ended April 30, 2023 and 2022 would have been $82.6 million or 20.6% and $81.7 million or 22.7%, 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.

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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 expense recorded as selling, general and administrative expenses was $5.6 million in the nine months ended April 30, 2023 as compared to $3.5 million in the nine months ended April 30, 2022.

The most recent period reflects our assumption that fully vested, unrestricted share units will be granted to certain employees in lieu of fi scal 2023 non-equity incentive compensation .

Amortization of stock-based compensation expense 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.

Research and development expenses were $36.9 million and $39.4 million for the nine months ended April 30, 2023 and 2022, respectively, representing a decrease of $2.5 million or 6.4%.

As a percentage of consolidated net sales, research and development expenses were 9.2% and 11.0% for the nine months ended April 30, 2023 and 2022, respectively.

For the nine months ended April 30, 2023 and 2022, research and development expenses of $17.3 million and $20.6 million, respectively, related to our Satellite and Space Communications segment and $19.3 million and $18.5 million, respectively, related to our Terrestrial and Wireless Networks segment.

The remaining research and development expenses of $0.3 million in both the nine months ended April 30, 2023 and 2022, respectively, related to the amortization of stock-based compensation expense.

During the nine months ended April 30, 2023 and 2022, we incurred $2.5 million and $0.9 million, respectively, 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.

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.

During the nine months ended April 30, 2023 and 2022, customers reimbursed us $10.1 million and $8.0 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

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).

Amortization relating to intangible assets with finite lives for both the nine months ended April 30, 2023 and 2022 was $16.0 million (of which $5.5 million was for the Satellite and Space Communications segment and $10.5 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 the nine months ended April 30, 2022, we incurred $11.2 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now settled proxy contest initiated by a shareholder.

During 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.

There were no similar costs during the nine months ended April 30, 2023.

CEO Transition Costs .

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

CEO transition costs were $9.1 million for the nine months ended April 30, 2023.

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

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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.

CEO transition costs were $13.6 million for the nine months ended April 30, 2022 and related to our former CEO, Fred Kornberg.

Of such amount, $10.3 million related to Mr.

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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 loss for the nine months ended April 30, 2023 and 2022 was $15.8 million and $31.7 million, respectively.

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

Six months ended January 31,

Nine months ended April 30,

2023 2022 2023 2022 2023 2022 2023 2022

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Operating income (loss) $ 8.4 (7.9) 7.2 17.6 (31.4) (41.4) $ (15.8) (31.7)

Percentage of related

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

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

Percentage of related net sales 3.4 % NA 4.6 % 11.2 % NA NA NA NA

Our GAAP operating loss of $15.8 million for the nine months ended April 30, 2023 reflects:

(i) $16.0 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);

(iii) $7.0 million of restructuring costs (of which $4.4 million, $0.5 million and $2.1 million related to our Satellite and Space Communications, Terrestrial and Wireless Networks and Unallocated segments, respectively);

(iv) $6.3 million of amortization of stock-based compensation;

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and (vi) $0.7 million of amortization of cost to fulfill assets, as discussed above.

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) $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.

Excluding such items, our consolidated operating income for the nine months ended April 30, 2023 would have been $25.9 million, or 6.4% of consolidated net sales.

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

(i) $16.0 million of amortization of intangibles;

(ii) $13.6 million of CEO transition costs;

(iii) $11.2 million of proxy solicitation costs;

(iv) $4.0 million of restructuring costs (all of which related to our Satellite and Space Communications segment);

(v) $4.0 million of amortization of stock-based compensation;

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

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

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

Excluding such items, our consolidated operating income for the nine months ended April 30, 2022 would have been $19.5 million, or 5.4% of consolidated net sales.

The increase in operating income, excluding the above items, from $19.5 million to $25.9 million for the most recent period reflects the benefit of our One Comtech lean initiatives implemented through April 30, 2023 and, to a lesser extent, 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, 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.

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 nine months ended April 30, 2023 was driven primarily by an increase in related segment net sales and lower 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 nine months ended April 30, 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 nine months ended April 30, 2023 would have been $20.2 million, as compared to $16.5 million for the nine months ended April 30, 2022.

The increase in Unallocated expenses excluding such items was primarily due to our increased investments in marketing, including new social media activities, and other investments we are making to achieve our long-term business goals.

Interest Expense and Other.

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

Interest expense was $10.4 million and $3.6 million for the nine months ended April 30, 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 effective interest rate (including amortization of deferred financing costs) in the nine months ended April 30, 2023 was approximately 8.3%, as compared to 3.2% in the prior year period.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility approximates 8.9%, as compared to 2.5% in the prior year period.

Interest (Income) and Other.

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

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

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

There was no similar adjustment during the nine months ended April 30, 2023.

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

Benefit from Income Taxes.

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.

For the nine months ended April 30, 2023 and 2022, we recorded a tax benefit of $3.8 million and $6.1 million, respectively.

Our effective tax rate (excluding discrete tax items) for the nine months ended April 30, 2023 and 2022 was 14.25% and 28.25%, respectively.

The decrease in the rate is primarily due to the recognition of a valuation allowance in a foreign jurisdiction.

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.

During the nine months ended April 30, 2023, we recorded a net discrete tax benefit of $1.2 million 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.

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

federal income tax returns for fiscal 2020 through 2022 are subject to potential future IRS audit.

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Net Loss Attributable to Common Stockholders.

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.

During the nine months ended April 30, 2023 and 2022, consolidated net loss attributable to common stockholders was $28.6 million and $36.4 million, respectively.

Adjusted EBITDA.

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,

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the nine months ended April 30, 2023 and 2022 are shown in the table below (numbers in the table may not foot due to rounding):

Nine months ended April 30,

2023 2022 2023 2022 2023 2022 2023 2022

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Net income (loss) $ 9.6 (7.3) 7.1 17.4 (40.0) (38.0) $ (23.4) (27.9)

(Benefit from) provision for income taxes (0.6) (0.5) (0.3) (0.1) 0.1 (4.7) (0.8) (5.3)

Benefit from income taxes (1.8) (0.5) (0.2) — (1.7) (5.7) (3.8) (6.1)

Interest expense — 0.1 — — 10.4 3.5 10.4 3.6

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Amortization of stock-based compensation — — — — 6.3 4.0 6.3 4.0

Depreciation 2.0 1.6 3.7 2.9 0.1 0.1 5.8 4.6

Amortization of intangibles 5.5 5.5 10.6 10.6 — — 16.0 16.0

Depreciation 3.1 2.4 5.6 4.5 0.1 0.2 8.7 7.1

Amortization of cost to fulfill assets 0.7 0.2 — — — — 0.7 0.2

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Percentage of related net sales 10.1 % 3.1 % 15.2 % 20.8 % NA NA 8.6 % 7.4 %

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):

($ 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.

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 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).

The increase in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the nine months ended April 30, 2023 as compared to the nine months ended April 30, 2022 reflects the benefit of our One Comtech lean initiatives implemented through April 30, 2023, 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 lower 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 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, and our definition of Adjusted EBITDA, is presented above in "Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended April 30, 2023 and 2022."

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the nine months ended April 30, 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).

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

In addition, due to the GAAP net loss for the period, Non-GAAP 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 addition, due to the GAAP net loss for the period, Non-GAAP net (loss) income per diluted common share for the nine months ended April 30, 2023 and 2022 was computed using weighted average diluted shares outstanding of 28,353,000 and 27,160,000 respectively, during the period.

Nine months ended April 30, 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

16.0 12.4 0.44

CEO transition costs

Restructuring costs

Amortization of stock-based compensation

Restructuring costs

Strategic emerging technology costs

Amortization of cost to fulfill assets

Net discrete tax expense

Net discrete tax benefit

— (0.7) (0.03)

Non-GAAP measures $ 25.9 $ 10.2 $ 0.36

Six months ended January 31, 2022

Nine months ended April 30, 2022

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

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Restructuring costs

Strategic emerging technology costs

Amortization of cost to fulfill assets

COVID-19 related costs

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LIQUIDITY AND CAPITAL RESOURCES

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 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.

Our cash and cash equivalents were $21.4 million and $21.7 million at April 30, 2023 and July 31, 2022, respectively.

For the nine months ended April 30, 2023, our cash flows reflect the following:

• Net cash used in operating activities was $0.2 million for the nine months ended April 30, 2023 as compared to net cash provided by operating activities of $8.4 million for the nine months ended April 30, 2022.

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

• Net cash used in investing activities for the nine months ended April 30, 2023 and 2022 was $14.9 million and $14.4 million, respectively.

Net cash used in investing activities for the nine months ended April 30, 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 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.

• Net cash provided by financing activities was $14.8 million and $8.0 million for the nine months ended April 30, 2023 and 2022, respectively.

During the nine months ended April 30, 2023, we had net borrowings under our Credit Facility of $29.8 million, as compared to net payments under our Credit Facility of $74.0 million during the nine months ended April 30, 2022.

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

During the nine months ended April 30, 2023, we paid deferred financing costs of $3.8 million in connection with the amendment of our Credit Facility.

During the nine months ended April 30, 2023 and 2022, we paid $8.7 million and $8.4 million, respectively, in cash dividends to our common stockholders.

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

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

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

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

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

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

Encouraged by the progress that we have made related to our One Comtech transformation, our launch of EVOKE and our emerging growth opportunities, as previously disclosed, 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.

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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 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.

Based on our current revenue visibility and anticipated benefits of our One Comtech profit improvement initiatives, 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.

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

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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.

As of April 30, 2023, the amount outstanding under our Credit Facility was $159.8 million, comprised of $111.0 million under the Revolving Loan Facility and $48.8 million under the Term Loan.

At April 30, 2023, we had $1.0 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the nine months ended April 30, 2023, we had outstanding balances under the Credit Facility ranging from $130.0 million to $182.4 million.

As of April 30, 2023, our Secured Leverage Ratio was 3.73x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") compared to the maximum allowable Secured Leverage Ratio of 4.00x TTM Adjusted EBITDA.

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

Our Minimum Liquidity was $32.5 million compared to the Minimum Liquidity requirement of $25.0 million.

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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 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:

We do not expect that these commitments, as of April 30, 2023, will materially adversely affect our liquidity.

At April 30, 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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Operating lease obligations 58,642 9,343

Dividends payable 2,775 2,775

Contractual cash obligations $ 239,723 27,416

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

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

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

Our Condensed Consolidated Balance Sheet at 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.

We 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.

Our Condensed Consolidated Balance Sheet at April 30, 2023 includes total liabilities of $8.9 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 January 31, 2023, 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 April 30, 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