What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-10-12 compared with 2022-09-29 · 321 added, 387 removed, 1247 unchanged (36% of the section changed)

20 unchanged sentences

OTHER INFORMATION

Not applicable.

Securities Trading Plans of Directors and Officers

During the three months ended July 31, 2023, none of our directors or officers adopted or terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408(a) of Regulation S-K).

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

25 unchanged sentences

Exhibit 3(a)(ii) to the Registrant’s 2017 Form 10-K

Certificate of Designations designating the Series A Convertible Preferred Stock, dated October 19, 2021

Exhibit 3.1 to the Registrant's Form 8-K filed October 22, 2021

Certificate of Correction of Certificate of Designations of Series A Convertible Preferred Stock, dated November 9, 2021

Exhibit 3.1 to the Registrant's 8-K, filed November 12, 2021

Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock, dated November 30, 2022

Exhibit 3.1 to the Registrant's Form 8-K filed December 1, 2022

Description of Comtech Telecommunication Corp.'s Securities Registered Pursuant to Section 12 of the Exchange Act

Exhibit 4(a)(vi) to the Registrant's 2022 Form 10-K

Seventh Amended and Restated Employment Agreement, dated March 4, 2020, between the Registrant and Fred Kornberg

Exhibit 10.1 to the Registrant’s Form 8-K, filed March 4, 2020

Lease A greement, dated September 23, 2011, between TM Squared and Comtech PST Corp.

(with respect to the Melville, New York f acility )

Lease Agreement, dated September 23, 2011, between TM Squared and Comtech PST Corp.

(with respect to the Melville, New York facility )

Exhibit 10(s) to the Registrant's 2011 Form 10-K

4 unchanged sentences

Exhibit 10.1 to the Registrant's Form 10-Q, filed March 10, 2022

Second Amended and Restated 2001 Employee Stock Purchase Plan

Exhibit A to the Registrant’s Proxy Statement, filed November 16, 2018

2000 Stock Incentive Plan, Amended and Restated, dated September 9, 2022

Third Amended and Restated 2001 Employee Stock Purchase Plan

Appendix B to the Registrant’s Proxy Statement, filed November 18, 2022

2000 Stock Incentive Plan, Amended and Restated, dated December 15, 2022

Appendix A to the Registrant’s Proxy Statement, filed November 18, 2022

Form of Stock Option Agreement pursuant to the 2000 Stock Incentive Plan

4 unchanged sentences

Exhibit 10(s) to the Registrant’s 2012 Form 10-K

Form of Cash-Settled Performance Unit Agreement pursuant to the 2000 Stock Incentive Plan

Form of Long-Term Performance Share Award Agreement pursuant to the 2000 Stock Incentive Plan - 2018

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Form of Restricted Stock Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2022

Exhibit 10(g)(4) to the Registrant's 2022 Form 10-K

Form of Restricted Stock Unit Agreement for Employees pursuant to the 2000 Stock Incentive Plan - 2017

11 unchanged sentences

Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2022

Exhibit 10(h)(7) to the Registrant's 2022 Form 10-K

Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Employees pursuant to the 2000 Stock Incentive Plan - 2022

Exhibit 10(h)(8) to the Registrant's 2022 Form 10-K

Form of Stock Unit Agreement for Non-employee Directors pursuant to the 2000 Stock Incentive Plan

2 unchanged sentences

Exhibit 10(v) to the Registrant's 2013 Form 10-K

Form of Other Stock-Based Award Agreement pursuant to the 2000 Stock Incentive Plan

Form of Share Unit Agreement (eligible for dividend equivalents) for Employees pursuant to the 2000 Stock Incentive Plan

5 unchanged sentences

Form of Change-in-Control Agreement (Tier 1)

Exhibit 10(l)(1) to the Registrant's 2022 Form 10-K

Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers

Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers (California Employees)

Exhibit 10.3 to the Registrant’s Form 8-K, filed June 7, 2017

Exhibit 10(l)(2) to the Registrant's 2022 Form 10-K

Description of Exhibit

1 unchanged sentence

Reference to Exhibit

Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers (California Employees)

Exhibit 10.3 to the Registrant’s Form 8-K, filed June 7, 2017

Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers (Divisional/Subsidiary Presidents)

9 unchanged sentences

Exhibit 2.1 to the Registrant’s Form 8-K, filed November 23, 2015

First Amended and Restated Credit Agreement, dated October 31, 2018, among Comtech Telecommunications Corp., the lenders party thereto and Citibank N.A., as administrative agent, issuing bank and swingline lender.

Exhibit 10.1 to the Registrant’s Form 8-K, filed November 5, 2018

Second Amended and Restated Credit Agreement, dated November 30, 2022, among Comtech Telecommunications Corp., the lenders party thereto and Citibank N.A., as administrative agent, issuing bank and swingline lender.

Exhibit 10.1 to the Registrant’s Form 8-K, filed December 1, 2022

Subscription Agreement, dated October 18, 2021, by and among Comtech Telecommunications Corp.

20 unchanged sentences

Exhibit 10.2 to the Registrant’s Form 8-K, filed September 13, 2022

Long-Term Performance Share Award Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp.

2000 Stock Incentive Plan

Exhibit 10.3 to the Registrant’s Form 8-K, filed September 13, 2022

Description of Exhibit

1 unchanged sentence

Reference to Exhibit

Long-Term Performance Share Award Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp.

2000 Stock Incentive Plan

Exhibit 10.3 to the Registrant’s Form 8-K, filed September 13, 2022

Long-Term Performance Share Award (VWAP) Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp.

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COMTECH TELECOMMUNICATIONS CORP.

September 29, 2022 By:

October 12, 2023 By:

/s/Ken Peterman

3 unchanged sentences

Signature Title

September 29, 2022 /s/Ken Peterman Chairman of the Board

October 12, 2023 /s/Ken Peterman Chairman of the Board

(Date) Ken Peterman President and Chief Executive Officer

(Principal Executive Officer)

September 29, 2022 /s/Michael A.

October 12, 2023 /s/Michael A.

Bondi Chief Financial Officer

1 unchanged sentence

Bondi (Principal Financial and Accounting Officer)

September 29, 2022 /s/Wendi Carpenter Director

October 12, 2023 /s/Wendi Carpenter Director

(Date) Wendi Carpenter

September 29, 2022 /s/Judy Chambers Director

October 12, 2023 /s/Judy Chambers Director

(Date) Judy Chambers

September 29, 2022 /s/Fred Kornberg Director

(Date) Fred Kornberg

September 29, 2022 /s/Lisa Lesavoy Director

October 12, 2023 /s/Bruce T.

Crawford Director

(Date) Bruce T.

October 12, 2023 /s/Lisa Lesavoy Director

(Date) Lisa Lesavoy

September 29, 2022 /s/Mark Quinlan Director

October 12, 2023 /s/Ellen M.

Lord Director

(Date) Ellen M.

October 12, 2023 /s/Mark Quinlan Director

(Date) Mark Quinlan

September 29, 2022 /s/Dr.

October 12, 2023 /s/Dr.

Shamash Director

September 29, 2022 /s/Lawrence J.

October 12, 2023 /s/Lawrence J.

Waldman Director

3 unchanged sentences

Index to Consolidated Financial Statements and Schedule

Reports of Independent Registered Public Accounting Firms (PCAOB ID:

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial Statements:

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 29, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of July 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 12, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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Our audit procedures related to the Company’s determination of revenue recognition for specific identified material contracts accounted for over time included the following, among others:

• We tested the design, implementation, and operating effectiveness of the controls over the development of the initial contract cost to complete estimate and monitoring of estimates at completion and estimates to completion.

• We tested the effectiveness of the controls over the development of the initial contract cost to complete estimate and monitoring of estimates at completion and estimates to completion.

• For each specific identified material contract selected, we performed the following:

9 unchanged sentences

◦ Tested the mathematical accuracy of management’s calculation of revenue for the performance obligation.

Goodwill — Refer to Note 13 to the financial statements

Goodwill - Terrestrial and Wireless Networks Reporting Unit - Refer to Note 13 to the financial statements

Critical Audit Matter Description

3 unchanged sentences

Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

The Satellite and Space and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least 18.4% and 11.6%, respectively.

We identified goodwill for the reporting units as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units and the differences between their fair value and carrying value.

The goodwill balance was $347.7 million as of July 31, 2023, of which $174.1 million was allocated to the Terrestrial and Wireless Networks Reporting Unit (“Terrestrial and Wireless Networks”).

The fair value of Terrestrial and Wireless Networks exceeded its carrying value by 8.9% as of the measurement date and, therefore, no impairment was recognized.

We identified goodwill for Terrestrial and Wireless Networks as a critical audit matter because of the significant judgments made by management to estimate the fair value of the reporting unit and the differences between their fair value and carrying value.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and operating margins.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the discount rate and forecasts of future revenue and operating margins used by management to estimate the fair values of the reporting units included the following, among others:

Our audit procedures related to the discount rate and forecasts of future revenue and operating margins used by management to estimate the fair value of Terrestrial and Wireless Networks included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the reporting units, such as controls related to management’s selection of the discount rate and forecasts of future revenue and operating margins.

9 unchanged sentences

Jericho, New York

September 29, 2022

October 12, 2023

We have served as the Company’s auditor since 2015.

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended July 31, 2022, of the Company and our report dated September 29, 2022, expressed an unqualified opinion on those financial statements and financial statement schedule.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended July 31, 2023, of the Company and our report dated October 12, 2023, expressed an unqualified opinion on those financial statements and financial statement schedule.

Basis for Opinion

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Jericho, New York

September 29, 2022

October 12, 2023

COMTECH TELECOMMUNICATIONS CORP.

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Accrued expenses and other current liabilities 66,990,000 72,662,000

Current portion of long-term debt 4,375,000 —

Operating lease liabilities, current 8,645,000 8,685,000

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authorized 125,000 shares;

issued 100,000 at July 31, 2022 (includes accrued dividends of $ 566,000 )

issued 100,000 at July 31, 2023 and 2022 (includes accrued dividends of $ 604,000 and $ 566,000 , respectively)

112,211,000 105,204,000

29 unchanged sentences

199,120,000 213,588,000 282,256,000

Operating (loss) income ( 33,752,000 ) ( 68,298,000 ) 15,174,000

Operating loss ( 14,660,000 ) ( 33,752,000 ) ( 68,298,000 )

Other expenses (income):

1 unchanged sentence

Interest (income) and other 1,226,000 ( 703,000 ) ( 139,000 )

Change in fair value of convertible preferred

stock purchase option liability ( 1,005,000 ) — —

(Loss) income before (benefit from) provision for income taxes ( 37,075,000 ) ( 74,980,000 ) 9,310,000

(Benefit from) provision for income taxes ( 4,023,000 ) ( 1,500,000 ) 2,290,000

Net (loss) income $ ( 33,052,000 ) ( 73,480,000 ) 7,020,000

Adjustments to reflect redemption value of convertible

preferred stock:

Convertible preferred stock issuance costs ( 4,007,000 ) — —

Establishment of initial convertible

preferred stock purchase option liability ( 1,005,000 ) — —

Change in fair value of convertible preferred stock purchase option

liability — ( 1,005,000 ) —

Loss before benefit from income taxes ( 30,847,000 ) ( 37,075,000 ) ( 74,980,000 )

Benefit from income taxes ( 3,948,000 ) ( 4,023,000 ) ( 1,500,000 )

Net loss $ ( 26,899,000 ) ( 33,052,000 ) ( 73,480,000 )

Adjustments to reflect redemption value of convertible preferred stock:

Dividend on convertible preferred stock ( 7,007,000 ) ( 5,204,000 ) —

Net (loss) income attributable to common

stockholders $ ( 43,268,000 ) ( 73,480,000 ) 7,020,000

Net (loss) income per share:

Convertible preferred stock issuance costs — ( 4,007,000 ) —

Establishment of initial convertible preferred stock purchase

option liability — ( 1,005,000 ) —

Net loss attributable to common stockholders $ ( 33,906,000 ) ( 43,268,000 ) ( 73,480,000 )

Net loss per share:

Basic $ ( 1.21 ) ( 1.63 ) ( 2.86 )

1 unchanged sentence

Weighted average number of common shares outstanding – basic 28,002,000 26,506,000 25,685,000

Weighted average number of common and common equivalent shares outstanding – diluted 26,506,000 25,685,000 24,899,000

Weighted average number of common and common equivalent shares

outstanding – diluted 28,002,000 26,506,000 25,685,000

See accompanying notes to consolidated financial statements.

8 unchanged sentences

Equity-classified stock award compensation — — — — 9,983,000 — — — 9,983,000

Proceeds from exercises of stock options — — 16,700 2,000 466,000 — — — 468,000

Proceeds from issuance of employee stock purchase plan shares — — 52,958 5,000 850,000 — — — 855,000

Issuance of employee stock purchase plan shares — — 54,762 5,000 804,000 — — — 809,000

Issuance of restricted stock — — 35,495 4,000 ( 4,000 ) — — — —

Net settlement of stock-based awards — — 240,549 24,000 ( 4,024,000 ) — — — ( 4,000,000 )

Common stock issued for acquisition of CGC Technology Limited ("CGC") — — 323,504 32,000 11,543,000 — — — 11,575,000

Common stock issued for acquisition of UHP Networks Inc.

("UHP") — — 1,026,567 103,000 28,789,000 — — — 28,892,000

Cash dividends declared ($ 0.40 per share)

2 unchanged sentences

— — — — — ( 380,000 ) — — ( 380,000 )

Net income — — — — — 7,020,000 — — 7,020,000

Adoption of current expected credit loss standard — — — — — ( 215,000 ) — — ( 215,000 )

Net loss — — — — — ( 73,480,000 ) — — ( 73,480,000 )

Balance as of July 31, 2021 — — 41,281,812 4,128,000 605,439,000 333,001,000 15,033,317 ( 441,849,000 ) 500,719,000

Equity-classified stock award compensation — — — — 7,767,000 — — — 7,767,000

Proceeds from issuance of employee stock purchase plan shares — — 54,762 5,000 804,000 — — — 809,000

CEO transition costs related to equity-classified stock-based awards (See Note 11)

— — — — 7,388,000 — — — 7,388,000

Issuance of employee stock purchase plan shares — — 49,138 5,000 725,000 — — — 730,000

Issuance of restricted stock, net of forfeiture — — 132,854 13,000 ( 13,000 ) — — — —

Net settlement of stock-based awards — — 247,721 25,000 ( 4,640,000 ) — — — ( 4,615,000 )

Common stock issued for acquisition of UHP Networks Inc.

("UHP") — — 1,026,567 103,000 28,789,000 — — — 28,892,000

Common stock issued for settlement of UHP earn-out liability — — 961,302 96,000 8,818,000 — — — 8,914,000

Issuance of convertible preferred stock 100,000 100,000,000 — — — — — — —

Convertible preferred stock issuance costs — ( 4,007,000 ) — — — — — — —

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

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 10,216,000 — — — ( 10,216,000 ) — — ( 10,216,000 )

Cash dividends declared ($ 0.40 per share)

2 unchanged sentences

— — — — — ( 389,000 ) — — ( 389,000 )

Adoption of current expected credit loss standard — — — — — ( 215,000 ) — — ( 215,000 )

Net loss — — — — — ( 33,052,000 ) — — ( 33,052,000 )

2 unchanged sentences

CEO transition costs related to equity-classified stock-based awards (See Note 11)

Proceeds from issuance of employee stock purchase plan shares — — 49,138 5,000 725,000 — — — 730,000

— — — — 3,764,000 — — — 3,764,000

Issuance of employee stock purchase plan shares — — 54,617 5,000 429,000 — — — 434,000

Issuance of restricted stock, net of forfeiture — — 93,091 9,000 ( 9,000 ) — — — —

Net settlement of stock-based awards — — 275,736 29,000 ( 3,000,000 ) — — — ( 2,971,000 )

Common stock issued for settlement of UHP earn-out liability — — 961,302 96,000 8,818,000 — — — 8,914,000

Issuance of convertible preferred stock 100,000 100,000,000 — — — — — — —

Convertible preferred stock issuance costs — ( 4,007,000 ) — — — — — — —

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

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 7,007,000 — — — ( 7,007,000 ) — — ( 7,007,000 )

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Cash flows from operating activities:

Net (loss) income $ ( 33,052,000 ) ( 73,480,000 ) 7,020,000

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Net loss $ ( 26,899,000 ) ( 33,052,000 ) ( 73,480,000 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization of property, plant and equipment 11,922,000 10,314,000 9,379,000

1 unchanged sentence

Amortization of stock-based compensation 10,107,000 7,767,000 9,983,000

Amortization of cost to fulfill assets 959,000 469,000 —

CEO transition costs related to equity-classified stock-based awards 3,764,000 7,388,000 —

2 unchanged sentences

Changes in other liabilities ( 4,133,000 ) ( 4,132,000 ) ( 6,633,000 )

Loss on disposal of property, plant and equipment ( 310,000 ) 215,000 —

Loss (gain) on disposal of property, plant and equipment 48,000 ( 310,000 ) 215,000

Provision for (benefit from) allowance for doubtful accounts 261,000 838,000 ( 18,000 )

Provision for excess and obsolete inventory 4,871,000 4,447,000 4,364,000

Deferred income tax (benefit) expense ( 5,856,000 ) ( 3,263,000 ) 860,000

Deferred income tax benefit ( 6,060,000 ) ( 5,856,000 ) ( 3,263,000 )

Other — — ( 225,000 )

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Income taxes payable 1,673,000 ( 1,071,000 ) 3,136,000

Net cash provided by (used in) operating activities 1,997,000 ( 40,638,000 ) 52,764,000

Net cash (used in) provided by operating activities ( 4,433,000 ) 1,997,000 ( 40,638,000 )

Cash flows from investing activities:

1 unchanged sentence

Payment for acquisition of CGC, net of cash acquired — — ( 750,000 )

Payments for acquisition of NG-911 businesses — — ( 1,794,000 )

Purchases of property, plant and equipment ( 18,311,000 ) ( 19,619,000 ) ( 16,037,000 )

1 unchanged sentence

Cash flows from financing activities:

Proceeds from issuance of convertible preferred stock 100,000,000 — —

Net (payments) borrowings of long-term debt under Credit Facility ( 71,000,000 ) 51,500,000 ( 15,500,000 )

Remittance of employees' statutory tax withholding for stock awards ( 6,109,000 ) ( 2,803,000 ) ( 5,276,000 )

Cash dividends paid ( 11,048,000 ) ( 10,334,000 ) ( 10,020,000 )

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

Repayment of principal amounts under finance lease and other obligations ( 15,000 ) ( 38,000 ) ( 805,000 )

Net borrowings (payments) of long-term debt under Revolving Loan Facility 36,900,000 ( 71,000,000 ) 51,500,000

Cash dividends paid on common stock ( 8,661,000 ) ( 11,048,000 ) ( 10,334,000 )

Payment of deferred financing costs ( 3,809,000 ) ( 140,000 ) ( 30,000 )

Remittance of employees' statutory tax withholding for stock awards ( 2,869,000 ) ( 6,109,000 ) ( 2,803,000 )

Repayment of debt under Term Loan ( 1,875,000 ) — —

Proceeds from issuance of employee stock purchase plan shares 470,000 734,000 809,000

Proceeds from exercises of stock options — — 468,000

Net cash provided by (used in) financing activities 8,415,000 39,104,000 ( 30,278,000 )

Payment of shelf registration costs ( 101,000 ) — —

Repayment of principal amounts under finance lease and other obligations ( 4,000 ) ( 15,000 ) ( 38,000 )

Proceeds from issuance of convertible preferred stock — 100,000,000 —

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

Net cash provided by financing activities 20,051,000 8,415,000 39,104,000

COMTECH TELECOMMUNICATIONS CORP.

3 unchanged sentences

2023 2022 2021

Net (decrease) increase in cash and cash equivalents $ ( 9,207,000 ) ( 17,017,000 ) 2,302,000

Net decrease in cash and cash equivalents $ ( 2,693,000 ) ( 9,207,000 ) ( 17,017,000 )

Cash and cash equivalents at beginning of year 21,654,000 30,861,000 47,878,000

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Accrued additions to property, plant and equipment $ 993,000 5,586,000 2,466,000

Issuance of restricted stock $ 9,000 13,000 4,000

Common stock issued for acquisitions $ — 9,000,000 28,892,000

Fair value of UHP acquisition contingent earn-out consideration $ — — 8,500,000

Accruals related to acquisitions $ — — 1,157,000

Accrued deferred financing costs $ — — 139,000

See accompanying notes to consolidated financial statements.

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("Verizon"), which were 10.6 %, 11.1 % and 10.7 % of consolidated net sales for fiscal 2023, 2022 and 2021, respectively.

Except for the U.S.

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

International sales for fiscal 2023, 2022 and 2021 (which include sales to U.S.

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Under ASC 606, unbilled receivables constitute contract assets.

There were no material impairment losses recognized on contract assets during the fiscal years ended July 31, 2022, 2021 and 2020, respectively.

There were no material impairment losses recognized on contract assets during the fiscal years ended July 31, 2023, 2022 and 2021.

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.

3 unchanged sentences

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

Of the contract liability balance at July 31, 2021 and July 31, 2020, $ 51,762,000 and $ 34,545,000 was recognized as revenue during fiscal years 2022 and 2021, respectively.

Of the current contract liability balance of $ 64,601,000 at July 31, 2022 and $ 66,130,000 at July 31, 2021, $ 53,079,000 and $ 51,762,000 was recognized as revenue during fiscal years 2023 and 2022, respectively.

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

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

During fiscal years 2023 and 2022, incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

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

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Our basic earnings per share ("EPS") is computed based on the weighted average number of common shares (including vested but unissued stock units, share units, performance shares and restricted stock units ("RSUs")) outstanding during each respective period.

Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, settlement of escrow and earn-out arrangements related to our acquisition of UHP and the assumed conversion of Convertible Preferred Stock, if dilutive, outstanding during each respective period.

Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, settlement of escrow arrangements related to our acquisition of UHP Networks Inc.

("UHP") and the assumed conversion of Convertible Preferred Stock, if dilutive, outstanding during each respective period.

Pursuant to FASB ASC 260 " Earnings Per Share, " shares whose issuance is contingent upon the satisfaction of certain conditions are included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period.

6 unchanged sentences

Weighted average common shares of 260,000 , 591,000 and 82,000 related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation for fiscal 2023, 2022 and 2021, respectively, because their effect would have been anti-dilutive.

Weighted average common shares of 4,570,000 and 3,342,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for fiscal 2023 and 2022, respectively, because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for fiscal 2023 and 2022 is the respective net loss attributable to common stockholders.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

Weighted average common shares of 3,342,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for fiscal 2022 because their effect would have been anti-dilutive.

As a result, the numerator for our basic and diluted EPS calculation for fiscal 2022 is the respective net loss attributable to common stockholders.

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

1 unchanged sentence

2023 2022 2021

Net (loss) income $ ( 33,052,000 ) ( 73,480,000 ) 7,020,000

Net loss $ ( 26,899,000 ) ( 33,052,000 ) ( 73,480,000 )

Convertible preferred stock issuance costs — ( 4,007,000 ) —

2 unchanged sentences

Dividend on convertible preferred stock ( 7,007,000 ) ( 5,204,000 ) —

Net (loss) income attributable to common

stockholders $ ( 43,268,000 ) ( 73,480,000 ) 7,020,000

Denominator for basic calculation 26,506,000 25,685,000 24,798,000

Effect of dilutive securities:

Stock-based awards — — 101,000

Denominator for diluted calculation 26,506,000 25,685,000 24,899,000

Net loss attributable to common stockholders $ ( 33,906,000 ) ( 43,268,000 ) ( 73,480,000 )

Denominator for basic and diluted calculation 28,002,000 26,506,000 25,685,000

As discussed further in Note (15) - " Convertible Preferred Stock ," the Convertible Preferred Stock issued in October 2021 represents a "participating security" as defined in ASC 260.

As a result, our EPS calculations for fiscal 2022 were based on the two-class method.

Given the net loss attributable to common stockholders for fiscal 2022, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

As a result, our EPS calculations for fiscal 2023 and 2022 were based on the two-class method.

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

(i) Fair Value Measurements and Financial Instruments

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Actual results may differ from those estimates.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(k) Comprehensive Income

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Comprehensive income was the same as our net income in fiscal 2023, 2022 and 2021.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(l) Reclassifications

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

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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(2) Acquisitions

UHP Networks Inc.

On March 2, 2021, we completed our acquisition of UHP Networks Inc.

("UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions, pursuant to a stock purchase agreement initially entered into in November 2019 and last amended on March 1, 2021.

With end-markets for high-speed satellite-based networks anticipated to significantly grow, our acquisition allows us to enhance our Satellite and Space Communications segment's offerings with time division multiple access ("TDMA") satellite modems.

The acquisition had a final purchase price for accounting purposes of $ 37,470,000 , which represents the sum of $ 23,979,000 paid at closing, $ 4,991,000 paid on August 1, 2021 and $ 8,500,000 related to the acquisition date estimated fair value of a $ 9,000,000 contingent earn-out payment.

At closing, we funded the $ 23,979,000 and $ 4,991,000 payments with 1,026,567 shares of our common stock, based on a volume weighted average stock price of approximately $ 28.14 per share, plus $ 87,000 in cash.

As of July 31, 2022, 132,005 of the 1,026,567 shares of our common stock issued at closing were held in escrow to satisfy potential indemnification obligations of the seller.

In addition, the specified sales milestones were met and the full $ 9,000,000 earn-out payment was settled on July 12, 2022 with 961,302 newly issued shares of our common stock, based on a volume weighted average stock price of approximately $ 9.36 per share.

Upon payment, twenty-percent, or 192,260 of the 961,302 newly issued shares were placed into escrow and are anticipated to be released to the seller equally on March 2, 2023 and 2024.

The terms of the stock purchase agreement provide an ability for us to substitute cash in lieu of the common stock that was initially placed into escrow.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The following table summarizes the final fair value of assets acquired and liabilities assumed in connection with the UHP acquisition:

Price Allocation

Initial upfront payment $ 23,979,000

Hold back amount 4,991,000

Contingent earn-out consideration 8,500,000

Purchase price at fair value $ 37,470,000

Allocation of aggregate purchase price:

Cash and cash equivalents $ 1,391,000

Current assets 1,367,000

Property, plant and equipment 10,000

Deferred tax assets 310,000

Contract liabilities ( 648,000 )

Accrued warranty obligations ( 750,000 )

Other current liabilities ( 1,175,000 )

Non-current liabilities ( 160,000 )

Net tangible assets at fair value $ 345,000

Identifiable intangibles, deferred taxes and goodwill:

Technology $ 15,300,000 15 years

Customer relationships 15,500,000 15 years

Trade name 800,000 20 years

Deferred tax liabilities ( 8,374,000 )

Goodwill 13,899,000 Indefinite

Allocation of aggregate purchase price $ 37,470,000

We accounted for the acquisition under the acquisition method of accounting in accordance with FASB ASC 805, "Business Combinations" ("ASC 805").

Acquisition plan expenses were not included as a component of consideration transferred and were expensed in the period incurred.

The final purchase price was allocated to the assets acquired and liabilities assumed, based on their fair value as of March 2, 2021 pursuant to the business combination accounting rules.

Our consolidated statements of operations for the fiscal years ended July 31, 2022 and 2021 include a nominal amount of revenue contribution from the acquisition.

Pro forma financial information is not disclosed, as the acquisition is not material.

Acquisition Plan Expenses

During fiscal 2021 and 2020, we incurred acquisition plan expenses of $ 100,292,000 and $ 20,754,000 , respectively.

Of the amount recorded in fiscal 2021, $ 88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd.

("Gilat"), including $ 70,000,000 paid in cash to Gilat.

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

Additionally, during fiscal 2021, we recorded $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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.

(2) CEO Transition Costs

On August 9, 2022, our Board of Directors appointed our Chairman of the Board, Ken Peterman, as President and Chief Executive Officer ("CEO").

Transition costs related to our former President and CEO, Michael D.

Porcelain, pursuant to his separation agreement with the Company, were $ 7,424,000 , of which $ 3,764,000 related to the acceleration of unamortized stock based compensation, with the remaining $ 3,660,000 related to his severance payments and benefits upon termination of employment.

The cash portion of the transition costs of $ 3,660,000 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 $ 1,000,000 expense related to a cash sign-on bonus, which was paid to Mr.

Peterman in January 2023.

CEO transition costs related to Mr.

Porcelain and Mr.

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

During fiscal 2022, we expensed $ 13,554,000 of transition costs related to another former CEO, Fred Kornberg.

(3) Accounts Receivable

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Accounts receivable, net $ 163,159,000 123,711,000

Unbilled receivables as of July 31, 2022 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date.

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

Under ASC 606, unbilled receivables constitute contract assets.

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

As of July 31, 2022, 20.9 % and 13.4 % of total accounts receivable related to U.S.

government (and its agencies) and Verizon, respectively.

As of July 31, 2021, 23.0 %, 12.7 % and 12.1 % of total accounts receivable related to the U.S.

government (and its agencies), AT&T, Inc.

and Verizon, respectively.

Accounts receivable in the table above excludes $ 2,993,000 of long-term unbilled receivables presented within "Other assets, net" in the consolidated balance sheet as of July 31, 2023.

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

government (and its agencies) and AT&T, which represented 35.3 % and 11.0 % of total accounts receivable, respectively, there were no other customers which accounted for greater than 10.0% of total accounts receivable.

As of July 31, 2022, except for the U.S.

government (and its agencies) and Verizon, which represented 20.9 % and 13.4 % of total accounts receivable, respectively, there were no other customers which accounted for greater than 10.0% of total accounts receivable.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Inventories

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As of July 31, 2023 and 2022, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 5,911,000 and $ 4,100,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 3,277,000 and $ 1,866,000 , respectively.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(5) Property, Plant and Equipment

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Accrued wages and benefits $ 21,994,000 25,675,000

Accrued warranty obligations 9,420,000 17,600,000

Accrued contract costs 19,041,000 15,921,000

Accrued acquisition-related costs — 9,222,000

Accrued warranty obligations 8,285,000 9,420,000

Accrued commissions and royalties 4,659,000 5,697,000

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

Accrued acquisition-related costs for fiscal 2021 include $ 8,705,000 of contingent earn-out consideration related to our acquisition of UHP, which was paid in the fourth quarter of fiscal 2022.

See Note (2) - “ Acquisitions - UHP Networks Inc.

” for further discussion.

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

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Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Changes in our accrued warranty obligations during the fiscal years ended July 31, 2023 and 2022 were as follows:

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

(Benefit from) provision for warranty obligations ( 1,255,000 ) 4,360,000

Provision for (benefit from) warranty obligations 3,158,000 ( 1,255,000 )

Adjustments for changes in estimates ( 2,300,000 ) ( 2,500,000 )

Charges incurred ( 1,993,000 ) ( 4,425,000 )

Additions (in connection with acquisitions) — 750,000

Balance at end of year $ 8,285,000 9,420,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

During the second quarter of fiscal 2022, we recorded a $ 2,500,000 benefit to cost of sales in our Terrestrial and Wireless Networks segment due to lower than expected warranty claims associated with previously acquired NG-911 technologies.

During fiscal 2023 and 2022, we recorded benefits of $ 2,300,000 and $ 2,500,000 , respectively, to cost of sales in our Terrestrial and Wireless Networks segment due to lower than expected warranty claims associated with previously acquired NG-911 technologies.

(7) Credit Facility

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

The Credit Facility provides a senior secured loan facility of up to $ 550,000,000 consisting of:

(i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $ 300,000,000 ;

(ii) an accordion feature allowing us to borrow up to an additional $ 250,000,000 ;

(iii) a $ 35,000,000 letter of credit sublimit;

and (iv) a swingline loan credit sublimit of $ 25,000,000 .

The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date").

If we issue new unsecured debt in excess of $ 5,000,000 with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

As of July 31, 2022, the amount outstanding under our Credit Facility was $ 130,000,000 , 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.

The Credit Facility provides a senior secured loan facility of up to $ 300,000,000 consisting of:

(i) a revolving loan facility (“Revolving Loan Facility”) with a borrowing limit of $ 150,000,000 , including a $ 20,000,000 letter of credit sublimit and a swingline loan credit sublimit of $ 15,000,000 ;

(ii) a $ 50,000,000 term loan A (“Term Loan”);

and (iii) an accordion feature allowing us to make a request to borrow up to an additional $ 100,000,000 subject to the satisfaction of specified conditions, including approval by our lenders.

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

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

July 31, 2023

Term Loan $ 48,125,000

Less unamortized deferred financing costs related to Term Loan 621,000

Term Loan, net 47,504,000

Revolving Loan Facility 116,900,000

Amount outstanding under Credit Facility, net 164,404,000

Less current portion of long-term debt 4,375,000

Non-current portion of long-term debt $ 160,029,000

At July 31, 2023, we had $ 1,049,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During the fiscal year ended July 31, 2023, we had outstanding balances under the Credit Facility ranging from $ 130,000,000 to $ 183,250,000 .

As of July 31, 2022, total net deferred financing costs related to the Credit Facility were $ 1,014,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

As of July 31, 2023, total net deferred financing costs related to the Credit Facility were $ 2,971,000 and are being amortized over the term of our Credit Facility through the Maturity Date.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the fiscal years ended July 31, 2023, 2022 and 2021 was $ 14,931,000 , $ 4,933,000 and $ 5,628,000 , respectively.

Our blended interest rate approximated 8.89 %, 3.41 % and 2.84 %, respectively, for fiscal 2023, 2022 and 2021.

Borrowings under the Credit Facility shall be either:

(i) Alternate Base Rate borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the greatest of (a) the Prime Rate (as defined) in effect on such day, (b) the Federal Funds Effective Rate (as defined) in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate (as defined) on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00 % per annum, plus (y) the Applicable Rate (as defined), or (ii) Eurodollar borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted LIBO Rate for such interest period plus (y) the Applicable Rate.

Determination of the Applicable Rate is based on a pricing grid that is dependent upon our Secured Leverage Ratio (as defined) as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Borrowings under the Revolving Loan Facility and Term Loan are either:

(i) Alternate Base Rate borrowings, which would bear interest from the applicable borrowing date at a rate per annum equal to (x) the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 0.50% and (c) the Adjusted Term SOFR for a one-month tenor in effect on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00%, plus (y) the Applicable Rate, or (ii) SOFR borrowings, which would bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted Term SOFR for such interest period plus (y) the Applicable Rate.

Determination of the Applicable Rate is based on a pricing grid that is dependent upon our Leverage Ratio as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

The Credit Facility contains customary representations, warranties and affirmative covenants.

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In addition, under certain circumstances, we may be required to enter into amendments to the Credit Facility in connection with any further syndication of the Credit Facility.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The Credit Facility provides for, among other things:

(i) no scheduled payments of principal until maturity;

(ii) a maximum Secured Leverage Ratio of 3.75 x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and a Maximum Total Leverage Ratio of 4.50 x TTM Adjusted EBITDA, each with no step downs;

and (iii) a Minimum Interest Expense Coverage Ratio of 3.25 x TTM Adjusted EBITDA.

(i) scheduled payments of principal under the Term Loan totaling $ 2,500,000 in the first year after closing (of which $ 1,875,000 was paid through July 31, 2023), and $ 5,000,000 in the second year after closing, with the remaining balance of the Term Loan due upon maturity;

(ii) a maximum Leverage Ratio of 3.75 x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") at the fiscal quarter ended July 31, 2023, stepping down to 3.5 x at the fiscal quarter ending January 31, 2024 and thereafter;

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

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

As of July 31, 2023, our Secured Leverage Ratio was 3.54 x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75 x TTM Adjusted EBITDA.

Our Interest Expense Coverage Ratio as of July 31, 2023 was 3.54 x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25 x 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 $ 28,500,000 compared to the Minimum Liquidity requirement of $ 25,000,000 .

The obligations under the Credit Facility are guaranteed by certain of our domestic and foreign subsidiaries (the "Guarantors").

As collateral security under the Credit Facility and the guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

On December 6, 2018, we entered into an amendment to the Credit Facility to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis.

On January 14, 2021, we entered into a further amendment of the Credit Facility to update the LIBO Rate replacement mechanism language and other definitional items.

On July 30, 2021, we entered into an amendment to incorporate certain foreign subsidiaries as loan parties and Guarantors into the Credit Facility and added certain definitional items.

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

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

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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Our leases historically relate to the leasing of facilities and equipment.

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In addition to the present value of the future lease payments, the calculation of the ROU asset would also consider, to the extent applicable, any deferred rent upon adoption, lease pre-payments or initial direct costs of obtaining the lease (e.g., such as commissions).

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For all classes of leased assets, we elected the practical expedient to not separate lease components (i.e., the actual item being leased, such as the facility or piece of equipment) from non-lease components (i.e., the distinct elements of a contract not related to securing the use of the leased asset, such as common area maintenance and consumable supplies).

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Total lease expense $ 14,843,000 16,626,000 17,466,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Additional information related to leases is as follows:

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Operating leases $ 3,211,000 15,233,000 24,987,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Consolidated Balance Sheet as of July 31, 2022:

Operating Finance Total

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

Fiscal 2024 $ 9,478,000

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In fiscal 2022, we modified our existing lease for a facility in Seattle, Washington, increasing the lease term through October 2033.

Accordingly, amounts related to the modified lease are reflected as an operating lease right-of-use asset or related operating lease liability in our Consolidated Balance Sheet as of July 31, 2022.

Accordingly, amounts related to the modified lease are reflected as an operating lease right-of-use asset or related operating lease liability in our Consolidated Balance Sheets as of July 31, 2023 and July 31, 2022.

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(9) Income Taxes

(Loss) income before (benefit from) provision for income taxes consists of the following:

Loss before benefit from income taxes consists of the following:

Fiscal Years Ended July 31,

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$ ( 30,847,000 ) ( 37,075,000 ) ( 74,980,000 )

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The (benefit from) provision for income taxes included in the accompanying Consolidated Statements of Operations consists of the following:

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Foreign – deferred ( 622,000 ) ( 525,000 ) ( 1,787,000 )

(Benefit from) provision for income taxes $ ( 4,023,000 ) ( 1,500,000 ) 2,290,000

The (benefit from) provision for income taxes differed from the amounts computed by applying the U.S.

Benefit from income taxes $ ( 3,948,000 ) ( 4,023,000 ) ( 1,500,000 )

The benefit from income taxes differed from the amounts computed by applying the U.S.

Federal income tax rate as a result of the following:

2 unchanged sentences

Amount Rate Amount Rate Amount Rate

Computed "expected" tax expense (benefit) $ ( 7,786,000 ) 21.0 % ( 15,746,000 ) 21.0 % 1,955,000 21.0 %

Computed "expected" tax benefit $ ( 6,478,000 ) 21.0 % ( 7,786,000 ) 21.0 % ( 15,746,000 ) 21.0 %

Increase (reduction) in income taxes resulting from:

10 unchanged sentences

Change in valuation allowance 2,834,000 ( 9.2 ) 2,009,000 ( 5.4 ) 15,582,000 ( 20.8 )

Remeasurement of

deferred taxes ( 396,000 ) 1.1 ( 224,000 ) 0.3 ( 135,000 ) ( 1.5 )

Remeasurement of deferred taxes — — ( 396,000 ) 1.1 ( 224,000 ) 0.3

Foreign income taxes ( 269,000 ) 0.9 ( 478,000 ) 1.3 676,000 ( 0.9 )

Other, net 442,000 ( 1.6 ) 229,000 ( 0.7 ) 226,000 ( 0.4 )

(Benefit from) provision for income taxes $ ( 4,023,000 ) 10.9 % ( 1,500,000 ) 2.0 % 2,290,000 24.6 %

Benefit from income taxes $ ( 3,948,000 ) 12.8 % ( 4,023,000 ) 10.9 % ( 1,500,000 ) 2.0 %

COMTECH TELECOMMUNICATIONS CORP.

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Federal, state and foreign research and experimentation credits 19,308,000 19,476,000

Capitalized U.S.

research and experimental expenditures 8,784,000 —

Stock-based compensation 4,774,000 3,950,000

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Lease liabilities 11,986,000 12,595,000

Deferred revenue, non-current 4,463,000 2,194,000

Other 2,417,000 3,725,000

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At July 31, 2023, we have federal research and experimentation credits of $ 9,995,000 that will begin to expire in 2031.

The timing and manner in which we may utilize tax credits in future tax years will be limited by the amounts and timing of future taxable income and by the application of the ownership change rules under Section 383 of the Internal Revenue Code.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

We have a federal net operating loss carryforward of $ 3,822,000 , with an indefinite carryforward period.

We have a nominal amount of federal net operating loss carryforward that will begin to expire in 2038.

We have state net operating loss carryforwards available of $ 3,864,000 , which expire through 2043, utilization of which will be limited by the amounts and timing of future taxable income and by the application of the ownership change rules under Section 382 of the Internal Revenue Code.

We believe that it is more likely than not that the benefit from certain state net operating loss carryforwards will not be realized.

We believe it to be more likely than not that the benefit from certain state net operating loss carryforwards will not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 3,757,000 on the deferred tax assets relating to these state net operating loss carryforwards.

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In addition, we have provided a valuation allowance of $ 1,094,000 on certain other state deferred tax assets.

We have federal and state capital loss carryforwards of $ 15,582,000 , which begin to expire in 2026.

We believe that it is more likely than not that the benefit from these capital losses will not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 15,582,000 on the deferred tax assets relating to these capital losses.

We have federal and state capital loss carryforwards of $ 15,582,000 , which begin to expire in 2026, and for which a full valuation allowance has been provided as we believe it to be more likely than not that the benefit from these capital losses will not be realized.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At July 31, 2023, we had foreign deferred tax assets relating to net operating loss carryforwards of $ 9,186,000 , which will begin to expire in 2032.

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Our foreign earnings and profits are insignificant and, as such, we have not recorded any deferred tax liability on unremitted foreign earnings.

We must generate $ 228,700,000 of taxable income in the future to fully utilize our net deferred tax assets as of July 31, 2022.

Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

At July 31, 2023 and 2022, total unrecognized tax benefits were $ 9,166,000 and $ 10,008,000 , respectively, including interest of $ 210,000 and $ 330,000 , respectively.

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Balance at end of period $ 8,956,000 9,675,000 9,009,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

6 unchanged sentences

Performance shares 666,324

RSUs, restricted stock and share units 776,763

RSUs, restricted stock, share units and other stock-based awards 1,209,906

Total 2,116,740

Our ESPP provides for the issuance of up to 1,300,000 shares of our common stock.

Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85 % of fair market value at the date of issuance.

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

Through July 31, 2023, we have cumulatively issued 998,526 shares of our common stock to participating employees in connection with our ESPP.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

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Research and development expenses 1,037,000 763,000 963,000

Stock-based compensation expense 7,767,000 9,983,000 9,275,000

Stock-based compensation expense before CEO transition

costs 10,107,000 7,767,000 9,983,000

CEO transition costs related to equity-classified stock-based

1 unchanged sentence

Total stock-based compensation expense before income tax benefit

13,871,000 15,155,000 9,983,000

Estimated income tax benefit ( 2,552,000 ) ( 2,260,000 ) ( 2,164,000 )

2 unchanged sentences

At July 31, 2023, unrecognized stock-based compensation of $ 7,812,000 , net of estimated forfeitures of $ 530,000 , is expected to be recognized over a weighted average period of 2.3 years.

Total stock-based compensation capitalized and included in ending inventory at both July 31, 2022 and 2021 was $ 48,000 .

Total stock-based compensation capitalized and included in ending inventory at July 31, 2023 and 2022 was $ 198,000 and $ 48,000 , respectively.

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

Selling, general and administrative expenses included in the table above, for fiscal 2022, includes $ 827,000 of amortization of stock-based compensation related to three , long-standing members of our Board of Directors who retired in December 2021.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

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Performance shares 973,000 1,136,000 1,345,000

RSUs, restricted stock and share units 5,912,000 8,060,000 7,120,000

RSUs, restricted stock, share units and other stock-based awards 8,926,000 5,912,000 8,060,000

ESPP 121,000 200,000 208,000

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Stock Options

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Outstanding at July 31, 2020 1,422,025 $ 26.17

Granted 327,100 17.88

Expired/canceled ( 348,590 ) 27.44

Exercised ( 285,790 ) 28.82

Outstanding at July 31, 2021 1,073,435 25.76

Expired/canceled ( 588,735 ) 26.86

Exercised ( 1,220 ) 17.88

Outstanding at July 31, 2022 483,480 24.43

Expired/canceled ( 242,970 ) 24.89

Exercised ( 1,220 ) 17.88

Outstanding at July 31, 2023 240,510 $ 23.96 3.97 $ —

2 unchanged sentences

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

The total intrinsic value relating to stock options exercised during the fiscal years ended July 31 2022 and 2020 was $ 7,000 and $ 1,869,000 , respectively.

There were no stock options exercised during the fiscal year ended July 31, 2021.

During fiscal 2022 and 2020, at the election of certain holders of vested stock options, 1,220 and 269,090 , respectively, of stock options were net settled upon exercise.

As a result, 220 and 27,994 shares of our common stock were issued during the fiscal years ended July 31, 2022 and 2020, respectively, net of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements.

There were no stock options granted during fiscal years ended July 31, 2022 or 2021.

The estimated per-share weighted average grant-date fair value of stock options granted during fiscal 2020 was $ 5.52 , which was determined using the Black-Scholes option pricing model, and included weighted average assumptions as follows:

(i) expected dividend yield of 2.24 %, (ii) expected volatility of 40.03 %, (iii) risk-free interest rate of 0.54 %, and (iv) expected life of 6.5 years.

Expected dividend yield is the expected annual dividend as a percentage of the fair market value of our common stock on the date of grant, based on our Board's annual dividend target at the time of grant.

We estimate expected volatility by considering the historical volatility of our stock and the implied volatility of publicly-traded call options on our stock.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant for an instrument which closely approximates the expected term.

The expected term is the number of years we estimate that awards will be outstanding prior to exercise and is determined by employee groups with sufficiently distinct behavior patterns.

Assumptions used in computing the fair value of stock-based awards reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control.

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by recipients of stock-based awards.

The total intrinsic value relating to stock options exercised during the fiscal year ended July 31 2022 was $ 7,000 .

There were no stock options exercised during the fiscal years ended July 31, 2023 and 2021.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock and share units:

During fiscal 2022, at the election of certain holders of vested stock options, 1,220 stock options were net settled upon exercise.

As a result, 220 shares of our common stock were issued during the fiscal year ended July 31, 2022, net of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements.

There were no stock options granted during fiscal years ended July 31, 2023, 2022 or 2021.

Performance Shares, RSUs, Restricted Stock, Share Unit Awards and Other Stock-based Awards

The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock, share units and other stock-based awards:

(in Shares) Weighted Average

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

As of July 31, 2022, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

RSUs and restricted stock granted to non-employee directors prior to August 12, 2022 have a vesting period of five years and are convertible into shares of our common stock generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

RSUs and restricted stock granted to non-employee directors after August 12, 2022 have a vesting period of one year .

As of July 31, 2023, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level, except for our former CEO's, whose achievement was based on maximum performance pursuant to their pre-existing change-in-control agreements.

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

Commencing in August 2022, such awards have a vesting period of one year .

Also, restricted stock granted to our former non-executive Chairman of the Board of Directors, pursuant to his Senior Technology Advisor consulting agreement, vests 1/12 on the date of grant and in eleven equal monthly installments thereafter.

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

RSUs granted to employees after August 12, 2022 have a vesting period of three years .

Share units granted prior to July 31, 2017 were vested when issued and are convertible into shares of our common stock, generally at the time of termination, on a one -for-one basis for no cash consideration, or earlier under certain circumstances.

Share units granted on or after July 31, 2017 were granted to certain employees in lieu of non-equity incentive compensation and are convertible into shares of our common stock on the one-year anniversary of the respective grant date.

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

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

On July 28, 2022, 286,000 fully vested share units were granted to certain employees in lieu of fiscal 2022 non-equity incentive compensation.

On July 27, 2023, 595,890 both fully vested share units and other stock-based awards were granted to certain employees in lieu of fiscal 2023 non-equity incentive compensation.

Also, on July 31, 2023, 252,452 fully vested share units (previously granted in lieu of fiscal 2022 non-equity incentive compensation) were settled by delivery of 153,045 shares of our common stock after reduction of share units retained to satisfy employees’ statutory tax withholding requirements.

Cumulatively, through July 31, 2023, 1,482,324 share units granted have been settled.

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

RSUs, performance shares and restricted stock granted since fiscal 2013 are entitled to dividend equivalents unless forfeited before vesting occurs.

Share units granted since fiscal 2014 are entitled to dividend equivalents while the underlying shares are unissued.

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

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

Share units and other stock-based awards would be entitled to dividend equivalents while the underlying shares are unissued.

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

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As of July 31, 2023 and 2022, accrued dividend equivalents were $ 691,000 and $ 742,000 , respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the fiscal year ended July 31, 2022, we recorded an income tax expense of $ 924,000 , during the fiscal year ended July 31, 2021, we recorded an income tax benefit of $ 142,000 and during the fiscal year ended July 31, 2020, we recorded an income tax expense of $ 224,000 .

With respect to the actual settlement of stock-based awards for income tax reporting, during the fiscal years ended July 31, 2023 and 2022, we recorded an income tax expense of $ 591,000 and $ 924,000 , respectively.

During the fiscal year ended July 31, 2021, we recorded an income tax benefit of $ 142,000 .

Subsequent Events

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Our CODM, for purposes of FASB ASC 280, is our Chief Executive Officer.

In the fourth quarter of fiscal 2022, we revised our business segments to better align them with end-markets for our products and services and our CODM began managing our business in two new reportable segments:

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

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.

Satellite and Space Communications is organized into four technology areas:

satellite modem technologies and amplifier technologies, troposcatter and SATCOM solutions, space components and antennas, and high-power amplifiers and switches technologies.

This segment offers customers:

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

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.

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;

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

Our Adjusted EBITDA metric for the Satellite and Space Communications and Terrestrial and Wireless Networks segments do not consider any allocation of indirect expense, or any of the following:

income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, amortization of cost to fulfill assets, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, CEO transition costs, proxy solicitation costs, strategic alternatives expenses and other.

income taxes, interest, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, amortization of stock-based compensation, amortization of intangibles, depreciation expense, amortization of cost to fulfill assets, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, CEO transition costs, proxy solicitation costs, strategic alternatives expenses and other.

These items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

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Net sales $ 337,756,000 212,238,000 — $ 549,994,000

Operating (loss) income $ ( 5,671,000 ) 18,925,000 ( 47,006,000 ) $ ( 33,752,000 )

Net (loss) income $ ( 3,852,000 ) 18,796,000 ( 47,996,000 ) $ ( 33,052,000 )

(Benefit from) provision for income taxes ( 1,120,000 ) 19,000 ( 2,922,000 ) ( 4,023,000 )

Interest (income) and other ( 797,000 ) 110,000 ( 16,000 ) ( 703,000 )

Change in fair value of convertible

preferred stock purchase option liability — — ( 1,005,000 ) ( 1,005,000 )

Operating income (loss) $ 15,041,000 12,323,000 ( 42,024,000 ) $ ( 14,660,000 )

Net income (loss) $ 15,539,000 12,297,000 ( 54,735,000 ) $ ( 26,899,000 )

Benefit from income taxes ( 1,724,000 ) ( 193,000 ) ( 2,031,000 ) ( 3,948,000 )

Interest expense 2,000 — 14,959,000 14,961,000

Amortization of stock-based

compensation — — 7,767,000 7,767,000

Interest (income) and other 1,224,000 219,000 ( 217,000 ) 1,226,000

Amortization of stock-based compensation — — 10,107,000 10,107,000

Amortization of intangibles 7,312,000 14,084,000 — 21,396,000

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Amortization of cost to fulfill assets 959,000 — — 959,000

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

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

Restructuring costs 5,725,000 1,220,000 3,907,000 10,852,000

COVID-19 related costs 1,105,000 — — 1,105,000

Strategic emerging technology costs 3,833,000 — — 3,833,000

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

Adjusted EBITDA $ 36,991,000 35,264,000 ( 18,756,000 ) $ 53,499,000

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Net sales $ 279,678,000 206,561,000 — $ 486,239,000

Operating income (loss) $ 24,281,000 25,185,000 ( 117,764,000 ) $ ( 68,298,000 )

Net income (loss) $ 24,357,000 24,396,000 ( 122,233,000 ) $ ( 73,480,000 )

Operating (loss) income $ ( 5,671,000 ) 18,925,000 ( 47,006,000 ) $ ( 33,752,000 )

Net (loss) income $ ( 3,852,000 ) 18,796,000 ( 47,996,000 ) $ ( 33,052,000 )

(Benefit from) provision for income taxes ( 1,120,000 ) 19,000 ( 2,922,000 ) ( 4,023,000 )

Interest (income) and other 235,000 ( 6,000 ) ( 368,000 ) ( 139,000 )

Interest expense 98,000 — 4,933,000 5,031,000

Amortization of stock-based

compensation — — 9,983,000 9,983,000

Interest (income) and other ( 797,000 ) 110,000 ( 16,000 ) ( 703,000 )

Change in fair value of convertible

preferred stock purchase option liability — — ( 1,005,000 ) ( 1,005,000 )

Amortization of stock-based compensation — — 7,767,000 7,767,000

Amortization of intangibles 7,312,000 14,084,000 — 21,396,000

Depreciation 4,049,000 6,069,000 196,000 10,314,000

Acquisition plan expenses — ( 1,052,000 ) 101,344,000 100,292,000

Amortization of cost to fulfill assets 469,000 — — 469,000

Restructuring costs 5,666,000 — 299,000 5,965,000

1 unchanged sentence

Strategic emerging technology costs 1,197,000 — — 1,197,000

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

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

Adjusted EBITDA $ 14,127,000 39,078,000 ( 13,942,000 ) $ 39,263,000

Purchases of property, plant and equipment $ 8,915,000 10,704,000 — $ 19,619,000

Long-lived assets acquired in connection

with acquisitions $ 47,958,000 — — $ 47,958,000

Total assets at July 31, 2022 $ 487,235,000 461,443,000 25,619,000 $ 974,297,000

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(Benefit from) provision for income taxes ( 377,000 ) 795,000 ( 1,918,000 ) ( 1,500,000 )

Interest (income) and other ( 218,000 ) 18,000 10,000 ( 190,000 )

Interest expense 66,000 — 6,755,000 6,821,000

Amortization of stock-based

compensation — — 9,275,000 9,275,000

Interest (income) and other 235,000 ( 6,000 ) ( 368,000 ) ( 139,000 )

Amortization of stock-based compensation — — 9,983,000 9,983,000

Amortization of intangibles 5,695,000 15,325,000 — 21,020,000

Depreciation 3,721,000 5,316,000 342,000 9,379,000

Estimated contract settlement costs 476,000 ( 32,000 ) — 444,000

Restructuring costs 2,782,000 — — 2,782,000

COVID-19 related costs 1,046,000 — — $ 1,046,000

Strategic emerging technology costs 315,000 — — $ 315,000

Acquisition plan expenses — ( 1,052,000 ) 101,344,000 100,292,000

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

During fiscal 2021 and 2020, we recorded $ 100,292,000 and $ 20,754,000 of acquisition plan expenses, respectively, most of which were recorded primarily in our unallocated expenses.

See Note (2) -" Acquisitions " for further information.

During fiscal 2022, we incurred $ 11,248,000 of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) as a result of a now settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022.

Also, during fiscal 2022, we expensed $ 13,554,000 of transition costs related to our former CEO, Fred Kornberg.

During fiscal 2022 and 2021, our Satellite and Space Communications segment recorded $ 5,666,000 and $ 2,782,000 , respectively, of restructuring costs incurred to streamline our operations, including costs related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility in Chandler, Arizona, as well as to consolidate certain administrative and operating functions in our troposcatter and SATCOM solutions product line.

In addition, during fiscal 2022 and 2021, this segment also recorded $ 1,105,000 and $ 1,046,000 of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

There were no such charges recorded in fiscal 2020.

See Note (2) - " CEO Transition Costs and Related " for information related to such costs.

During fiscal 2023, our Unallocated segment incurred $ 3,907,000 of restructuring costs focused on streamlining our operations.

During fiscal 2022, we incurred $ 11,248,000 of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) as a result of a now-settled proxy contest and expensed $ 13,554,000 of transition costs related to the former CEO, Fred Kornberg.

During fiscal 2021, we recorded $ 100,292,000 of acquisition plan expenses, most of which were recorded in our unallocated expenses and related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd.

("Gilat"), costs associated with the settlement of litigation associated with the 2019 acquisition of GD NG-911 and our acquisition of UHP Networks Inc.

During fiscal 2023, 2022 and 2021, our Satellite and Space Communications segment recorded $ 5,725,000 , $ 5,666,000 and $ 2,782,000 , respectively, of restructuring costs primarily incurred to streamline our operations and improve efficiency, including costs related to the relocation of certain of our satellite ground station production facilities to our new 146,000 square foot facility in Chandler, Arizona.

In addition, during fiscal 2023, 2022 and 2021, we incurred $ 3,833,000 , $ 1,197,000 and $ 315,000 , respectively, of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

Furthermore, during fiscal 2022 and 2021, this segment recorded $ 1,105,000 and $ 1,046,000 , respectively of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic.

There were no similar incremental operating costs recorded in fiscal 2023.

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

See Note (7) - " Credit Facility " for further discussion.

In addition, interest expense for fiscal 2021 includes $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter, as discussed in more detail in Note (2) - " Acquisitions ."

In addition, interest expense for fiscal 2021 includes $ 1,178,000 of incremental interest expense related to a now terminated financing commitment letter related to the previously announced litigation and merger termination with Gilat.

Intersegment sales in fiscal 2023, 2022 and 2021 between the Satellite and Space Communications segment and the Terrestrial and Wireless Networks segment were nominal.

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(b) Employment Change of Control and Indemnification Agreements

As of July 31, 2022, we had an employment agreement with Michael Porcelain, our President and CEO.

As of July 31, 2022, we had an employment agreement with Michael Porcelain, our former President and CEO.

The employment agreement generally provided for an annual salary and bonus award.

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The Company entered into a separation agreement with Mr.

On August 9, 2022, subsequent to year end, our Board of Directors appointed our Chairman of the Board, Ken Peterman, as President and CEO, and the Company entered an employment agreement with Mr.

On August 9, 2022, our Board of Directors appointed our Chairman of the Board, Ken Peterman, as President and CEO, and the Company entered an employment agreement with Mr.

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

Transition costs related to our former President and CEO, Mr.

Porcelain, pursuant to his separation agreement with the Company, were approximately $ 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.

Transition costs related to Mr.

Porcelain, pursuant to his separation agreement with the Company, were approximately $ 7,424,000 , of which $ 3,764,000 related to the acceleration of unamortized stock-based compensation, with the remaining $ 3,660,000 related to his severance payments and benefits upon termination of employment.

The cash portion of the transition costs of $ 3,660,000 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 $ 1,000,000 expense related to a cash sign-on bonus.

CEO transition costs related to Mr.

Porcelain and Mr.

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

Peterman were expensed in our Unallocated segment during fiscal 2023.

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

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(13) Goodwill

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill as of July 31, 2022:

The following table represents goodwill by reportable operating segment, including the changes in the net carrying value of goodwill as of July 31, 2023 and July 31, 2022:

Satellite and Space Communications Terrestrial and Wireless Networks Total

Balance as of July 31, 2021 $ 173,608,000 174,090,000 $ 347,698,000

UHP acquisition ( 6,000 ) — ( 6,000 )

Balance as of July 31, 2022 $ 173,602,000 174,090,000 $ 347,692,000

Goodwill $ 173,602,000 174,090,000 $ 347,692,000

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.

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

As discussed further in Note 11 - "Segment Information ", as a result of our segment restructuring in the fourth quarter of fiscal 2022 from the Commercial Solutions and Government Solutions segments to the Satellite and Space Communications and Terrestrial and Wireless Networks segments, we performed an interim quantitative assessment as of July 29, 2022 and estimated the fair value of each of our reporting units, both before and after the change, using a combination of the income and market approaches.

On August 1, 2023 (the first day of fiscal 2024), we performed our annual quantitative assessment using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.

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

We also considered overall business conditions.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

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

We also considered overall business conditions.

In performing the quantitative assessment, we estimated the fair value of each of our reporting units using a combination of the income and market approaches.

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

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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 $ 10.09 as of the date of testing.

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

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

Additionally, the carrying value of goodwill of $ 347,692,000 was reallocated to our new reporting units based on their respective estimated relative fair value.

Ultimately, based on our quantitative evaluation, we determined that our Satellite and Space Communications and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least 18.3 % and 8.9 %, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment.

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

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

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

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

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

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

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

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

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

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

As of September 29, 2022, the Convertible Preferred Stock is convertible into shares of common stock at the option of the holders.

As of October 12, 2023, the Convertible Preferred Stock is convertible into shares of common stock at the option of the holders.

At any time after October 19, 2024, we have the right to mandate the conversion of the Convertible Preferred Stock, subject to certain restrictions, based on the price of the common stock in the preceding thirty trading days.

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

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

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

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

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

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

The estimated fair value of the convertible preferred stock purchase option liability was nominal as of July 31, 2022.

During fiscal 2022, we recorded a benefit $ 1,005,000 for the remeasurement of the convertible preferred stock purchase option liability.

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

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

COMTECH TELECOMMUNICATIONS CORP.

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Upon the Initial Issuance, we recorded the Convertible Preferred Stock, net of issuance costs of $ 4,007,000 and net of the portion of such proceeds allocated to the convertible preferred stock purchase option liability described above, which resulted in an initial carrying value of the Convertible Preferred Stock less than its initial redemption value of $ 100,000,000 .

We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 105,204,000 , which includes $ 4,638,000 of dividends paid in kind and $ 566,000 of accumulated and unpaid dividends.

As such, an adjustment of $ 10,216,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings during fiscal 2022.

We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of $ 112,211,000 , which includes $ 11,607,000 of cumulative dividends paid in kind and $ 604,000 of accumulated and unpaid dividends.

As such, a total adjustment of $ 7,007,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings during fiscal 2023.

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.

(16) Stockholders’ Equity

Sale of Common Stock

On March 3, 2021, in connection with our acquisition of UHP, we filed a shelf registration statement with the SEC for the sale by the selling stockholder of UHP of up to 1,381,567 shares of our common stock.

The shelf registration statement was declared effective by the SEC as of March 15, 2021.

On July 13, 2022, we filed a shelf registration statement with the SEC for the sale of 606,302 additional shares of our common stock by the selling stockholder of UHP.

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

To-date, we have issued all 1,987,869 shares pursuant to these shelf registration statements to satisfy payment and escrow arrangements under the terms of the stock purchase agreement.

See Note (2) - " Acquisitions - UHP Networks Inc.

" for further information.

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

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

Shelf Registration

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

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

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

Common Stock Repurchase Program

On September 29, 2020, our Board of Directors authorized a new $ 100,000,000 stock repurchase program, which replaced our prior program.

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

On September 29, 2020, our Board of Directors authorized a $ 100,000,000 stock repurchase program, which replaced our prior program.

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

There were no repurchases made during the fiscal years ended July 31, 2023 or 2022.

Dividends on Common Stock

Since September 2010, we have paid quarterly cash dividends pursuant to an annual targeted dividend amount that was established by our Board of Directors.

On October 4, 2021, December 9, 2021, March 10, 2022 and June 9, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on November 12, 2021, February 18, 2022, May 20, 2022 and August 19, 2022, respectively.

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.

Common Stock Dividends

On September 29, 2022 and December 8, 2022, our Board of Directors declared a dividend of $ 0.10 per common share, which were paid on November 18, 2022 and February 17, 2023, respectively.

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.

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.

(17) Cost Reduction

In fiscal 2023, we transformed and integrated our individual businesses into two segments to improve operational performance.

This transformation has provided insight into opportunities to manage costs, streamline operations, improve efficiency, and accelerate decision-making by eliminating management layers and other redundancies.

In doing so, during fiscal 2023, we recorded $ 3,872,000 of severance costs in selling, general and administrative expenses in our Consolidated Statements of Operations, of which $ 1,989,000 , $ 1,220,000 and $ 663,000 related to our Satellite and Space Communications, Terrestrial and Wireless Networks and Unallocated segments, respectively.

We paid $ 2,320,000 of severance costs during fiscal 2023 and our severance liability as of July 31, 2023 was $ 1,552,000 .

Most of the remaining severance liability will be paid during the first quarter of fiscal 2024.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(18) Subsequent Events

On October 11, 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 $ 35,000,000 in cash, plus contingent consideration up to $ 5,000,000 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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Valuation and Qualifying Accounts and Reserves

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2023 $ 2,337,000 261,000 (A) — ( 509,000 ) (B) $ 2,089,000

2021 1,769,000 ( 18,000 ) (A) 215,000 (C) ( 318,000 ) (B) 1,648,000

2022 1,648,000 838,000 (A) — ( 149,000 ) (B) 2,337,000

2021 1,769,000 ( 18,000 ) (A) 215,000 (C) ( 318,000 ) (B) 1,648,000

Inventory reserves:

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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 9A. Controls and Procedures