What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-10-12 compared with 2022-09-29 · 245 added, 541 removed, 299 unchanged (72% of the section changed)

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We are a leading global provider of next-generation 911 emergency systems ("NG-911") and secure wireless and satellite communications technologies.

We see these two end-markets as part of what Comtech has identified as the “Failsafe Communications Market.” This includes the critical communications infrastructure that people, businesses, and governments rely on when durable, trusted connectivity is required, no matter where they are – on land, at sea, or in the air – and no matter what the circumstances – from armed conflict to a natural disaster.

Our solutions fulfill our customers’ needs for secure wireless communications in the most demanding environments, including those where traditional communications are unavailable or cost-prohibitive, and in mission-critical and other scenarios where performance is crucial.

We anticipate future growth in our business due to increasing demand for global voice, video and data usage.

This includes the critical communications infrastructure that people, businesses, and governments rely on when durable, trusted connectivity is required, no matter where they are – on land, at sea, or in the air – and no matter what the circumstances – from armed conflict to a natural disaster.

Our solutions are designed to fulfill our customers’ needs for secure wireless communications in the most demanding environments, including those where traditional communications are unavailable or cost-prohibitive, and in mission-critical and other scenarios where performance is crucial.

We anticipate future growth in our business due to a trend of increasing demand for global voice, video and data usage in recent years, in addition to the growth of 988 networks.

We provide our solutions to both commercial and governmental customers.

In the fourth quarter of fiscal 2022, we revised our business segments to better align them with end-markets for our products and services.

Our businesses have been re-organized into two new reportable segments:

“Satellite and Space Communications” and “Terrestrial and Wireless Networks.” All current and prior periods reflected in this Form 10-K have been presented according to these two segments, unless otherwise noted.

For more information and for financial information about our business segments, including net sales, operating income, Adjusted EBITDA (a Non-GAAP financial measure), total assets, and our operations outside the United States, refer to " Notes to Consolidated Financial Statements - Note (11) Segment Information" included in "Part II - Item 8 - Financial Statements and Supplementary Data.

" A description of the segments is provided below:

• Satellite and Space Communications - is organized into four product areas:

Satellite Modem and Amplifier Technologies, Troposcatter and SATCOM Solutions, Space Components and Antennas, and High-Power Amplifiers and Switches.

We manage our business through two reportable operating segments:

• Satellite and Space Communications - is organized into four technology areas:

satellite modem and amplifier technologies;

troposcatter and SATCOM solutions;

space components and antennas;

and high-power amplifiers and switch technologies.

This segment offers customers:

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satellite communications and tracking antenna systems, including high precision full motion fixed and mobile X/Y tracking antennas, RF feeds, reflectors and radomes;

over-the-horizon microwave equipment that can transmit digitized voice, video, and data over distances up to 200 miles using the troposphere and diffraction, including the Comtech COMET™;

over-the-horizon microwave troposcatter equipment that can transmit digitized voice, video, and data over distances up to 200 miles using the troposphere and diffraction, including the Comtech COMET™;

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 product areas:

Next Generation 911 & Call Delivery, Solacom Call Handling Solutions, Trusted Location and Messaging Solutions, and Cyber Security Training & 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 within our Terrestrial and Wireless Networks segment.

For service-based contracts in our Terrestrial and Wireless Networks segment, 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 and Space Communications segment, 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 products 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.

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 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.

Incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

As commissions payable to our internal sales and marketing employees or contractors are contingent upon multiple factors, such commissions are not considered direct costs to obtain or fulfill a contract with a customer and are expensed as incurred in selling, general and administrative expenses on our 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 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 indefinite delivery / indefinite quantity ("IDIQ") contracts.

See " Notes to Consolidated Financial Statements - Note (1)(c) - Revenue Recognition " included in " Part II - Item 8.

Financial Statements and Supplementary Data, " (which discussion is incorporated herein by reference), included in this Form 10-K, for further information.

Impairment of Goodwill and Other Intangible Assets .

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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.

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 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.

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.

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.

It is possible that, during 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.

Such fluctuation could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global 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 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 the 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 July 31, 2022.

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

See " Notes to Consolidated Financial Statements - Note (13) - Goodwill and Note (14) - Intangible Assets " included in " Part II - Item 8.

Financial Statements and Supplementary Data, " (which discussion is incorporated herein by reference), included in this Form 10-K, for further information.

Provision for Warranty Obligations.

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Our deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and applying enacted tax rates expected to be in effect for the year in which we expect the differences to reverse.

Our provision for income taxes is based on domestic (including federal and state) and international statutory income tax rates in the tax jurisdictions where we operate, permanent differences between financial reporting and tax reporting and available credits and incentives.

Our provision for income taxes is based on domestic (including federal, state and local) and international statutory income tax rates in the tax jurisdictions where we operate, permanent differences between financial reporting and tax reporting and available credits and incentives.

We recognize potential interest and penalties related to uncertain tax positions in income tax expense.

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Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers.

To date, capitalized internally developed software costs were not material.

To date, capitalized internally developed software costs were not material, but could increase in the future.

Provisions for Excess and Obsolete Inventory.

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We monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified.

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

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

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

We have, on a limited basis, approved certain customer requests.

We continue to monitor our accounts receivable credit portfolio.

To-date, there has been no material changes in our credit portfolio as a result of the effect of the COVID-19 pandemic on worldwide business activities.

Although our overall credit losses have historically been within the allowances we established, we cannot accurately predict our future credit loss experience, given the current poor business environment.

To-date, there has been no material changes in our credit portfolio as a result of the challenging business conditions.

Although our overall credit losses have historically been within the allowances we established, we may not be able to accurately predict our future credit loss experience, given the current poor business environment.

Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for changing business conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of specific customers.

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Research and development expenses 8.8 % 10.8 % 8.4 %

Amortization of intangibles 3.9 % 4.4 % 3.6 %

CEO transition costs 1.7 % 2.8 % — %

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Acquisition plan expenses — % — % 17.2 %

Amortization of intangibles 4.4 % 3.6 % 3.5 %

Operating (loss) income (6.9) % (11.7) % 2.5 %

Operating loss (2.7) % (6.9) % (11.7) %

Interest expense (income) and other 2.9 % 0.7 % 1.2 %

(Loss) income before (benefit from) provision for income taxes (7.6) % (12.9) % 1.5 %

Net (loss) income (6.8) % (12.6) % 1.1 %

Net (loss) income attributable to common stockholders (8.9) % (12.6) % 1.1 %

Loss before benefit from income taxes (5.6) % (7.6) % (12.9) %

Net loss (4.9) % (6.8) % (12.6) %

Net loss attributable to common stockholders (6.2) % (8.9) % (12.6) %

Adjusted EBITDA (a Non-GAAP measure) 9.7 % 8.1 % 13.2 %

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Our financial highlights for the fiscal year ended July 31, 2023 include:

• Consolidated net sales were $486.2 million;

• Gross margins improved, year-over-year, twenty basis points to 37.0%;

• GAAP net loss attributable to common stockholders was $43.3 million, and included $13.6 million of CEO transition costs, $11.2 million of proxy solicitation costs, $6.0 million of restructuring costs, $1.2 million of strategic emerging technology costs for next-generation satellite technology, and $1.1 million of COVID-19 related costs, as discussed below;

• GAAP EPS loss of $1.63 and Non-GAAP EPS loss of $0.13;

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $39.3 million;

• Consolidated net sales were $550.0 million, an increase of 13.1% from fiscal 2022;

• Gross margin was 33.5%, compared to 37.0% in fiscal 2022;

• GAAP net loss attributable to common stockholders was $33.9 million, and included $10.9 million of restructuring costs, $9.1 million of CEO transition costs and $3.8 million of strategic emerging technology costs for next-generation satellite technology, as discussed below;

• GAAP EPS loss of $1.21 and Non-GAAP EPS of $0.65;

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $53.5 million, an increase of 36.1% from fiscal 2022;

• New bookings (also referred to as orders) of $594.1 million, resulting in an annual book-to-bill ratio of 1.08x (a measure defined as bookings divided by net sales);

• Backlog of $662.2 million as of July 31, 2023, compared to $618.1 million as of July 31, 2022 and $668.4 million as of April 30, 2023;

• Revenue visibility of approximately $1.1 billion.

• Revenue visibility of approximately $1.1 billion as of July 31, 2023 (such amount does not yet include the $544.0 million U.S.

Army Global Field Service Representative (“GFSR”) contract or $48.6 million U.S.

Army Enterprise Digital Intermediate Frequency Multi-Carrier (“EDIM”) modem contract awarded to us in September 2023).

We measure this revenue visibility as the sum of our $662.2 million 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 $2.0 million.

Excluding $15.9 million in aggregate payments for our CEO transition and settled proxy contest, cash flows provided by operating activities would have been $17.9 million;

• Cash flows used in operating activities of $4.4 million.

Excluding $14.0 million in aggregate payments for restructuring costs, including severance, proxy solicitation and CEO transition costs, cash flows provided by operations would have been $9.6 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 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2023 and 2022."

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

Prior to such appointment, in May 2022, Mr.

Peterman joined our Board of Directors as Chairman.

With over forty years in the defense sector, Mr.

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

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

Also, we progressed on our initiative to enhance our leadership team, welcoming Don Bach as our first ever Vice President of Procurement.

In light of ongoing global supply chain disruptions, part shortages and extended lead times for components, Mr.

Bach’s immediate focus is expected to be on optimizing the end-to-end management of our consolidated inventories, including efforts to enhance our buying power across the various product areas.

We also appointed Anirban Chakraborty as our first ever Chief Growth Officer.

Chakraborty has been with Comtech for four years, most recently serving as Senior Vice President of Strategy and Business Development within the Trusted Location and Messaging Solutions product area.

Chakraborty is expected to focus on growth initiatives by seeking meaningful ways to deploy our cutting edge technological innovations in new market areas, as well as fostering centers of engineering excellence across Comtech.

During the fourth quarter, we continued to execute on our plans to deploy the proceeds of our $100.0 million strategic growth investment and continued to solidify our position as a leading solutions provider in our two key end-markets:

Satellite and Space Communications and Terrestrial and Wireless Networks.

We believe both are at the beginning of a long-term investment and upgrade cycle, and the demand environment for our products, despite the headwinds discussed below, remains strong.

Considering these trends in our end-markets, we pressed forward during the most recent quarter on our investments in capital equipment and building improvements in connection with the opening of a new 146,000 square-foot facility in Chandler, Arizona, and the establishment of a 56,000 square-foot facility in Basingstoke, United Kingdom.

Although COVID-19 and supply chain issues have extended our original build-out schedules, particularly as it relates to our Chandler, Arizona facility, both manufacturing centers are expected to support production of next-generation broadband satellite technology and should be fully operational in fiscal 2023.

Our business continues to face near-term challenges and continued uncertainties, as the repercussions of the military conflict between Russia and Ukraine remain significant.

For Comtech, the conflict is directly impacting near-term elements of our sales pipelines.

Certain customers have paused procurement and deployment of satellite and troposcatter communication systems, and instead are purchasing war-fighting equipment.

defense budget, and defense budgets worldwide, are being adjusted in real-time to reflect the priorities of war and changing European geopolitics.

Anticipated funding for other expected orders, including for our satellite and space communication products, has been shifted to other programs and/or temporarily delayed as a result of changes in defense spending priorities.

For example, in May 2022, the U.S.

authorized a $40.0 billion military and humanitarian aid package for Ukraine.

While there are portions of this spending package that we could expect to benefit from in the future, such as financial support for Ukraine’s military and expanded U.S.

military operations in Europe, we do not expect such spending for our communications related products and services to be immediate.

Nonetheless, at the request of the Ukrainian government, in our third quarter of fiscal 2022, we donated multiple COMET™ troposcatter systems to support Ukraine’s urgent need for secure, reliable communications.

Shortly thereafter, as announced in September 2022, we were awarded a funded order to supply the Ukrainian government with additional systems.

We expect related deliveries to occur in the first half of fiscal 2023.

In late May 2022, at the request of the U.S.

Army, we conducted in-field demonstrations of our troposcatter solutions (including the COMET™) for both U.S.

and NATO allied government customers.

These demonstrations consisted of end-to-end data communications links, showcasing small, medium and large troposcatter terminals.

While it is always difficult to predict the timing and amount of future orders, we feel confident that Comtech is well-positioned to participate in the uptick in demand, as conflict and uncertainties present new opportunities for the types of communications solutions we provide.

As we enter fiscal 2023, business conditions have become more challenging, and the operating environment is largely unpredictable, especially now with increasing news reports of inflation, interest rate hikes and a potential global recession.

There also continues to be order and production delays, disruptions in component availability, increased pricing both for labor and parts, lower levels of factory utilization and higher logistics and operational costs.

As the business environment relates to our operations in Russia, we are continuing to shift certain commercial software development and related support activities conducted in our Russian office to locations outside of the country.

While we continue to seek and implement initiatives to lower such costs, our Business Outlook for Fiscal 2023 reflects additional expenses associated with shifting these development resources.

In light of these business conditions and resulting challenges, for our first quarter of fiscal 2023, we are targeting consolidated net sales to increase between 1.0% and 3.0%, sequentially, and for our consolidated Adjusted EBITDA margin to approximate 8.0%.

On September 29, 2022, our Board of Directors declared a cash dividend of $0.10 per common share, payable on November 18, 2022 to stockholders of record at the close of business on October 19, 2022.

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.

Fiscal 2023 marked a year of tremendous change and accomplishments for our organization.

Led by a new management team and refreshed Board of Directors, we implemented many important lean initiatives and process improvement activities anticipated to drive sustainable, profitable growth in our business.

Several of these actions have already contributed to our improved financial performance, affording us the opportunity to report our first quarter of positive GAAP operating income in almost two years.

We are greatly encouraged by the progress we have made through our One Comtech transformation, which gives us the confidence to expect that our Business Outlook for Fiscal 2024 will be even better than fiscal 2023.

We base our enthusiasm about our future, in part, on our people as well as our recent large contracts wins, that serve to validate and reinforce our technology leadership positions in multiple growing end markets.

Taken together, we believe these significant, strategic contracts demonstrate our ability to outperform in every facet of our business.

• In July 2023, we were very excited to finally have received our long-awaited initial funding of $21.0 million under our next-generation 911 contract with the State of Ohio.

This contract, originally awarded to us in March 2020, has a total expected value of approximately $85.0 million and is anticipated to start contributing meaningfully to our net sales in fiscal 2025, and beyond.

• In July 2023, we announced that our market-leading troposcatter family of systems ("FOS") was chosen by the U.S.

Army to support its tactical Beyond-Line-of-Site ("BLOS") communications requirements.

Here, our commitment to innovation drove success:

Comtech’s troposcatter equipment can now handle up to 210 megabits per second of data, can connect endpoints over 200 miles apart, and can be set up and operating inside 15 minutes.

We believe our next-generation, software-defined troposcatter solutions represent a thousand-fold performance increase over prior generations, and we are a clear global leader in a technology with a rapidly expanding set of defense and commercial market applications.

Through this initial $30.0 million contract award, we believe Comtech will become the leading provider of next-generation troposcatter systems for the U.S.

• In September 2023, we were awarded a large, multi-year GFSR contract by the U.S.

This contract has a total potential value of $544.0 million and is expected to contribute significantly to our net sales in the second half of our fiscal 2024.

Through this program, we will provide ongoing communications and IT infrastructure support for the U.S.

Army, Air Force, Navy, Marine Corps and NATO, enabling U.S.

and coalition forces to maintain robust, resilient and secure connectivity for global all-domain operations.

Foundational to this success:

Comtech’s professional engineering services and extensive portfolio of resilient, blended, smart-enabled technologies.

• Also, in September 2023, we were honored to win a highly competitive $48.6 million contract to deliver next-generation EDIM modems for the U.S.

Army's satellite communications ("SATCOM") digitization and modernization programs.

The advanced, software defined EDIM modem is intended to:

support multiple satellite providers;

become one of the primary modems used for U.S.

military SATCOM, eventually replacing the Enhanced Bandwidth Efficient Modem ("EBEM");

and provide the U.S.

Army, Navy and Air Force with a digitized, hybrid satellite network architecture.

The EDIM modem would allow SATCOM users to easily roam across orbital regimes, blend capabilities from traditionally disparate networks and maintain assured, resilient connectivity in the most demanding of environments.

• Finally, increasing our potential revenue visibility, we were recently selected as one of multiple awardees under the Defense Logistics Agency's Gateway to Sustainment indefinite delivery, indefinite quantity contract, with a ceiling value of $3.2 billion.

This award enables the U.S.

Department of Defense and other U.S.

government customers to purchase a wide range of capabilities and services from multiple vendors in support of the Command, Control, Computers, Communications, Cyber, Intelligence, Surveillance and Reconnaissance ("C5ISR") operations.

Over the course of this contract's potential 10-year performance period, we anticipate being awarded funding to primarily support the U.S.

Army's Communications and Electronics Command's rapid acquisition of solutions for systems in various stages of their lifecycle.

In addition to optimizing our cost structure, securing key contract wins and expanding our pipeline of opportunities, we have also been busy addressing strategic questions about the composition of our business and the strength of our balance sheet.

Following a careful review of our current business and product lines, considering the kind of software and solutions-based enterprise our customers need us to be in the future, we saw an opportunity to divest our solid state power amplifier product line.

Upon completing this divestiture, in the short term, we anticipate using some or all of the net proceeds to meaningfully reduce our outstanding debt, leverage ratio and interest payments.

We are also simultaneously addressing the need to refinance our Credit Facility, which expires in October 2024.

This process is moving forward and we believe we’re headed toward a solution.

In tandem with these ongoing initiatives, we are in discussions with various potential sources of capital, including our existing preferred shareholders, regarding alternative investment structures.

We are also in discussions with our existing lenders regarding a short-term amendment and extension of our Credit Facility, if needed to allow us time to complete these various initiatives.

We expect to complete the foregoing prior to announcing our first quarter fiscal 2024 results.

As we enter fiscal 2024, while our business performance is improving, macroeconomic conditions continue to be challenging, and the operating environment is largely unpredictable, including factors such as inflation, rising interest rates, repercussions of military conflicts and a potential global recession.

Order and production delays, disruptions in component availability, increased pricing for labor and parts, lower levels of factory utilization and higher logistics and operational costs also continue to impact our business.

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 first quarter of fiscal 2024, we are targeting consolidated net sales to sequentially increase approximately 1.0% to 4.0% and for our consolidated Adjusted EBITDA margin to range between 11.0% and 13.0%.

Such targets reflect our assumptions regarding the timing of and performance on orders from the U.S.

Army for VSAT equipment, as well as the timing of and our performance on our recently awarded $544.0 million GFSR contract, which has been protested by the incumbent.

While we expect a near-term close, such targets also do not assume any divestiture at this time due to the uncertain closing date of the transaction.

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

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

Please refer to the discussion below under "Adjusted EBITDA" for more information.

Additional information related to our Business Outlook for Fiscal 2024 and a definition and explanation of Adjusted EBITDA is included in the below section "Item 7.

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Comparison of Fiscal 2023 and 2022

Consolidated net sales were $486.2 million and $581.7 million for fiscal 2022 and 2021, respectively, representing a decrease of $95.5 million, or 16.4%.

The period-over-period decrease in net sales primarily reflects lower net sales in our Satellite and Space Communications segment.

Net sales by operating segment are discussed below.

Consolidated net sales were $550.0 million and $486.2 million for fiscal 2023 and 2022, respectively, representing an increase of $63.8 million, or 13.1%.

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 $279.7 million for fiscal 2022 as compared to $374.9 million for fiscal 2021, a decrease of $95.2 million, or 25.4%.

Net sales in our Satellite and Space Communications segment were $337.8 million for fiscal 2023 as compared to $279.7 million for fiscal 2022, an increase of $58.1 million, or 20.8%.

Fiscal 2023 net sales in this segment primarily reflect significantly higher net sales of our troposcatter and SATCOM solutions to both U.S.

and international government customers (including delivery of our COMET™ troposcatter terminals to international customers, progress toward delivering next-generation troposcatter terminals to the U.S.

Marine Corps and VSAT equipment for the U.S.

Army) and satellite ground station technologies, offset in part by lower sales of our high reliability EEE satellite-based space components.

Our Satellite and Space Communications segment represented 61.4% of consolidated net sales for fiscal 2023 as compared to 57.5% for fiscal 2022.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2023 was 1.29x.

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

Fiscal 2022 net sales primarily reflect significantly lower sales of our global field support services, advanced VSAT products and other programs to the U.S.

Army, as well as of our satellite ground station technologies, partially offset by higher sales of our satellite-based mobile communications and tracking systems and high-reliability EEE satellite-based space components.

Fiscal 2021 net sales included revenue related to our performance on our 10-year, $211.0 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of the U.S.

Marine Corps.

There were nominal corresponding sales in fiscal 2022.

In aggregate, net sales for our Satellite and Space Communications segment were anticipated to be significantly lower than the amount we achieved in fiscal 2021.

As discussed in our Form 10-Q filed with the SEC on June 8, 2021, our revenues in fiscal 2022 were expected to decline due to the U.S.

government’s decision to fully withdraw troops from Afghanistan and make certain program changes.

In addition, as a direct result of the Russia/Ukraine military conflict, we no longer expected to receive and ship orders to Ukraine in fiscal 2022.

That customer has an immediate need for wireless communication services but had redirected procurement dollars to war-fighting equipment.

However, as announced in September 2022, we were awarded a funded order to supply the Ukrainian government with troposcatter systems that we expect to deliver in the first half of fiscal 2023.

The lower sales of our satellite ground station technologies primarily reflects the timing of receipt of, and performance on, orders related to our U.S.

government and international customers.

Our results for fiscal 2022 and 2021 include nominal sales from our TDMA satellite networking technologies acquired on March 2, 2021.

Our satellite ground station product line has been impacted by overall challenging business conditions, including the COVID-19 pandemic's effect on customer demand, particularly in international markets, which historically represents a large majority of end-users for this product line.

Although our backlog of our satellite ground station products has increased during fiscal 2022, lead times for components are impacting the timing of shipments.

We continue to monitor our inventory needs and navigate supply chain constraints which are impacting the timing of new orders, deliveries and installations.

In addition, we do not expect to make any new sales to Russian customers at this time.

Bookings, sales and profitability in our Satellite and Space Communications segment can fluctuate dramatically 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 $206.5 million for fiscal 2022, as compared to $206.8 million for fiscal 2021, a decrease of $0.3 million, or 0.1%, reflecting slightly higher sales of our trusted location and messaging solutions and cyber security training services, offset by slightly lower sales of our 911 call routing services.

Net sales in our Terrestrial and Wireless Networks segment were $212.2 million for fiscal 2023, as compared to $206.5 million for fiscal 2022, an increase of $5.7 million, or 2.8%, reflecting 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 38.6% of consolidated net sales for fiscal 2023 as compared to 42.5% for fiscal 2022.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.74x.

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

Bookings, sales and profitability in our Terrestrial and Wireless Networks segment can fluctuate from period-to-period due to many factors, including changes in the general business environment.

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

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

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Sales to U.S.

government customers include sales to the U.S.

Department of Defense ("DoD"), intelligence and civilian agencies, as well as sales directly to or through prime contractors.

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

Domestic sales include sales to commercial customers, as well as to U.S.

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Gross profit, as a percentage of consolidated net sales, for fiscal 2023 was 33.5% as compared to 37.0% for fiscal 2022.

During fiscal 2022, we recorded a $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.

During fiscal 2021, we recorded a $2.0 million benefit to cost of sales in our Unallocated segment related to a refund of historical excise tax paid.

Excluding such items, gross profit, as a percentage of consolidated net sales, for fiscal 2022 and 2021 was 36.5% and 36.4%, respectively.

Gross profit during the most recent period reflects the impact of an overall favorable product mix and a lower provision for warranty obligations during fiscal 2022 in light of the reduced level of sales activity during the period, offset in part by lower consolidated net sales.

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.

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.

and international government customers and satellite ground station technologies, as discussed above.

In addition, during fiscal 2023 and 2022, we recorded benefits of $2.3 million and $2.5 million, respectively, to cost of sales as we reduced a warranty accrual due to lower than expected warranty claims in our NG-911 product line.

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

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

Our Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for fiscal 2023 decreased in comparison to fiscal 2022.

The decrease in gross profit percentage primarily reflects changes in products and services mix, as well as lower levels of factory utilization and higher logistics and operational costs resulting from global supply chain constraints.

Also, during fiscal 2022 and 2021, we incurred $1.1 million and $1.0 million, respectively, of incremental operating costs related to our antenna facility in the United Kingdom due to the impact of the COVID-19 pandemic.

Although operations in the United Kingdom have largely resumed, we continued to experience lingering impacts from COVID-19 and the related facility shut-down in fiscal 2021.

We do not expect to incur similar costs in fiscal 2023.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for fiscal 2022 was comparable to fiscal 2021.

The gross profit percentage in fiscal 2022 primarily reflects changes in products and services mix, and lower than expected warranty claims, as discussed above.

Included in consolidated cost of sales for both fiscal 2022 and 2021 are provisions for excess and obsolete inventory of $4.4 million.

The decrease in gross profit percentage primarily reflects changes in products and services mix, as discussed above.

During fiscal 2022, we incurred $1.1 million of incremental operating costs related to our antenna facility in the United Kingdom due to the impact of the COVID-19 pandemic.

Similar operating costs were not incurred in fiscal 2023.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for fiscal 2023 decreased in comparison to fiscal 2022.

The gross profit percentage in fiscal 2023 primarily reflects changes in products and services mix, as discussed above.

Included in consolidated cost of sales are provisions for excess and obsolete inventory of $4.9 million and $4.4 million, for fiscal 2023 and 2022, respectively.

As discussed in "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Provisions for Excess and Obsolete Inventory," we regularly review our inventory and record a provision for excess and obsolete inventory based on historical and projected usage trends.

Our consolidated gross profit, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and related gross profit for each segment, and therefore is inherently difficult to forecast.

Over time, and as we progress through fiscal 2024, we expect our gross margins in both segments to improve as a result of our ongoing initiatives, for example, to optimize our supply chain and facility footprint.

However, our consolidated gross profit, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and related gross profit for each segment, and therefore is inherently difficult to forecast.

Selling, General and Administrative Expenses .

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As a percentage of consolidated net sales, selling, general and administrative expenses were 21.8% and 23.6% for fiscal 2023 and 2022, respectively.

During fiscal 2022 and 2021, we incurred $6.0 million and $2.8 million, respectively, of restructuring costs to streamline our operations, including costs related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility in Chandler, Arizona.

In addition, we received $3.1 million of legal expense recoveries from insurance in fiscal 2021.

Excluding such items, selling, general and administrative expenses for fiscal 2022 and 2021 would have been $108.9 million or 22.4% and $112.1 million or 19.3%, respectively, of consolidated net sales.

The increase in our selling, general and administrative expenses, as a percentage of consolidated net sales, is primarily due to lower consolidated net sales.

During fiscal 2023 and 2022, we incurred $10.9 million and $6.0 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 fiscal 2023 and 2022 would have been $109.2 million or 19.9% and $108.9 million or 22.4%, respectively, of consolidated net sales.

The decrease in our selling, general and administrative expenses, as a percentage of consolidated net sales, is primarily due to higher consolidated net sales, as discussed above.

Our selling, general and administrative expenses in the most recent period also reflect higher labor costs associated with a tight global labor market, increased investments in marketing, including new social media activities and other investments we are making to achieve our long-term business goals.

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Amortization of stock-based compensation expenses recorded as selling, general and administrative expenses was $8.0 million in fiscal 2023 as compared to $6.3 million in fiscal 2022.

Such amortization for fiscal 2022 includes $0.8 million related to the retirement, in December 2021, of three, long-standing members of the Board of Directors.

Fiscal 2023 includes fully vested stock-based awards granted to certain employees in lieu of fiscal 2023 non-equity incentive compensation.

Amortization of stock-based compensation expense for fiscal 2022 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 $52.5 million and $49.1 million for fiscal 2022 and 2021, respectively, representing an increase of $3.4 million, or 6.9%.

Research and development expenses were $48.6 million and $52.5 million for fiscal 2023 and 2022, respectively, representing a decrease of $3.9 million, or 7.4%.

As a percentage of consolidated net sales, research and development expenses were 8.8% and 10.8% for fiscal 2023 and 2022, respectively.

For fiscal 2022 and 2021, research and development expenses of $26.5 million and $28.0 million, respectively, related to our Satellite and Space Communications segment, and $25.2 million and $20.1 million, respectively, related to our Terrestrial and Wireless Networks segment.

For fiscal 2023 and 2022, research and development expenses of $22.4 million and $26.5 million, respectively, related to our Satellite and Space Communications segment, and $25.2 million in both periods, related to our Terrestrial and Wireless Networks segment.

The remaining research and development expenses of $1.0 million and $0.8 million in fiscal 2023 and 2022, respectively, related to the amortization of stock-based compensation expense.

During fiscal 2022 and 2021, our Satellite and Space Communications segment incurred $1.2 million and $0.3 million, respectively, of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

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

During fiscal 2023 and 2022, we incurred $3.8 million and $1.2 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 progressing with our evaluation of this new market in relation to our long-term business strategies, and expect to complete such evaluation in fiscal 2024.

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

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Amortization of Intangibles.

Amortization relating to intangible assets with finite lives was $21.4 million (of which $7.3 million was for the Satellite and Space Communications segment and $14.1 million was for the Terrestrial and Wireless Networks segment) for fiscal 2022 and $21.0 million (of which $5.7 million was for the Satellite and Space Communications segment and $15.3 million was for the Terrestrial and Wireless Networks segment) for fiscal 2021.

Proxy Solicitation Costs .

During fiscal 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 first quarter of fiscal 2022.

There were no similar costs in the prior year.

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

There were no similar costs during fiscal 2023.

CEO Transition Costs .

On December 31, 2021, our Board of Directors appointed Mr.

Porcelain as CEO.

Prior to that, Mr.

Porcelain served as our President and COO.

Transition costs related to our former CEO, Mr.

Kornberg, were $13.6 million and all expensed in our Unallocated segment during fiscal 2022.

Of such amount, $10.3 million related to Mr.

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

the remainder related to Mr.

Kornberg agreeing to serve as a Senior Technology Advisor for a minimum of two years.

There were no similar costs in the prior year.

On August 9, 2022, subsequent to year end, our Board of Directors appointed our Chairman of the Board, Mr.

CEO transition costs were $9.1 million for fiscal 2023.

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

Peterman, as President and CEO.

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Porcelain, pursuant to his separation agreement with the Company, were $7.4 million, of which $3.8 million related to the acceleration of unamortized stock-based compensation, with the remaining $3.6 million related to his severance payments and benefits upon termination of employment.

The cash portion of the transition costs of $3.6 million is expected to be paid to Mr.

The cash portion of the transition costs of $3.6 million was paid to Mr.

Porcelain in October 2022.

Also, in connection with Mr.

Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $1.0 million expense related to a cash sign-on bonus.

Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $1.0 million expense related to a cash sign-on bonus, which was paid in January 2023.

CEO transition costs related to Mr.

Porcelain and Mr.

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

Acquisition Plan Expenses.

During fiscal 2021, we incurred $100.3 million of acquisition plan expenses, of which $88.3 million related to the previously announced litigation and merger termination with Gilat, including $70.0 million paid in cash to Gilat.

The remaining costs primarily related to the acquisition of TDMA satellite networking technologies and GD NG-911 acquisition-related litigation.

These expenses are primarily recorded in our Unallocated segment.

There were no similar costs incurred during fiscal 2022.

Operating (Loss) Income.

Peterman were expensed in our Unallocated segment.

CEO transition costs were $13.6 million for fiscal 2022 and related to our former CEO, Fred Kornberg.

Of such amount, $10.3 million related to Mr.

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

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

CEO transition costs related to Mr.

Kornberg were expensed in our Unallocated segment.

Operating Income (Loss).

Operating loss for fiscal 2023 and 2022 was $14.7 million and $33.8 million, respectively.

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

Operating (loss) income $ (5.7) $ 24.3 $ 18.9 $ 25.2 $ (47.0) $ (117.8) $ (33.8) $ (68.3)

Percentage of related

net sales NA 6.5 % 9.2 % 12.2 % NA NA NA NA

Operating income (loss) $ 15.0 $ (5.7) $ 12.3 $ 18.9 $ (42.0) $ (47.0) $ (14.7) $ (33.8)

Percentage of related net sales 4.5 % NA 5.8 % 9.2 % NA NA NA NA

Our GAAP operating loss of $14.7 million for fiscal 2023 reflects:

(i) $13.6 million of CEO transition costs;

(ii) $11.2 million of proxy solicitation costs;

(iii) $6.0 million of restructuring costs;

(iv) $1.2 million of strategic emerging technology costs;

and (v) $1.1 million of incremental operating costs due to the lingering impact of COVID-19, as discussed above.

Excluding such items, our consolidated operating loss for fiscal 2022 would have been $0.7 million.

(i) $21.4 million of amortization of intangibles;

(ii) $10.9 million of restructuring costs (of which $5.7 million, $1.3 million and $3.9 million related to our Satellite and Space Communications, Terrestrial and Wireless Networks and Unallocated segments, respectively);

(iii) $10.1 million of amortization of stock-based compensation;

(iv) $9.1 million of CEO transition costs;

(v) $3.8 million of strategic emerging technology costs;

and (vi) $1.0 million of amortization of cost to fulfill assets, as discussed above.

Excluding such items, our consolidated operating income for fiscal 2023 would have been $41.6 million.

Our GAAP operating loss of $33.8 million for fiscal 2022 reflects:

(i) $100.3 million of acquisition plan expenses;

(ii) $2.8 million of restructuring costs;

(iii) $1.0 million of incremental operating costs due to the impact of COVID-19;

and (iv) $0.3 million of strategic emerging technology costs, as discussed above.

Excluding such items, our consolidated operating income for fiscal 2021 would have been $36.1 million, or 6.2% of consolidated net sales.

The decrease in operating income from $36.1 million for fiscal 2021 to an operating loss of $0.7 million for fiscal 2022 was primarily due to lower consolidated net sales, as discussed above.

(i) $21.4 million of amortization of intangibles;

(ii) $13.6 million of CEO transition costs;

(iii) $11.2 million of proxy solicitation costs;

(iv) $7.8 million of amortization of stock-based compensation;

(v) $6.0 million of restructuring costs;

(vi) $1.2 million of strategic emerging technology costs;

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

and (viii) $0.5 million of amortization of cost to fulfill assets as discussed above.

Excluding such items, our consolidated operating income for fiscal 2022 would have been $28.9 million.

The increase in operating income, excluding the above items, from $28.9 million for fiscal 2022 to $41.6 million for fiscal 2023 reflects the benefit of our One Comtech lean initiatives implemented in fiscal 2023 and, to a lesser extent, higher consolidated net sales, as discussed above.

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

The decrease in our Satellite and Space Communications segment operating income for fiscal 2022 was driven primarily by lower net sales and gross profit percentage and higher restructuring costs and amortization of intangibles, partially offset by 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 fiscal 2022 was driven primarily by higher research and development expenses, as discussed above.

The decrease in unallocated expenses for fiscal 2022 as compared to fiscal 2021 was primarily due to no acquisition plan expenses incurred during the most recent fiscal year, partially offset by CEO transition costs and proxy solicitation costs during fiscal 2022, as discussed above.

Amortization of stock-based compensation was $7.8 million and $10.0 million, respectively, for fiscal 2022 and 2021.

Stock-based compensation expense for fiscal 2022 includes $0.8 million related to the retirement of three, long-standing Board members, who retired in December 2021.

Our unallocated expenses for fiscal 2021 also reflects benefits of $3.1 million for legal expense recoveries from insurance and $2.0 million related to a refund of historical excise tax paid.

Excluding these items in their respective periods, unallocated expense would have been $21.4 million and $21.6 million, respectively, for fiscal 2022 and 2021.

GAAP operating results for fiscal 2023 will be impacted by start-up expenses and restructuring costs associated with the opening of Comtech’s new high-volume technology manufacturing centers, as well as the expenses associated with the CEO change that was announced in August 2022.

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 fiscal 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 fiscal 2023 was driven primarily by changes in products and services mix, as discussed above.

Excluding the impact of CEO transition costs, proxy solicitation costs and its respective portion of restructuring charges, Unallocated expenses for fiscal 2023 would have been $29.0 million, as compared to $21.9 million for fiscal 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.

Amortization of stock-based compensation was $10.1 million and $7.8 million, respectively, for fiscal 2023 and 2022, and includes fully vested stock-based awards granted to certain employees in lieu of fiscal 2023 and 2022 non-equity incentive compensation.

Stock-based compensation expense for fiscal 2022 also includes $0.8 million related to the retirement of three, long-standing Board members, who retired in December 2021.

Interest Expense and Other.

Interest expense was $15.0 million and $5.0 million for fiscal 2023 and 2022, respectively.

Interest expense for fiscal 2021 includes $1.2 million of incremental interest expense related to a now terminated financing commitment letter.

Our effective interest rate (including amortization of deferred financing costs) in fiscal 2022 was approximately 3.4%.

The increase is due to a higher average debt balance outstanding during fiscal 2023, as well as higher interest rates.

Our effective interest rate (including amortization of deferred financing costs) in fiscal 2023 was approximately 8.9% as compared to 3.4% in fiscal 2022.

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility is approximately 9.2%.

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

See "Notes to Condensed Consolidated Financial Statements - Note (15) - Convertible Preferred Stock" for more information.

There was no similar adjustment recorded during fiscal 2023.

See "Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock" for more information.

Benefit from Income Taxes.

For fiscal 2022 and 2021, we recorded tax benefits of $4.0 million and $1.5 million, respectively.

Our effective tax rate (excluding discrete tax items) for fiscal 2022 was 28.0%, as compared to a nominal effective tax rate for fiscal 2021.

The increase was primarily due to expected product and geographical mix changes in fiscal 2022.

For purposes of determining our 28.0% annual effective tax rate for fiscal 2022, CEO transition costs and proxy solicitation costs are considered significant, unusual or infrequently occurring discrete tax items and are excluded from the computation of our effective tax rate.

For fiscal 2023 and fiscal 2022, we recorded tax benefits of $3.9 million and $4.0 million, respectively.

Our effective tax rate (excluding discrete tax items) for fiscal 2023 was 14.5%, as compared to 28.0% for fiscal 2022.

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

For purposes of determining our 14.5% 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 fiscal 2023, we recorded a net discrete tax benefit of $0.8 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 and state income tax returns.

During fiscal 2022, we recorded a net discrete tax benefit of $0.6 million, primarily related to the deductible portion of CEO transition costs and proxy solicitation costs.

These benefits were partially offset by the establishment of a valuation allowance on certain foreign related net deferred tax assets and the settlement of certain stock-based awards during fiscal 2022.

During fiscal 2021, we recorded a net discrete tax benefit of $1.6 million, primarily related to the release of valuation allowances previously established on certain foreign related deferred tax assets, the finalization of certain tax accounts in connection with the filing of our fiscal 2020 federal, state and foreign income tax returns and the settlement of certain stock-based awards during fiscal 2021.

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

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

Net (loss) income $ (3.9) 24.4 18.8 24.4 (48.0) (122.2) $ (33.1) (73.5)

(Benefit from) provision for income taxes (1.1) (0.4) — 0.8 (2.9) (1.9) (4.0) (1.5)

Net income (loss) $ 15.5 (3.9) 12.3 18.8 (54.7) (48.0) $ (26.9) (33.1)

Benefit from income taxes (1.7) (1.1) (0.2) — (2.0) (2.9) (3.9) (4.0)

Interest (income) and other 1.2 (0.8) 0.2 0.1 (0.2) — 1.2 (0.7)

Change in fair value of

convertible preferred stock

option liability — — — — (1.0) — (1.0) —

Change in fair value of convertible

preferred stock option liability — — — — — (1.0) — (1.0)

Interest expense — 0.1 — — 15.0 4.9 15.0 5.0

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COVID-19 related costs — 1.1 — — — — — 1.1

Acquisition plan expenses — — — (1.1) — 101.3 — 100.3

Adjusted EBITDA $ 37.0 14.1 35.3 39.1 (18.8) (13.9) $ 53.5 39.3

Percentage of related net sales 11.0 % 5.0 % 16.6 % 18.9 % NA NA 9.7 % 8.1 %

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for fiscal 2022 as compared to fiscal 2021 is primarily attributable to lower consolidated net sales, as discussed above.

The decrease in our Satellite and Space Communications segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, was driven primarily by lower net sales and gross profit percentage, partially offset by 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, was driven primarily by higher research and development expenses, as discussed above.

The increase in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for fiscal 2023 as compared to fiscal 2022 reflects the benefit of our One Comtech lean initiatives implemented through fiscal 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, as discussed above.

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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 EPS for fiscal 2021 was computed using 25,885,000 weighted average diluted shares outstanding during the period.

($ in millions, except for per share amounts) Operating Loss Net Loss Attributable to Common Stockholders Net Loss per

In addition, due to the GAAP net loss for the period, Non-GAAP EPS for fiscal 2023 and 2022 was computed using weighted average diluted shares outstanding of 28,376,000 and 27,188,000, respectively.

($ in millions, except for per share amounts) 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

21.4 16.6 0.59

Restructuring costs

10.9 8.3 0.30

Amortization of stock-based compensation

10.1 7.9 0.28

CEO transition costs

Strategic emerging technology costs 3.8 3.4 0.12

COVID-19 related costs 1.1 0.8 0.03

Change in fair value of convertible preferred stock purchase option

Amortization of cost to fulfill assets 1.0 1.0 0.03

Net discrete tax benefit

— (0.3) (0.01)

Net discrete tax expense

Non-GAAP measures $ 41.6 $ 18.5 $ 0.65

($ in millions, except for per share amounts) Operating (Loss) Income Net (Loss) Income Net (Loss) Income per

Diluted Share

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

Diluted Common Share

Reconciliation of GAAP to Non-GAAP Earnings:

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$ (33.8) $ (43.3) $ (1.63)

Acquisition plan expenses

Adjustments to reflect redemption value of convertible preferred stock

Amortization of intangibles

21.4 16.3 0.62

CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

11.2 8.7 0.33

Amortization of stock-based compensation

Restructuring costs

COVID-19 related costs

Strategic emerging technology costs

Interest expense

Net discrete tax benefit

COVID-19 related costs

Amortization of cost to fulfill assets

Change in fair value of convertible preferred stock purchase option

— (1.0) (0.04)

Net discrete tax expense

Non-GAAP measures $ 28.9 $ 19.3 $ 0.71

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Comparison of Fiscal 2022 and 2021

Consolidated net sales were $581.7 million and $616.7 million for fiscal 2021 and 2020, respectively, representing a decrease of $35.0 million, or 5.7%.

The decrease in net sales primarily reflects lower net sales in our Satellite and Space Communications segment.

Net sales by operating segment are discussed below.

Satellite and Space Communications

Net sales in our Satellite and Space Communications segment were $374.9 million for fiscal 2021 as compared to $411.1 million for fiscal 2020, a decrease of $36.2 million or 8.8%.

Our Satellite and Space Communications segment represented 64.4% of consolidated net sales for fiscal 2021 as compared to 66.7% for fiscal 2020.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2021 was 0.91x.

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

Fiscal 2021 net sales in this segment primarily reflect lower sales of global field support services, advanced VSAT products and other programs for the U.S.

Such increase was offset in part by higher sales of our high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components (including incremental sales of X/Y antenna products that we now offer as a result of our January 2020 acquisition of CGC), performance on our 10-year, $211.0 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of the U.S.

Marine Corps and a nominal amount of sales related to our acquisition of UHP Networks Inc.

("UHP") on March 2, 2021, which extended our product offerings to include TDMA satellite modems.

Terrestrial and Wireless Networks

Net sales in our Terrestrial and Wireless Networks segment were $206.8 million for fiscal 2021, as compared to $205.6 million for fiscal 2020, an increase of $1.2 million, or 0.6%.

Our Terrestrial and Wireless Networks segment represented 35.6% of consolidated net sales for fiscal 2021 as compared to 33.3% for fiscal 2020.

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2021 was 1.37x.

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

Net sales in fiscal 2021 reflect increased sales of our trusted location and messaging solutions, offset in part by the absence of 911 wireless call routing sales to AT&T.

During fiscal 2021, we were awarded several important statewide NG-911 contracts and our strong momentum was acknowledged by Frost & Sullivan, who recognized Comtech for registering the most significant year-over-year market share increase among all NG-911 primary contract holders, growing our market share from an estimated 17.3% in 2019 to 26.2% in 2020, as calculated by Frost & Sullivan.

Geography and Customer Type

Sales by geography and customer type, as a percentage of related sales, for the fiscal years ended July 31, 2021 and 2020 are as follows:

Fiscal Years Ended July 31,

2021 2020 2021 2020 2021 2020

Satellite and Space Communications Terrestrial and Wireless Networks Consolidated

government 52.8 % 53.7 % 1.4 % 1.2 % 34.6 % 36.2 %

Domestic 15.3 % 15.2 % 89.2 % 90.3 % 41.5 % 40.3 %

68.1 % 68.9 % 90.6 % 91.5 % 76.1 % 76.5 %

International 31.9 % 31.1 % 9.4 % 8.5 % 23.9 % 23.5 %

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

Sales to U.S.

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

Domestic sales include sales to commercial customers, as well as to U.S.

state and local governments.

Included in domestic sales are sales to Verizon, which accounted for 10.7% of consolidated net sales for fiscal 2021.

Except for the U.S.

government, there were no customers that represented more than 10.0% of consolidated net sales for fiscal 2020.

International sales for fiscal 2021 and 2020 (which include sales to U.S.

domestic companies for inclusion in products that are sold to international customers) were $138.9 million and $145.1 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 fiscal 2021 and 2020.

Gross Profit.

Gross profit was $214.0 million and $226.8 million for fiscal 2021 and 2020, respectively.

The decrease of $12.8 million primarily reflects the decline in consolidated net sales, as discussed above.

Gross profit as a percentage of consolidated net sales was 36.8% for both fiscal periods.

Our gross profit in fiscal 2021 reflects a higher percentage of consolidated net sales generated from our Terrestrial and Wireless Networks segment, offset by increased costs due to production delays, supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs resulting from the COVID-19 pandemic.

In addition, our gross profit reflects start-up costs associated with the opening of our two new high-volume technology manufacturing centers.

Our gross profit for fiscal 2021 also reflects a $2.0 million benefit from the refund of historical excise tax paid, which was recorded in our Unallocated segment.

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 fiscal 2021 increased in comparison to fiscal 2020 primarily reflecting changes in products and services mix, as discussed above.

Also, during fiscal 2021, we incurred $1.0 million of incremental operating costs for our antenna facility in the United Kingdom due to the impact of the COVID-19 pandemic.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for fiscal 2021 decreased in comparison to fiscal 2020 primarily reflecting changes in products and services mix, including the cessation of sales to AT&T for 911 wireless call routing services and an increase in sales related to a recently awarded statewide NG-911 deployment (which has lower margins than our 911 wireless call routing services).

Included in consolidated cost of sales for fiscal 2021 and 2020 are provisions for excess and obsolete inventory of $4.4 million and $1.6 million, respectively.

As discussed in "Item 7.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses were $111.8 million and $117.1 million for fiscal 2021 and 2020, respectively, representing a decrease of $5.3 million, or 4.5%.

As a percentage of consolidated net sales, selling, general and administrative expenses were 19.2% and 19.0% for fiscal 2021 and 2020, respectively.

In fiscal 2021, we incurred $2.8 million of restructuring costs to streamline our operations, including $1.8 million related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility in Chandler, Arizona, and $1.0 million for the consolidation of certain administrative and operating functions in our troposcatter and SATCOM solution product line.

In addition, we received $3.1 million of legal expense recoveries from insurance in fiscal 2021.

In fiscal 2020, we incurred estimated contract settlement costs of $0.4 million principally related to the repositioning of our trusted location and messaging solutions offerings in our Terrestrial and Wireless Networks segment.

Excluding these costs in both periods, our selling, general and administrative expenses would have been $112.1 million, or 19.3% of consolidated net sales in fiscal 2021 and $116.7 million, or 18.9% of consolidated net sales in fiscal 2020.

The decrease in our selling, general and administrative expenses, in dollars, is largely attributable to the benefit from our efforts to streamline business operations in our Satellite and Space Communications segment.

Amortization of stock-based compensation expenses recorded as selling, general and administrative expenses was $8.1 million in fiscal 2021 as compared to $7.5 million in fiscal 2020.

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

Research and Development Expenses.

Research and development expenses were $49.1 million and $52.2 million for fiscal 2021 and 2020, respectively, representing a decrease of $3.1 million, or 5.9%.

As a percentage of consolidated net sales, research and development expenses were 8.4% and 8.5% for fiscal 2021 and 2020, respectively.

For fiscal 2021 and 2020, research and development expenses of $28.0 million and $31.0 million, respectively, related to our Satellite and Space Communications segment, and $20.1 million and $20.3 million, respectively, related to our Terrestrial and Wireless Networks segment.

The remaining research and development expenses of $1.0 million and $0.9 million in fiscal 2021 and 2020, respectively, related to the amortization of stock-based compensation expense.

During fiscal 2021, our Satellite and Space Communications segment incurred $0.3 million of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

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

During fiscal 2021 and 2020, customers reimbursed us $13.6 million and $11.9 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 was $21.0 million (of which $5.7 million was for the Satellite and Space Communications segment and $15.3 million was for the Terrestrial and Wireless Networks segment) for fiscal 2021 and $21.6 million (of which $5.1 million was for the Satellite and Space Communications segment and $16.5 million was for the Terrestrial and Wireless Networks segment) for fiscal 2020.

Acquisition Plan Expenses.

During fiscal 2021 and 2020, we incurred acquisition plan expenses of $100.3 million and $20.8 million, respectively.

For fiscal 2021, $88.3 million related to the previously announced litigation and merger termination with Gilat, including $70.0 million paid in cash to Gilat.

The remaining costs in fiscal 2021 primarily related to the April 2021 settlement of litigation associated with our 2019 acquisition of GD NG-911 as well as the March 2021 closing of our acquisition of UHP.

These expenses are primarily recorded in our Unallocated segment.

Operating (Loss) Income.

Operating loss for fiscal 2021 was $68.3 million as compared to operating income of $15.2 million for fiscal 2020.

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

Fiscal Years Ended July 31,

2021 2020 2021 2020 2021 2020 2021 2020

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

Operating income (loss) $ 24.3 $ 25.5 $ 25.2 $ 29.3 $ (117.8) $ (39.6) $ (68.3) $ 15.2

Percentage of related

net sales 6.5 % 6.2 % 12.2 % 14.3 % NA NA NA 2.5 %

The decrease in our Satellite and Space Communications segment operating income, in dollars, for fiscal 2021 was driven primarily by lower net sales, $2.8 million of restructuring costs and $1.0 million of COVID-19 related costs, partially offset by a higher gross profit percentage 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 fiscal 2021 was driven primarily by a lower gross profit percentage, partially offset by lower amortization of intangibles, as discussed above.

The increase in unallocated expenses for fiscal 2021 as compared to fiscal 2020 is primarily due to acquisition plan expenses, as discussed above.

Amortization of stock-based compensation was $10.0 million and $9.3 million, respectively, for fiscal 2021 and 2020.

Excluding (i) $100.3 million of acquisition plan expenses;

(ii) $2.8 million of restructuring costs;

(iii) $1.0 million of incremental operating costs due to the impact of COVID-19;

and (iv) $0.3 million of strategic emerging technology costs, consolidated operating income for fiscal 2021 would have been $36.1 million, or 6.2% of consolidated net sales.

Excluding $20.8 million of acquisition plan expenses and $0.4 million of estimated contract settlement costs, consolidated operating income for fiscal 2020 would have been $36.4 million, or 5.9% of consolidated net sales.

The increase, as a percentage of consolidated net sales, was due primarily to lower selling, general and administrative expenses and lower research and development expenses, offset in part by lower consolidated net sales, as discussed above.

Interest Expense and Other.

Interest expense was $6.8 million and $6.1 million for fiscal 2021 and 2020, respectively.

Interest expense for fiscal 2021 includes $1.2 million of incremental interest expense related to a now terminated financing commitment letter.

Excluding the $1.2 million, our effective interest rate (including amortization of deferred financing costs) in fiscal 2021 was approximately 2.8%.

Interest (Income) and Other.

Interest (income) and other for both fiscal 2021 and 2020 was nominal.

(Benefit from) Provision for Income Taxes.

For fiscal 2021, we recorded a tax benefit of $1.5 million as compared to a tax provision of $2.3 million for fiscal 2020.

Our effective tax rate for fiscal 2021 (excluding discrete tax items) was nominal, as compared to 37.0% for fiscal 2020.

The decrease from 37.0% is primarily due to the exclusion of the $70.0 million of acquisition plan expense paid to Gilat during our first quarter of fiscal 2021, as such amount was considered an unusual and infrequently occurring item.

In addition, given the nature of such item, no financial statement benefit was recorded for the $70.0 million payment to Gilat.

During fiscal 2021, we recorded a net discrete tax benefit of $1.6 million, primarily related to:

(i) the release of valuation allowances previously established on deferred tax assets of one of our foreign subsidiaries;

(ii) the finalization of certain tax accounts in connection with the filing of our fiscal 2020 federal, state and foreign income tax returns;

and (iii) the settlement of certain stock-based awards during fiscal 2021.

During fiscal 2020, we recorded a net discrete tax benefit of $1.2 million, primarily related to the finalization of certain tax accounts in connection with the filing of our fiscal 2019 federal and state income tax returns.

These benefits were offset, in part, by:

(i) the remeasurement of certain foreign deferred taxes resulting from the passage of legislation that increased the statutory tax rate in the United Kingdom from 17.0% to 19.0%;

and (ii) the settlement of certain stock-based awards during fiscal 2020.

Net (Loss) Income Attributable to Common Stockholders.

During fiscal 2021, our consolidated net loss attributable to common stockholders was $73.5 million as compared to net income of $7.0 million during fiscal 2020.

Adjusted EBITDA.

Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both fiscal 2021 and 2020 are shown in the table below (numbers in the table may not foot due to rounding):

Fiscal Years Ended July 31,

2021 2020 2021 2020 2021 2020 2021 2020

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

Net income (loss) $ 24.4 25.7 24.4 28.9 (122.2) (47.6) $ (73.5) 7.0

(Benefit from) provision for income taxes (0.4) — 0.8 0.3 (1.9) 2.0 (1.5) 2.3

Interest (income) and other

0.2 (0.2) — — (0.4) — (0.1) (0.2)

Interest expense 0.1 — — — 6.8 6.0 6.8 6.1

Amortization of stock-based compensation

— — — — 10.0 9.3 10.0 9.3

Amortization of intangibles

5.7 5.1 15.3 16.5 — — 21.0 21.6

Depreciation 3.7 3.9 5.3 5.9 0.3 0.8 9.4 10.6

Estimated contract settlement costs

— 0.4 — — — — — 0.4

Acquisition plan expenses

— 0.8 (1.1) — 101.3 20.0 100.3 20.8

Restructuring costs 2.8 — — — — — 2.8 —

COVID-19 related costs 1.0 — — — — — 1.0 —

Strategic emerging technology costs 0.3 — — — — — 0.3 —

Adjusted EBITDA $ 37.8 35.7 44.8 51.7 (6.1) (9.6) $ 76.5 77.8

Percentage of related net sales

10.1 % 8.7 % 21.7 % 25.1 % NA NA 13.2 % 12.6 %

The increase in consolidated Adjusted EBITDA, as a percentage of consolidated net sales, for fiscal 2021 as compared to fiscal 2020 is primarily attributable to a higher percentage of consolidated net sales in our Terrestrial and Wireless Networks segment, as well as lower consolidated selling, general and administrative expenses and research and development expenses, 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, was driven primarily by a higher gross profit percentage 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 a lower gross profit percentage, as discussed above.

For a definition and explanation of Adjusted EBITDA, see "Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2022 and 2021 - Adjusted EBITDA ."

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income and net (loss) income per diluted common share for fiscal 2021 and 2020 to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the table may not foot due to rounding).

Non-GAAP net income and net income per diluted common share reflect Non-GAAP provisions for income taxes based on full year results, as adjusted for the Non-GAAP reconciling items included in the tables below.

We evaluate our Non-GAAP effective income tax rate on an ongoing basis, and it can change from time to time.

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

In addition, due to the GAAP net loss for the period, Non-GAAP EPS for fiscal 2021 was computed using 25,885,000 weighted average diluted shares outstanding during the period.

($ in millions, except for per share amounts) Operating (Loss) Income Net (Loss) Income Net (Loss) Income per

Diluted Share

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported

$ (68.3) $ (73.5) $ (2.86)

Acquisition plan expenses

100.3 93.3 3.60

Restructuring costs

COVID-19 related costs 1.0 0.8 0.03

Strategic emerging technology costs 0.3 0.3 0.01

Interest expense

Net discrete tax benefit

— (1.6) (0.06)

Non-GAAP measures $ 36.1 $ 22.4 $ 0.86

($ in millions, except for per share amounts) Operating Income Net Income Net Income per

Diluted Share

Reconciliation of GAAP to Non-GAAP Earnings:

GAAP measures, as reported

$ 15.2 $ 7.0 $ 0.28

Estimated contract settlement costs

Acquisition plan expenses

20.8 13.1 0.53

Net discrete tax benefit

— (1.2) (0.05)

Non-GAAP measures $ 36.4 $ 19.2 $ 0.77

A detailed discussion of fiscal 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2022 and 2021" in our Annual Report on Form 10-K for the year ended July 31, 2022.

Liquidity and Capital Resources

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For fiscal 2023, our cash flows reflect the following:

• Net cash provided by operating activities was $2.0 million for fiscal 2022 as compared to net cash used in operating activities of $40.6 million for fiscal 2021.

During fiscal 2022, we paid $15.9 million in aggregate payments related to our CEO transition and settled proxy contest.

Excluding such payments, net cash provided by operating activities would have been $17.9 million for fiscal 2022.

During fiscal 2021, in connection with an agreement to terminate our acquisition of Gilat, we made a $70.0 million payment to Gilat.

Excluding such payment, net cash provided by operating activities would have been $29.4 million for fiscal 2021.

The period-over-period decrease in cash flow from operating activities (excluding the $15.9 million and $70.0 million payments) reflects overall changes in net working capital requirements, principally the timing of shipments, billings and payments.

• Net cash used in operating activities was $4.4 million for fiscal 2023 as compared to net cash provided by operating activities of $2.0 million for fiscal 2022.

Excluding $14.0 million and $15.9 million in aggregate payments for restructuring costs, including severance, proxy solicitation costs and CEO transition costs in fiscal 2023 and 2022, respectively, cash flows provided by operations would have been $9.6 million and $17.9 million, respectively.

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 fiscal 2023 and 2022 was $18.3 million and $19.6 million, respectively.

Net cash used during fiscal 2022 primarily reflects capital expenditures to build-out cloud-based computer networks to support our recent NG-911 contract wins and capital investments and building improvements in connection with the opening of our new high-volume technology manufacturing centers.

Net cash used during fiscal 2023 and 2022 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 $20.1 million and $8.4 million for fiscal 2023 and 2022, respectively.

During fiscal 2023, we had net borrowings under our Credit Facility of $36.9 million, as compared to net payments under our Credit Facility of $71.0 million during fiscal 2022.

During fiscal 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 fiscal 2022, we also made net payments under our Credit Facility of $71.0 million as compared to net borrowings under our Credit Facility of $51.5 million during fiscal 2021, primarily due to the $70.0 million payment we made to Gilat.

During fiscal 2023 we paid deferred financing costs of $3.8 million in connection with the amendment of our Credit Facility.

During fiscal 2023 and 2022, we paid $8.7 million and $11.0 million, respectively, in cash dividends to our common stockholders.

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

Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss and maximize the income we receive without significantly increasing risk.

Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss while at the same time maximize the income we receive without significantly increasing risk.

To minimize risk, we generally invest our cash and cash equivalents in money market mutual funds (both government and commercial), certificates of deposit, bank deposits, and U.S.

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We expect capital investments for these and other initiatives to continue in fiscal 2024.

As discussed in " Notes to Consolidated Financial Statements - Note (2) - Acquisitions - UHP Networks Inc.

" included in " Part II - Item 8.

- Financial Statements and Supplementary Data " included in this Form 10-K, we completed our acquisition of UHP on March 2, 2021, substantially all of which was paid for with shares of our common stock.

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.

This new shelf registration statement was declared effective by the SEC as of July 25, 2022 and replaces the prior unused $400.0 million shelf registration statement that expired in December 2021.

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.

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 $100.0 million stock repurchase program, which replaced our prior program.

The $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 fiscal 2023 and 2022.

As discussed further in " Notes to Consolidated Financial Statements - Note (16) -"Stockholders' Equity " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K, on June 9, 2022, our Board of Directors declared a cash dividend of $0.10 per common share, which was paid on August 19, 2022.

On September 29, 2022, our Board of Directors declared a cash dividend of $0.10 per common share, payable on November 18, 2022 to stockholders of record at the close of business on October 19, 2022.

Our material cash requirements are for working capital, CEO transition costs expected to be paid in October 2022, capital expenditures, income tax payments, debt service, facilities lease payments, dividends related to our common stock and dividends related to our Convertible Preferred Stock, which are payable in kind or in cash at our election.

During the third quarter of fiscal 2023, 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, our Board of Directors, together with management, adjusted the Company’s capital allocation plans and determined to forgo a common stock dividend, thereby increasing our financial flexibility for future investments.

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.

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

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

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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.

In addition, we may choose to raise additional funds through equity and debt financing transactions to provide additional flexibility or to pursue acquisitions.

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

Furthermore, we may choose to raise additional funds through equity and debt financing transactions to provide additional flexibility or to pursue acquisitions.

Although it is difficult in the current economic and credit environment to predict the terms and conditions of financing that may be available in the future, we believe that we would have sufficient access to credit from financial institutions and/or financing from public and private debt and equity markets.

As discussed further in "Notes to Consolidated Financial Statements - Note (18) – Subsequent Events" included in "Part II - Item 8.

Financial Statements and Supplementary Data" included in this Form 10-K, in October 2023, we entered into a stock sale agreement relating to our solid-state, RF microwave high-power amplifiers and control components product line, which is included in our Satellite and Space Communications segment.

The completion of this divestiture is subject to customary closing conditions.

The preliminary sales price for this divestiture is $35.0 million in cash, plus contingent consideration up to $5.0 million based on the achievement of a revenue target or the receipt of an anticipated contract award as specified in the stock sale agreement.

The sales price is also subject to adjustment based on the closing date net working capital of the divested business.

Upon completing this transaction, in the short term, we anticipate using some or all of the net proceeds from this divestiture to meaningfully reduce our outstanding debt, leverage ratio and cash interest requirements.

Credit Facility

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Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), on October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders.

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.

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.

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.

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.

As of July 31, 2023, the amount outstanding under our Credit Facility was $164.4 million, comprised of $116.9 million under the Revolving Loan Facility and $48.1 million under the Term Loan.

At July 31, 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.

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Our Interest Expense Coverage Ratio as of July 31, 2023 was 3.54x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

Although we expect our Secured Leverage Ratio to remain elevated during the first quarter of fiscal 2023, as we make payments to various vendors associated with the build-out of our high-volume technology manufacturing facilities, to support our working capital needs for our existing contracts and to make required CEO transition related payments, given our overall expected business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future.

Our Minimum Liquidity was $28.5 million compared to the Minimum Liquidity requirement of $25.0 million.

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

Convertible Preferred Stock

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On October 19, 2021 (the “Initial Closing Date”), pursuant to the terms of the Subscription Agreement, the Investors purchased an aggregate of 100,000 shares of Convertible Preferred Stock (the “Initial Issuance”) for an aggregate purchase price of $100.0 million.

On October 9, 2023, we received a non-binding term sheet from the Investors proposing (i) an exchange of their outstanding Series A Convertible Preferred Stock for a new series of convertible preferred stock on amended terms and (ii) purchase an additional amount of such new series of convertible preferred stock, on terms, conditions and assumptions described therein.

No assurances can be given that a transaction will be consummated and the Investors reserve the right to withdraw the proposal at any time.

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.

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Operating and financing lease obligations 57,340 9,478

Dividends payable 2,746 2,746

Contractual cash obligations $ 243,897 28,940

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

See " Notes to Consolidated Financial Statements - Note (8) -"Leases " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K, for additional information on our lease commitments.

Financial Statements and Supplementary Data, " (which discussion is incorporated herein by reference), included in this Form 10-K, for additional information on our lease commitments.

As discussed further in " Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K, the holders of the Convertible Preferred Stock have the option to redeem such shares for cash commencing in October 2026.

Financial Statements and Supplementary Data, " (which discussion is incorporated herein by reference), included in this Form 10-K, the holders of the Convertible Preferred Stock have the option to redeem such shares for cash commencing in October 2026.

As the Convertible Preferred Stock are not mandatorily redeemable for cash, the redemption value of such shares are not presented in the table above.

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As a result, pending or future claims asserted against us by a party that we 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 in 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.

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.

As further discussed in " Notes to Consolidated Financial Statements – Note (9) - "Income Taxes " included in " Part II - Item 8.

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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 Consolidated Financial Statements – Note (1)(n) - Adoption of Accounting Standards and Updates " included in " Part II - Item 8.

- Financial Statements and Supplementary Data, " included in this Form 10-K, during fiscal 2022, we adopted:

• FASB ASU No.

2019-12, which simplifies various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

Our adoption of this ASU on August 1, 2021 did not have a material impact on our consolidated financial statements or disclosures.

• FASB ASU No.

2020-01, which clarifies the interactions between Topics 321, 323 and 815.

This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815.

Our adoption of this ASU on August 1, 2021 did not impact our consolidated financial statements or disclosures.

• FASB ASU No.

2020-06, which simplifies the accounting for convertible instruments by removing certain separation models (including the cash conversion model and the beneficial conversion feature model) for convertible instruments.

As a result, for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815 or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features are no longer separated from the host contract.

Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost as long as no other features require bifurcation and recognition as derivatives.

On August 1, 2021, we early adopted this ASU.

Our early adoption of this ASU did not have any impact on our consolidated financial statements or disclosures.

• FASB ASU No.

2021-08, which requires that an acquirer recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts.

Prior to this ASU, an acquirer generally recognized contract assets and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date.

On August 1, 2021, we early adopted this ASU.

Our early adoption of this ASU did not have any impact on our consolidated financial statements or disclosures.

As further discussed in " Notes to Consolidated Financial Statements – Note (1)(m) - Adoption of Accounting Standards and Updates " included in " Part II - Item 8.

Financial Statements and Supplementary Data, " included in this Form 10-K, (which discussion is incorporated herein by reference), ASUs issued, but not effective until after July 31, 2023, are not expected to have a material impact on our 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-K

Item 7. Management’s Discussion and Analysis