What changed in this filing

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Item 1A. Risk Factors

2023-10-12 compared with 2022-09-29 · 89 added, 105 removed, 729 unchanged (21% of the section changed)

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For a more complete discussion of the material risks facing our business, please see below:

• We are unable to predict the extent to which the ongoing COVID-19 pandemic and related supply chain constraints will continue to adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives.

• New and ongoing challenges relating to current supply chain constraints and impacts from inflation, including for satellite ground station and troposcatter components, could adversely impact our revenue, gross margins and financial results.

• Our business outlook is difficult to forecast and operating results are subject to significant fluctuations and are likely to be volatile.

• If global economic business and political conditions deteriorate as compared to the current environment it could have a material adverse impact on our business outlook and our business, operating results and financial condition.

• We have significant operations in locations which could be materially and adversely impacted in the event of a terrorist attack or other significant disruptions (including natural disasters).

• The military conflict between Russia and Ukraine, and the global response to it could adversely impact our revenues, gross margins and financial results.

Government's budget deficit, as well as a breach of the debt ceiling, could have an adverse impact on our operations.

Business Risks

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• A change by wireless carrier partners in the pricing and other terms by which they offer our products to their end-customers could have a material adverse affect.

• Disputes with our subcontractors or key suppliers or their inability to deliver on a timely basis, could cause unanticipated delays in our shipments.

Strategic Growth Risks

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• Changes in U.S.

federal, state and foreign tax law could adversely affect our business and financial condition.

federal, state and foreign tax returns are subject to audit and a resulting tax assessment or settlement could have a material adverse effect on our business, results of operations and financial condition.

federal, state and local and foreign tax law could adversely affect our business and financial condition.

federal, state and local and foreign tax returns are subject to audit and a resulting tax assessment or settlement could have a material adverse effect on our business, results of operations and financial condition.

• We may be subject to environmental liabilities.

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• We are, from time to time, and could become a party to additional litigation or subject to claims.

Additionally, we may become subject to government investigations, which may have an adverse effect on our financial condition.

• Protection of our intellectual property is limited and pursuing infringers of our patents and other intellectual property rights can be costly.

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• Provisions in our corporate documents and Delaware law could delay or prevent a change in control of Comtech.

• A disruption in our Common Stock dividend program could negatively impact our stock price.

The ongoing COVID-19 pandemic and related supply chain constraints have impacted our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve.

We are unable to predict the extent to which the pandemic, supply chain constraints and related effects will adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives.

The COVID-19 pandemic and related disease control measures have significantly impacted the global economy and has created significant supply chain constraints.

These issues have had and could continue to have adverse effects on our business, financial position, results of operations and cash flows.

Although there has been an increase in vaccinations throughout the United States, vaccinations internationally have progressed at a slower rate and the impact of new strains of the virus are uncertain.

The situation is changing rapidly and there may be additional impacts of which we are currently unaware.

The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which cannot be predicted.

Poor business conditions due to the COVID-19 pandemic have resulted in the suppression of end-market demand for many of our products such as satellite ground station technologies and other short-lead time products.

Because the timing, impact, severity and duration of these conditions are impossible to predict and remain ongoing, there is a risk that such conditions will have an adverse effect on our future consolidated results of operations, in particular in light of ongoing global supply chain disruptions, part shortages and extended lead times for components.

The impact of the pandemic on our business has included or could in the future include:

• disruptions to or restrictions on our ability to ensure the continuous manufacture and supply of our products and services, including insufficiency of our existing inventory levels;

• temporary closures or reductions in operational capacity of our facilities or the facilities of our direct or indirect suppliers or customers;

• permanent closures of our direct and indirect suppliers, resulting in adverse effects to our supply chain;

• temporary shortages of skilled employees available to staff manufacturing, production and assembly facilities due to stay at home orders in many markets and travel restrictions within as well as into and out of countries;

• increases in operational expenses and other costs related to requirements implemented to mitigate the impact of the pandemic on our business and workforce;

• supply chain disruptions, including increased freight costs;

• delays or limitations on the ability of our customers to perform or make timely payments;

• cancellations in our backlog;

• reductions in short- and long-term demand for our products, or other disruptions in technology buying patterns;

• adverse effects on economies and financial markets globally or in various markets throughout the world, potentially leading to a prolonged economic downturn or reductions in business and consumer spending, which may adversely affect our results of operations and cause difficulty in managing inventory levels;

• delays to and/or lengthening of our sales or development cycles or qualification activity;

• challenges for us, our direct and indirect suppliers and our customers in obtaining financing due to turmoil in financial markets;

• workforce disruptions due to illness, quarantines, governmental actions, other restrictions, and/or the social distancing measures to mitigate the impact of COVID-19 at certain of our locations around the world in an effort to protect the health and well-being of our employees, customers, suppliers and of the communities in which we operate (including potential returns to restricting the number of employees attending events or meetings in person, limiting the number of people in our buildings and factories at any one time, restricting access to our facilities, suspending employee travel and meeting in person with customers);

• increased vulnerability to cyberattacks due to the significant number of employees working remotely;

• our management team continuing to commit significant time, attention and resources to monitoring the COVID-19 pandemic and seeking to mitigate its effects on our business and workforce.

The ultimate extent of the impact of COVID-19 and supply chain constraints on our business, financial condition and results of operations will depend on future developments, which are still highly uncertain and cannot be predicted at this time.

These impacts, individually or in the aggregate, have had and could continue to have adverse effects on our business, results of operations and financial condition.

Such effect may be exacerbated in the event the pandemic, the measures taken in response to it, and their effects, persist for an extended period of time, or if there are periodic resurgences of COVID-19.

New and ongoing challenges relating to current supply chain constraints and impacts from inflation, including for satellite ground station and troposcatter components, could adversely impact our revenue, gross margins and financial results.

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Even when raw materials and components are available, they often come with higher prices reflecting an imbalance between supply and demand, as well as inflationary pressures affecting global markets.

The effects of the COVID-19 pandemic, inflation, labor challenges and the ongoing conflict between Russia and Ukraine have caused, and we expect will continue to cause further delays in the supply chain.

Despite our attempts to mitigate the impact on our business, constrained supply conditions have and are expected to continue to adversely impact our costs of goods sold and may impact the timing and amount of revenue we realize.

The effects of inflation and labor challenges have caused, and we expect will continue to cause further delays in the supply chain.

Despite our attempts to mitigate the impact on our business, constrained supply chain conditions have and are expected to continue to adversely impact our costs of goods sold and may impact the timing and amount of revenue we realize.

During fiscal 2023, we experienced disruptions in our supply chain relating to later-than-expected delivery of certain key components from several suppliers that adversely impacted our revenue in fiscal 2023.

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Some of our single source suppliers, particularly those that provide satellite ground station and troposcatter components, have reported to us that they are having disruptions in their respective supply chains.

These single source components, which includes items such as cooling fans and power supplies, are in limited supply.

These single source components, which include items such as cooling fans and power supplies, are in limited supply.

In some cases, we have now depleted our stock inventory and we are on waiting lists to obtain additional components.

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the price and expected volatility of our stock (which will impact, among other items, the amount of stock-based compensation expense we may record);

general global economic conditions, and the impact of natural disasters or global pandemics.

general global economic conditions, and the impact of natural disasters or global pandemics, such as the COVID-19 pandemic.

We have experienced, and will experience in the future, significant fluctuations in bookings, net sales and operating results from period to period.

For example, a sudden change in global economic conditions (or a worsening of the COVID-19 pandemic as described above) could have an immediate impact on a large portion of our net sales, a large amount of which are derived from products such as satellite ground station technologies, amplifier products and mission-critical technologies that generally have short order and lead times.

For example, a sudden change in global economic or political conditions could have an immediate impact on a large portion of our net sales, a large amount of which are derived from products such as satellite ground station technologies, amplifier products and mission-critical technologies that generally have short order and lead times.

Similarly, sales of certain of our public safety and location technologies are subject to sudden changes in wireless carrier procurement strategies, including decisions to sole-source such solutions or to perform such solutions internally.

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In recent years, global oil and natural gas prices have been volatile and have significantly impaired the ability of certain of our government customers in the oil and gas producing regions of the world to invest in telecommunications products and infrastructure.

Additionally, the relative strength of the U.S.

Additionally, from time to time, the relative strength of the U.S.

dollar against many international currencies has negatively impacted the purchasing power for many of our international end-customers because most of our sales are denominated in U.S.

We generate significant sales from many emerging and developing countries and any such reduced purchasing power of our customers could adversely impact our sales and backlog.

In addition, many of our international customers (including our Middle Eastern and African customers) rely on European bank or government financing to procure funding for large systems, many of which include our equipment.

We believe that European financing has been and will continue to be difficult to obtain.

If credit in financial markets outside of the U.S.

remains difficult to obtain, our international customers and suppliers may find it difficult to obtain financing, which could result in a decrease in or cancellation of orders for our products and increased transaction costs (e.g., insurance, performance bonds).

Volatility of financing conditions may cause our customers to be reluctant to spend funds required to purchase our equipment and could cause their projects to be postponed or canceled.

In addition, if an adverse economic environment and lack of financing results in insolvencies for our customers, it would adversely impact the recoverability of our accounts receivable and/or inventories which would, in turn, adversely impact our results of operations.

The United Kingdom ("U.K.") exited from the European Union ("E.U.") on January 31, 2020.

Such exit, commonly referred to as "Brexit," has created and may continue to create economic and political uncertainties and impacts that could have an adverse effect on our business, operations and profitability.

Although the U.K.

entered a trade agreement for goods that was approved by the European Parliament in April 2021, there is no guarantee that it will remain in force as other cross-border issues remain contested.

We maintain production, engineering and sales facilities in the U.K.

and adverse consequences of Brexit could result in a deterioration in global economic conditions, instability in global financial markets, political and regulatory uncertainty, volatility in currency exchange rates, or adverse changes in the cross-border agreements currently in place, any of which could have an adverse impact on our financial results in the future.

We believe that the current global economic business environment is unstable and sudden negative changes could result in the immediate suppression of end-market demand for many of our products such as satellite ground station technologies and other short lead-time products.

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We currently, and intend to continue to, operate a high-volume technology manufacturing center located in Arizona.

The COVID-19 pandemic, a terrorist attack or similar future event may disrupt our operations or those of our customers or suppliers and may affect the availability of materials needed to manufacture our products or the means to transport those materials to manufacturing facilities and finished products to customers.

A terrorist attack or similar future event may disrupt our operations or those of our customers or suppliers and may affect the availability of materials needed to manufacture our products or the means to transport those materials to manufacturing facilities and finished products to customers.

If a natural disaster or other business interruption occurred with respect to our high-volume technology manufacturing center, we do not have immediate access to other manufacturing facilities and, as a result, our business, results of operations and financial condition could be materially adversely affected.

To support our long-term business goals for our satellite earth station product line, in fiscal 2021, we commenced a 15-year lease for a new 146,000 square foot facility in Chandler, Arizona and began shifting production of our satellite earth station products from our existing Tempe, Arizona locations.

If we are unable to have a smooth transition to our new facility, production and deliveries of our products may be impacted and we may incur unexpected costs.

To support our long-term business goals for our satellite earth station product line, in fiscal 2023, we completed our relocation of certain of our satellite earth station product line operations to our new 146,000 square foot facility in Chandler, Arizona.

Nevertheless, loss of that facility would have a negative impact on our production capability and we would incur unexpected costs and lost revenue associated with our inability to meet our contractual commitments.

We design and manufacture our over-the-horizon microwave equipment and systems in Florida, where major hurricanes have occurred in the past, and amplifiers in Santa Clara, California, an area close to major earthquake fault lines, and also manufacture amplifiers in Melville, New York, an area subject to hurricanes.

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and/or loss of life, all of which could materially increase our costs and expenses and adversely affect our business, results of operations and financial condition.

In addition, the COVID-19 pandemic has resulted in travel restrictions and business shutdowns both domestically and globally, including in locations in which we have significant operations.

These or any further political, governmental or other actions to contain the spread or treat the impact of COVID-19, and the resulting developments, are highly uncertain and unpredictable and could result in social, economic and labor instability.

These uncertainties could have an adverse effect on the continuity of our business and our financial condition, the results of operations and cash flows.

The military conflict between Russia and Ukraine, and the global response to it could adversely impact our revenues, gross margins and financial results.

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Although sales into Russia represented approximately 1% of our consolidated net sales in fiscal 2023 and 2022, consolidated net sales into Russia in fiscal 2024 and beyond were expected to significantly grow.

As a result of the economic sanctions against Russia, we are assuming no new sales in Russia in fiscal 2023 and the foreseeable future.

As a result of this conflict, in fiscal 2022, certain customers (including the U.S.

As a result of the economic sanctions against Russia, however, we have stopped accepting new orders in Russia and plan to wind down operations in fiscal 2024.

Accordingly, we are completing the production of backlog for approved in-country customers and repatriating cash proceeds as permitted by both U.S.

and Russian law.

As a result of this conflict, in fiscal 2022 and 2023, certain customers (including the U.S.

and Ukrainian government) paused procurement and deployment of satellite and troposcatter communication systems, and instead began purchasing war-fighting equipment.

It has become difficult to predict the timing or dollar amount of our contract awards in the region.

For example, we had several opportunities to provide wireless communication systems (including troposcatter systems) to Ukraine for a variety of both defense and communications uses.

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government and these items were expected to be awarded and shipped in the second half of fiscal 2022.

As result of the conflict in Ukraine, it has become difficult to predict the timing or dollar amount of these types of awards.

As result of the conflict in Ukraine, however, the award was not received and shipped until the first half of our fiscal 2023.

Additionally, funding for opportunities with other customers that we expected to book and ship has also been shifted to other programs and/or temporarily delayed as a result of changes in defense spending priorities.

Prior to this conflict, we maintained a small group of employees in Moscow, Russia who supported certain UHP-branded satellite communications products.

We are actively hiring new employees, expanding our Canadian operations and shifting certain commercial software development and support activities outside of Russia.

In fiscal 2023, we continued to expand our Canadian operations and shifted certain commercial software development and support activities outside of Russia.

However, as we are currently in an environment where software engineering talent is already in high demand and commands a premium, we expect to incur additional annual expenses in connection with this personnel shift for our UHP products.

We may not be able to timely ramp up our operations in Canada or elsewhere on a sufficient scale to support anticipated growth of our UHP products, which could adversely impact future revenues, gross margins and operations.

Our sales to government customers are highly dependent on the U.S.

defense budget, which in turn is driven by an annual appropriation by Congress.

These appropriations rarely align with the performance period of our contracts—for instance, most of our government contracts are only partially funded at inception.

DoD budgets are driven by factors that are outside our control (such as economic conditions, administration policy shifts within the Executive branch and geopolitical events).

Any one or combination of these factors may adversely impact our operations, resulting in a decline of sales and operating income.

Business Risks

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government) are subject to cancellation at the convenience of the customer or for default in the event that we are unable to perform under the contract.

For some contracts, where we are a subcontractor (and not the prime contractor), the U.S.

government could terminate the prime contractor for convenience without regard for our performance as a subcontractor.

In some cases, such as contracts received from large U.S.

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government, which undergoes extreme budgetary pressures from time to time.

We rely on particular levels of U.S.

We rely on U.S.

government spending on our communication solutions, and our receipt of future orders depends in large part on continued funding by the U.S.

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government is unable to make timely payments.

A decrease in Department of Defense or Department of Homeland Security expenditures, the elimination or curtailment of a material program in which we are involved (such as the withdrawal of troops from Afghanistan or other parts of the world), or changes in payment patterns of our customers as a result of changes in U.S.

A decrease in DoD or Department of Homeland Security expenditures, the elimination or curtailment of a material program in which we are involved, or changes in payment patterns of our customers as a result of changes in U.S.

government spending could have an adverse effect on our business, results of operations and financial condition.

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We may experience related supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and subcontractors.

Moreover, an outbreak of a pandemic such as the COVID-19 pandemic and associated quarantines, closures and travel restrictions may cause temporary or long-term disruptions in our supply chain and distribution systems.

All of the aforementioned conditions and factors could, in the aggregate, have a material adverse effect on our business, results of operations and financial condition.

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government - Our U.S.

government contracts can be terminated by the U.S.

government contracts and subcontracts can be terminated by the U.S.

government for its convenience or upon an event of default by us.

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If costs are found to be improperly allocated to a specific contract, those costs will not be reimbursed, and any such costs already reimbursed would be required to be refunded.

TCS underwent audits by the DCAA for periods prior to Comtech’s fiscal 2016 acquisition of TCS.

The DCAA has informed us that it is proposing retroactive contracts adjustments that, if finalized and issued, would result in the need for us to provide a refund to the U.S.

government of approximately $2.4 million.

We disagree with the DCAA’s assessment and would vigorously protest any adjustment, but ultimately an adjustment may be issued.

Although we record contract revenues based upon costs we expect to realize upon final audit, we cannot predict the outcome of any such future audits and adjustments, and we may be required to materially reduce our revenues or profits upon completion and final negotiation of audits.

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companies for inclusion in products that will be sold to international customers) represented approximately 24.0%, 25.0% and 23.9% of our consolidated net sales for the fiscal years ended July 31, 2023, 2022 and 2021, respectively, and we expect that international sales will continue to be a significant portion of our consolidated net sales for the foreseeable future.

These sales expose us to certain risks, including barriers to trade, fluctuations in foreign currency exchange rates (which may make our products less price-competitive), political and economic instability, exposure to public health epidemics, availability of suitable export financing, tariff regulations, and other U.S.

These sales expose us to certain risks, including barriers to trade, declining trade relations, fluctuations in foreign currency exchange rates (which may make our products less price-competitive), political, legal, social and economic instability, exposure to public health epidemics, availability of suitable export financing, tariff regulations, and other U.S.

and foreign regulations that may apply to the export of our products.

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If we are unable to meet contractual requirements with our wireless carrier partners, they could terminate our agreements or we may be required to refund a portion of monthly subscriptions fees they have paid us.

Disputes with our subcontractors or key suppliers or their inability to deliver on a timely basis, could cause unanticipated delays in our shipments.

Our subcontractors and key suppliers are essential members of our team.

Nevertheless, we may occasionally have commercial disputes with them (e.g., over the quality, timeliness or cost of their products).

Additionally, our subcontractors and suppliers may experience financial difficulties which may impact their ability to execute against their contractual commitments and delay or otherwise disrupt deliveries.

In such instances, we may not receive the components or subsystems for which we have contracted.

Taken together, each of the risks set forth herein may have a material adverse effect on our results of operations and financial condition.

External events outside our control may disrupt our supply chain.

With recent history in mind, natural disasters, pandemics, extreme weather conditions, legislative or regulatory changes may all impact the performance of our supplier base.

Our subcontractors and suppliers may also, in turn, be unable to maintain the quality of the materials they receive from their respective suppliers.

Our reliance on a single partner to source critical parts (i.e., where we are unable to develop a critical redundant source of supply) may impair our ability to produce and deliver our products.

This negative impact could be even greater where we are required to comply with sourcing requirements within our U.S.

government contracts regarding the purchase of counterfeit or otherwise non-compliant parts or materials.

In some instances, where we rely on supplier certifications of compliance with these laws and regulations, an improper or incomplete certification may adversely impact our production capability.

Strategic Growth Risks

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These risks include:

• We may not be ultimately successful in implementing our "One Comtech" transformation and integration of individual businesses into two segments - The transformation of Comtech from stand-alone individual businesses toward a single “One Comtech” is a complex undertaking, requiring the consolidation of both manufacturing and back-office teams around the globe in parallel with a global re-branding effort.

Managing the merger of multiple production facilities and their attending employee populations is difficult and may negatively impact business prospects in the short and long term.

Similarly, our re-branding of the company as Comtech risks damaging goodwill accumulated over decades of operation as individual businesses.

• The loss of key technical and/or management personnel could adversely affect our business - Our future success depends on the continued contributions of key technical and management personnel.

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We must carefully manage research and development capabilities and production and inventory levels to meet product demand, new product introductions and product and technology transitions.

Our planned moves to new high volume manufacturing facility in Chandler, Arizona may be delayed and subject to unforeseen costs (both capital and operational), which could impede our ability to complete customer orders and thereby have a material adverse effect on our business, results of operations and financial condition.

If we are not able to timely and effectively manage our growth and maintain the quality standards required by our existing and potential customers, it could have an adverse effect on our business, results of operations and financial condition.

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There can be no assurance that we will be able to continue to compete successfully on price or other terms, or that our competitors will not develop new technologies and products that are more effective than our own.

We expect the Department of Defense’s increased use of commercial off-the-shelf products and components in military equipment will encourage new competitors to enter the market.

We expect the DoD’s increased use of commercial off-the-shelf products and components in military equipment will encourage new competitors to enter the market.

Also, although the implementation of advanced telecommunications services is in its early stages in many developing countries, we believe competition will continue to intensify as businesses and foreign governments realize the market potential of telecommunications services.

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Although we obtain certain components and subsystems from a single source or a limited number of sources, we believe that most components and subsystems are available from alternative suppliers and subcontractors.

During the past three years, partly driven by the COVID-19 pandemic and as a result of overall increased industry-wide demand, lead times for many components have increased as well as freight costs.

During the past four years, partly driven by the COVID-19 pandemic and as a result of overall increased industry-wide demand, lead times for many components have increased as well as freight costs.

In addition, threats of or actual tariffs could limit our ability to obtain certain parts on a cost-effective basis, or at all.

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We have incurred indebtedness under a Credit Facility, and may incur substantial additional indebtedness in the future, and may not be able to service that debt in the future and we must maintain compliance with various covenants that impose restrictions on our business.

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders, replacing our prior Credit Agreement dated as of February 23, 2016.

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

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

The Credit Facility provides a senior secured loan facility of up to $300.0 million consisting of:

(i) a revolving loan facility with a borrowing limit of $300.0 million;

(ii) an accordion feature allowing us to borrow up to an additional $250.0 million;

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

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

The obligations under the Credit Facility are secured by substantially all of our tangible and intangible assets.

As of July 31, 2022, the amount outstanding under our Credit Facility was $130.0 million, which is reflected in the non-current portion of long-term debt on our Consolidated Balance Sheet.

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

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

and (iii) an accordion feature allowing us to make a request to borrow up to an additional $100.0 million subject to the satisfaction of specified conditions, including approval by our lenders.

As of July 31, 2023, the amount outstanding under our Credit Facility was $164.4 million, of which $4.4 million and $160.0 million is reflected in the current and non-current portion of long-term debt, respectively, on our Consolidated Balance Sheet.

As of July 31, 2023, we also had $1.0 million of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts.

The Credit Facility matures on October 31, 2023.

If we do not have sufficient funds to repay our debt when due, it may be necessary to refinance our debt through additional debt or equity financings.

Currently, the Credit Facility has a maturity date of October 31, 2024 (“Maturity Date”), which is approximately one year out from now.

In anticipation of the upcoming Maturity Date, we engaged a third-party financial advisor to assist us with both the refinancing of our existing Credit Facility, as well as with our evaluation of other capital structure-related alternatives.

In tandem with these activities, which we believe are nearing closure, we are also in discussions with our existing lenders to amend and extend the Maturity Date of the Credit Facility, if needed to complete these important initiatives.

However, we may not be successful in securing an amendment and extension of the Credit Facility or complete such refinancing activities by October 31, 2023, when the debt outstanding under our Credit Facility would become a short-term current liability.

At the Maturity Date of the Credit Facility, as it currently stands or as may be extended, if we do not have sufficient funds to repay our debt when due, it may be necessary to refinance our debt through additional debt or equity financings.

If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on such refinancing, increases in interest expense could have a material adverse effect on our business, results of operations and financial condition.

In addition, if we are not able to obtain favorable terms pursuant to any such refinancing, the size of our Credit Facility could be reduced, more restrictive covenants could be imposed on our business and features of the existing Credit Facility could otherwise be altered or eliminated.

Our Credit Facility contains various affirmative and negative covenants that may restrict our ability to, among other things, permit liens on our property, change the nature of our business, transact business with affiliates and/or merge or consolidate with any other person or sell or convey certain of our assets to any one person.

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

Further, our ability to comply with covenants, terms of and conditions our facility may be affected by events beyond our control.

Further, our ability to comply with covenants, terms of and conditions on our facility may be affected by events beyond our control.

Failure to comply with covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations.

Our substantial debt obligations could impede, restrict or delay the implementation of our business strategy or prevent us from entering into transactions that would otherwise benefit our business.

• we may be required to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows for other purposes, including but not limited to business development efforts, capital expenditures, dividends or strategic acquisitions;

• if we are not able to generate sufficient cash flows to meet our substantial debt service obligations or to fund our other liquidity needs, we may have to take actions such as selling assets or raising additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and joint ventures, restructuring our debt and other capital-intensive activities;

• we may not be able to fund future working capital, capital investments and other business activities;

• we may not be able to pay dividends or make certain other distributions;

• we may not be able to make certain other distributions;

• we may become more vulnerable in the event of a downturn in our business or a worsening of general economic or industry-specific conditions;

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Moreover, we may incur substantial additional indebtedness in the future to fund acquisitions or to fund other activities for general business purposes.

If additional new debt is added to the current or planned debt levels, the related risks that we now face could intensify.

If additional new debt is added to the current or planned debt levels, or if we are unable to obtain financing on favorable terms, the related risks that we now face could intensify.

A substantial increase in our indebtedness could also have a negative impact on our credit ratings.

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Any decision regarding future borrowings will be based on the facts and circumstances existing at the time, including market conditions and our credit ratings.

The holders of our Series A Preferred Convertible Stock have a majority vote consent right over our ability to amend, restate, or replace the Credit Agreement on terms that are materially different to those of the Credit Agreement or that adversely affect the Company’s ability to fulfill its repurchase obligations of the Series A Preferred Convertible Stock.

If we need to amend, restate or replace the Credit Agreement on materially different terms or terms adverse to the interests of the holders of our Series A Preferred Convertible Stock, and we are unable to obtain the consent of such holders, we may be unable to obtain required financing or liquidity on favorable terms, or at all.

The holders of our Series A Preferred Convertible Stock have a majority vote consent right over our ability to amend, restate, or replace the Credit Facility on terms that are materially different to those of the Credit Facility or that adversely affect our ability to fulfill its repurchase obligations of the Series A Preferred Convertible Stock.

If we need to amend, restate or replace the Credit Facility on materially different terms or terms adverse to the interests of the holders of our Series A Preferred Convertible Stock, and we are unable to obtain the consent of such holders, we may be unable to obtain required financing or liquidity on favorable terms, or at all.

Acquisitions of companies and investments could prove difficult to integrate, disrupt our business, dilute stockholder value or adversely affect operating results or the market price of our common stock.

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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.

Based on our quantitative evaluations, 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 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.

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.

On August 1, 2023 (the first day of our fiscal 2024), we performed our annual quantitative assessment and estimated the fair value of each of our reporting units using a combination of the income and market approaches.

Based on our quantitative evaluation, 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 18.3% and 8.9%, 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.

It is possible that, during fiscal 2024 or beyond, business conditions (both in the U.S.

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

Such fluctuation could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global business activity.

A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal 2024 or beyond.

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• Compromise national security and other sensitive government functions;

• Require significant management attention and resources to remedy the damage that results;

• Require significant management attention and resources to remedy the damage that results and delay progress on other business objectives;

• Require us to make payments to our customers to reimburse them for damages, pay them penalties or provide refunds;

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Changes in U.S.

federal, state and foreign tax law could adversely affect our business and financial condition.

federal, state and local and foreign tax law could adversely affect our business and financial condition.

The laws, rules, and regulations dealing with U.S.

federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S.

federal, state and local and foreign income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S.

Treasury Department.

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It cannot be predicted whether, when, in what form, or with what effective dates, new tax laws may be enacted, or regulations and rulings may be enacted, promulgated or issued under existing or new tax laws, which could result in an increase in our tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof.

Significant judgment is required in determining the provision for income taxes.

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None of our state income tax returns prior to fiscal 2019 are subject to audit.

In addition to income tax audits, TCS is subject to ongoing state excise tax audits by the Washington State Department of Revenue.

Although adjustments relating to past audits of our federal income tax returns were immaterial, a tax assessment or settlement for other periods or other jurisdictions that may be selected for future audit could have a material adverse effect on our business, consolidated results of operations and financial condition.

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If we are unable to develop unique and proprietary solutions that are superior to and/or more cost effective than other market offers, our 911 business could get replaced by new market entrants, resulting in a material adverse effect on our business, results of operations and financial condition.

• Under the FCC’s mandate, our 911 business is dependent on state and local governments - Under the FCC’s mandate, wireless carriers are required to provide 911 services only if state and local governments request the service.

• Under the FCC’s mandate, our 911 and emerging 988 businesses are dependent on state and local governments - Under the FCC’s mandate, wireless carriers are required to provide 911 services only if state and local governments request the service.

As part of a state or local government’s decision to request 911, they have the authority to develop cost recovery mechanisms.

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If state and local governments do not widely request that 911 services be provided or we become subject to significant pressures from wireless carriers with respect to pricing of 911 services, our 911 business would be harmed and future growth of our business would be reduced.

On May 17, 2023, the U.S.

Department of Health and Human Services, through the Substance Abuse and Mental Health Services Administration announced $200.0 million in new funding for states, territories and tribes to build local 988 capacity.

This follows an initial $432.0 million investment by the federal government in July 2022 to support the transition to 988 and build up crisis center capacity.

Our ability to develop this aspect of our business is highly dependent on the deployment of this federal funding.

If deployment of those funds is delayed, stopped or never occurs, our results of operations or financial condition could be materially adversely affected.

Regulation of the mobile communications industry and VoIP is evolving, and unfavorable changes or our failure to comply with existing and potential new legislation or regulations could harm our business and operating results.

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Any such claim, including any out of pocket payments we are required to make and the costs of the defense against such claim, could result in material costs and have an adverse effect on our business, results of operations and financial condition.

For additional information related to these lawsuits, see "Notes to Consolidated Financial Statements - Note (12)(a) - Commitments and Contingencies - Legal Proceedings and Other Matters" included in "Part II - Item 8.- Financial Statements and Supplementary Data," included in this Form 10-K.

Financial Statements and Supplementary Data," included in this Form 10-K.

Protection of our intellectual property is limited and pursuing infringers of our patents and other intellectual property rights can be costly.

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The complexity of the technology involved, and inherent uncertainty and cost of intellectual property litigation increases our risks.

If any third party has a meritorious or successful claim that we are infringing its intellectual property rights, we may be forced to change our products or enter into licensing arrangements with third parties, which may be costly or impractical.

This also may require us to stop selling our products as currently engineered, which could harm our competitive position.

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• rumors or allegations regarding our financial disclosures or practices;

• the ongoing and future effects of the COVID-19 pandemic.

• potential resurgences of the COVID-19 or similar pandemics.

Shortfalls in our sales or earnings in any given period relative to the levels expected by securities analysts could immediately, significantly and adversely affect the trading price of our common stock.

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Perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholder campaigns or initiatives may result in the loss of potential business opportunities and make it more difficult to attract and retain investors, customers, employees, and other business partners.

Also, we could be required to incur significant expenses related to any activist stockholder matters (included but not limited to legal fees, fees for financial advisors, fees for public relation advisors and proxy solicitation expenses).

Also, we could be required to incur significant expenses related to any activist stockholder matters (included but not limited to legal fees, fees for financial

advisors, fees for public relation advisors and proxy solicitation expenses).

As a result, activist stockholder campaigns could adversely affect our business, results of operations, financial condition and/or share price in ways that can be difficult to predict or foresee.

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This provision could have the effect of delaying or preventing a change in control of Comtech.

A disruption in our Common Stock dividend program could negatively impact our stock price.

We have paid quarterly common stock dividends every quarter since September 2010.

Our ability to continue to pay quarterly dividends with respect to our Common Stock will depend on our ability to generate sufficient cash flows from operations in the future and maintain compliance with our Credit Facility.

This ability may be subject to certain economic, financial, competitive and other factors that are beyond our control.

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

Our Board of Directors may, at its discretion, decrease the targeted annual dividend amount or entirely discontinue the payment of dividends at any time.

Additionally, our ability to declare and pay common stock dividends and make other distributions with respect to our capital stock may also be restricted by the terms of our Credit Facility, and may be restricted by the terms of financing arrangements that we enter into in the future.

UNRESOLVED STAFF COMMENTS

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-K

Item 1A. Risk Factors