What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-10-30 compared with 2023-10-12 · 424 added, 245 removed, 299 unchanged (69% of the section changed)

5 unchanged sentences

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

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

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

We provide our solutions to both commercial and governmental customers.

1 unchanged sentence

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

satellite modem and amplifier technologies;

troposcatter and SATCOM solutions;

space components and antennas;

and high-power amplifiers and switch technologies.

satellite modem and amplifier technologies, troposcatter technologies, government services and space components.

This segment offers customers:

satellite ground station technologies, services and system integration that facilitate the transmission of voice, video and data over GEO, MEO and LEO satellite constellations, including solid-state and traveling wave tube power amplifiers, modems, VSAT platforms and frequency converters;

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

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

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

satellite ground infrastructure technologies, services and system integration that facilitate the transmission of voice, video and data over GEO, MEO and LEO satellite constellations, including traveling wave tube power amplifiers, modems, VSAT platforms and frequency converters;

over-the-horizon microwave solutions that can transmit digitized voice, video, and data over distances up to 200 miles using the troposphere and diffraction;

professional engineering, training and field support services, including cybersecurity, for multiple U.S.

government agencies;

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

1 unchanged sentence

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

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

This segment offers customers:

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

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

13 unchanged sentences

As such, comparisons between periods and our current results may not be indicative of a trend or future performance.

Please see " Strategic Transformation " section discussed above, as well as Item 1A – “ Risk Factors ” under Part I of this Form 10-K for more information about risks pertaining to business and factors that can influence our future results.

Critical Accounting Policies

2 unchanged sentences

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

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

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

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

Financial Statements and Supplementary Data, " (which discussion is incorporated herein by reference), and " Part II - Item 9A.

Controls and Procedures, " included in this Form 10-K, for further information.

Impairment of Goodwill and Other Intangible Assets .

2 unchanged sentences

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

During our fourth quarter of fiscal 2024, we recorded a $64.5 million non-cash impairment charge in our Satellite and Space Communications segment related to long-lived assets, including goodwill.

See " Notes to Consolidated Financial Statements - Note (14) - Goodwill" and "Note (15) - Intangible Assets " included in " Part II - Item 8.

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

Also, as announced on October 17, 2024, we are executing a strategy to transform Comtech into a pure-play satellite and space communications company.

Ongoing and future actions supporting our transformation strategy include:

an exploration of strategic alternatives for our Terrestrial and Wireless Networks segment, which is well underway;

the pursuit of further portfolio-shaping opportunities to enhance profitability, efficiency and focus;

and the implementation of additional operational initiatives to both achieve profitable results from operations as well as to align our go-forward cost structure with a pure-play focus on satellite and space communications.

Such activities could result in a material impairment of our goodwill and/or intangible assets.

See " Part I - Item 1.

Business - Strategic Transformation " for more information.

Provision for Warranty Obligations.

7 unchanged sentences

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

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

federal government is our most significant income tax jurisdiction.

Significant judgment is required in determining income tax provisions and tax positions.

For tax positions taken or expected to be taken in a tax return, we account for unrecognized tax benefits using a “more-likely-than-not” threshold for financial statement recognition and measurement.

We may be challenged upon review by the applicable taxing authority and positions taken by us may not be sustained.

1 unchanged sentence

For tax positions that are determined as "more-likely-than-not" to be sustained upon examination, the tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The development of valuation allowances for deferred tax assets and reserves for income tax positions requires consideration of timing and judgments about future taxable income, tax issues and potential outcomes, and are subjective critical estimates.

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

In assessing the need for a valuation allowance for deferred tax assets, we consider all positive and negative evidence, including past financial performance, timing and judgments about future taxable income and tax planning strategies.

Valuation allowances are established, when necessary, to reduce net deferred tax assets to the amount "more-likely-than-not" expected to be realized.

A portion of our deferred tax assets consist of federal research and experimentation tax credit carryforwards, some of which was acquired in connection with prior acquisitions.

No valuation allowance has been established on these deferred tax assets based on our evaluation that our ability to realize such assets has met the criteria of "more likely than not." We continuously evaluate additional facts representing positive and negative evidence in determining our ability to realize these deferred tax assets.

In certain circumstances, the ultimate outcome of exposures and risks involves significant uncertainties.

We continuously evaluate additional facts representing positive and negative evidence in determining our ability to realize these deferred tax assets.

Significant judgment is required in determining income tax provisions and tax positions.

The ultimate outcome of tax exposures and risks involves significant uncertainties.

If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations and financial condition.

2 unchanged sentences

Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Research and Development Costs.

Capitalized Engineering Costs.

We generally expense all research and development costs.

6 unchanged sentences

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

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

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

We capitalize certain costs related to internal-use software (e.g., hosted "SaaS" applications within our Terrestrial and Wireless Networks segment), primarily consisting of direct labor and third-party vendor costs associated with creating the software.

Software development projects generally include three stages:

the preliminary project stage (all costs are expensed as incurred), the application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-implementation/operation stage (all costs are expensed as incurred).

Costs capitalized in the application development stage include costs related to the design and implementation of the selected software components, software build and configuration infrastructure, and software interfaces.

Capitalization of costs requires judgment in determining when a project has reached the application development stage, the proportion of time spent in the application development stage, and the period over which we expect to benefit from the use of that software.

Once the software is placed in service, these costs are amortized on the straight-line method over the estimated useful life of the software.

During fiscal 2024, internal-use software costs capitalized were $3.8 million.

Capitalized internal use software costs are amortized once the software is placed in service on the straight-line method over the estimated useful life of the software, which is generally three years.

Provisions for Excess and Obsolete Inventory.

We record a provision for excess and obsolete inventory based on historical and projected usage trends.

Other factors may also influence our provision, including decisions to exit a product line, technological change and new product development.

Other factors may also influence our provision, including decisions to restructure or exit a product line, technological change and new product development.

These factors could result in a change in the amount of excess and obsolete inventory on hand.

2 unchanged sentences

Any such charge could be material to our results of operations and financial condition.

See " Notes to Consolidated Financial Statements - Note (1)(f) - Inventories " included in " Part II - Item 8.

Financial Statements and Supplementary Data, " (which discussion is incorporated herein by reference), and " Part II - Item 9A.

Controls and Procedures, " included in this Form 10-K, for further information.

Allowance for Doubtful Accounts.

2 unchanged sentences

In addition, we seek to obtain insurance for certain domestic and international customers.

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

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

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

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

Also, more recently, in fiscal 2024, we experienced a significant increase in the overall level of contract assets (i.e., unbilled receivables) related to large, long-term contracts with certain U.S.

government and international customers.

We continue to monitor our accounts receivable credit portfolio.

11 unchanged sentences

Amortization of intangibles 3.9 % 3.9 % 4.4 %

Impairment of long-lived assets, including goodwill 11.9 % — % — %

CEO transition costs 0.5 % 1.7 % 2.8 %

Loss on business divestiture 0.2 % — % — %

Proxy solicitation costs — % — % 2.3 %

Acquisition plan expenses — % — % 17.2 %

Operating loss (14.8) % (2.7) % (6.9) %

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

Interest expense and other items 3.8 % 2.9 % 0.7 %

Loss before benefit from income taxes (18.6) % (5.6) % (7.6) %

5 unchanged sentences

Fiscal 2024 Highlights and Business Outlook for Fiscal 2025

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

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

Our financial performance for the fiscal year ended July 31, 2024 includes:

• Consolidated net sales of $540.4 million, compared to $550.0 million in fiscal 2023.

The prior year included a full year of operations related to our solid state, high power amplifier product line divested in November 2023 (the "PST Divestiture").

Adjusted for the PST Divestiture and despite very challenging business conditions in fiscal 2024, our consolidated net sales grew slightly from fiscal 2023;

• Gross margin was 29.1%, compared to 33.5% in fiscal 2023;

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

• GAAP net loss attributable to common stockholders was $135.4 million and included:

a $64.5 million impairment charge in our Satellite and Space Communications segment related to long-lived assets, including goodwill;

$12.5 million of restructuring costs;

$4.1 million of strategic emerging technology costs for next-generation satellite technology;

$2.9 million of CEO transition costs;

and a $1.2 million loss associated with the PST Divestiture due to the acquirer not achieving certain post-divestiture earn-out criteria;

• GAAP EPS loss of $4.70 and Non-GAAP EPS of $0.10;

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

• Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $45.7 million, a decrease of 14.6% from fiscal 2023, due in part to the PST Divestiture;

• New bookings (also referred to as orders) of $700.6 million, resulting in an annual book-to-bill ratio of 1.30x (a measure defined as bookings divided by net sales);

• Backlog of $798.9 million as of July 31, 2024, compared to $662.2 million as of July 31, 2023 and $653.4 million as of April 30, 2024.

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

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

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

We measure this revenue visibility as the sum of our $662.2 million backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders;

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

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

Backlog as of July 31, 2024 represents a new record for Comtech;

• Revenue visibility of approximately $1.8 billion as of July 31, 2024, an increase from the $1.1 billion as of July 31, 2023.

We measure this revenue visibility as the sum of our $798.9 million of funded backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders;

• Cash flows used in operating activities of $54.5 million, due primarily to a significant increase in the overall level of contract assets (i.e., unbilled receivables) in fiscal 2024 related to our progress on large, long-term "over-time" contracts awarded to us by certain U.S.

government and international end customers, as well as the timing of payments to our suppliers as we execute on our backlog.

As experienced in the latter part of fiscal 2024, we expect the level of our unbilled receivables to continue to decline throughout fiscal 2025, as we invoice our customers upon physical delivery of products or the achievement of specified contractual milestones.

Additionally, cash flows used in operating activities includes $16.0 million in aggregate payments for restructuring costs, including severance, CEO transition costs and strategic emerging technology costs for next-generation satellite technology.

Non-GAAP financial measures discussed above are reconciled to the most directly comparable GAAP financial measures in the table included in the below section " Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2024 and 2023."

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

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

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

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

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

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

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

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

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

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

Here, our commitment to innovation drove success:

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

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

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

We operated most of fiscal 2024 under extremely difficult business conditions stemming from:

a marked increase in working capital requirements related to certain troposcatter related contracts;

an unexpected change in our CEO more than halfway through the fiscal year;

the year-long protest by the incumbent of the large, multi-year Global Field Service Representative ("GFSR") contract awarded to us by the U.S.

supply chain and operational challenges that strained our liquidity at various points in the fiscal year;

a prolonged refinancing of our debt capital;

and a shift during our fourth quarter in the timing of our receipt and performance on a large COMET order anticipated for a certain international end country.

However, despite these challenges, the existing management team was successful in achieving many positive accomplishments along the way, such as:

attracting strong talent throughout our organization;

winning new strategic business opportunities, as well as competitive renewals;

relocating our headquarters to be within close proximity to several key customers and suppliers;

restructuring operations that had been underperforming under legacy management;

reducing the level of unbilled receivables;

and, importantly, emerging from fiscal 2024 with a clear vision for our company that we believe will contribute greatly toward unlocking meaningful shareholder value.

Key Business Developments

Satellite and Space Communications

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

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

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

Army with a total potential value of $544.0 million.

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

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

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

Foundational to this success:

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

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

The incumbent protested (and lost) the award of the contract to Comtech several times.

Currently, the contract remains under protest and a stop work order.

If we are successful in ultimately winning the protest, we would expect the GFSR contract to contribute significantly to our net sales in future periods.

In September 2023, we won a highly competitive $48.6 million contract to deliver next-generation Enterprise Digital Intermediate Frequency Multi-Carrier (“EDIM”) modems for the U.S.

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

6 unchanged sentences

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

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

This award enables the U.S.

Department of Defense and other U.S.

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

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

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

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

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

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

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

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

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

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

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

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

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

Despite these business conditions and resulting challenges and although we anticipate some variability from time to time as we move through our One Comtech transformational change, for our first quarter of fiscal 2024, we are targeting consolidated net sales to sequentially increase approximately 1.0% to 4.0% and for our consolidated Adjusted EBITDA margin to range between 11.0% and 13.0%.

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

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

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

We are progressing with our efforts on this contract and pleased to have recently secured incremental funding from the customer for additional work.

In November 2023, following a careful review of our business and product lines at that time, we saw an opportunity to divest our solid state, high power amplifier product line.

The PST Divestiture generated $33.3 million of net cash proceeds prior to the repayment of debt and provided timely liquidity as we progressed with our efforts to refinance our debt capital structure.

In July 2024, we made the decision to exit our subsidiary operations in Basingstoke, United Kingdom.

operations were established in connection with the legacy management team’s 2020 acquisition of CGC Technology Limited, which primarily served customers in Europe.

Following the acquisition, we continued to invest in the Basingstoke facility to advance LEO constellation-based antenna technologies in anticipation of significant production orders.

Taking into consideration the significant ongoing investment as well as unfavorable contract terms on prospective antenna sales, we concluded the U.K.

business would not generate an attractive return on invested capital and made the decision to exit these operations in order to curtail our future expenses and cash outlays, after anticipated restructuring charges associated with such exit.

Shifting to our troposcatter product line, throughout most of fiscal 2024, we experienced elevated levels of unbilled receivables due to the timing of our performance and billings related to certain large U.S.

government and international customer contracts.

As we progressed through the fourth quarter of fiscal 2024, we were successful in ramping up deliveries of next-generation troposcatter terminals related to our U.S.

Marine Corps and Army contracts, contributing to a meaningful reduction of our consolidated unbilled receivables from $141.3 million at April 30, 2024 to $123.7 million as of July 31, 2024.

Based on our anticipated performance over the next several months, we expect further material reductions in our unbilled receivables related to these contracts, contributing significantly to our cash flows and liquidity in fiscal 2025.

Terrestrial and Wireless Networks

In October 2023, we extended enhanced 911 call routing services, valued in excess of $30.0 million, for one of the largest wireless carriers in the U.S.

Subsequent to year end, our new management team in this segment, led by Jeff Robertson, former CEO for Intrado's Life and Safety business, secured another renewal of these critical services in October 2024.

During our second fiscal quarter of 2024, we amended and extended critical Next Generation 911 (“NG-911”) services for the State of Washington.

This extension is valued at $48.0 million over the next five years, with the option to extend further through 2034.

Also, we extended critical call handling services provided to PSAPs across Australia through our partnership with Telstra.

These services, valued at approximately $6.0 million over the next several years, support Australia's "000" (911 equivalent) emergency communications.

Additionally, we were awarded several multi-year NG-911 call handling services contracts, aggregating $6.5 million, for PSAPs located in Canada and the U.S.

We believe Comtech's position as a trusted leader in 911, NG-911 and public safety applications positions us increasingly well when it comes to delivering similarly sophisticated solutions for other types of emergencies.

In May 2024, we were awarded a large multi-year NG-911 contract by the Commonwealth of Massachusetts, valued at over $250.0 million.

The new contract has an initial five-year term from August 1, 2024 through July 31, 2029, and includes one option to renew for a five-year period through July 31, 2034.

While a continuation of existing services within the state, the procurement itself was competitive and Comtech was successful in securing the win, demonstrating the trust of our public safety partners as well as our leadership in NG-911 systems and services.

In June 2024, we announced the North Central Texas Emergency Communications District (“NCT911”) awarded us a contract to deliver NG-911 services that will further modernize NCT911’s infrastructure.

The NCT911 contract includes a five-year base award, as well as three additional two-year option periods, with a not to exceed value of approximately $30.0 million.

At the start of fiscal 2024, we helped Strathcona County in Alberta become Canada’s first PSAP to transition to NG-911 services.

In July 2024, we announced completing the full migration and deployment of an NG-911 system in Saskatchewan, Canada.

With the Saskatchewan NG-911 deployment, we are now the first company, in partnership with leading ESInet provider SaskTel, to deploy a province-wide NG-911 system in Canada.

Subsequent to year end, in September 2024, we were also pleased to have been awarded a large, multi-year location-based services maintenance and support contract from one of the largest wireless carriers in the U.S.

Strategic Transformation

On October 17, 2024, we announced that we are executing a strategy to transform Comtech into a pure-play satellite and space communications company.

Ongoing and future actions supporting our transformation strategy include:

an exploration of strategic alternatives for our Terrestrial and Wireless Networks segment, which is well underway;

the pursuit of further portfolio-shaping opportunities to enhance profitability, efficiency and focus;

In connection with this transformation strategy, we have also undertaken a detailed evaluation of our Satellite and Space Communications segment's product portfolio to identify opportunities to divest, separate and/or rationalize businesses or facilities that are not core to our go-forward focus.

In addition to assessing our Basingstoke, UK operations, as discussed above, over the past several months, we have also conducted an intensive review of our product portfolio to focus future investment on our most strategic, high-margin revenue opportunities within the Satellite and Space Communications segment.

There can be no assurance that the exploration of strategic alternatives will result in a transaction or other strategic changes or outcomes.

While anticipated to improve our profitability in future periods, such actions may result in near-term restructuring charges.

Amended Credit Agreement and New Subordinated Term Loan Facility

In June 2024, we entered into a $222.0 million credit facility with a new syndicate of lenders (the “Credit Facility”), which replaced our prior credit facility.

On October 17, 2024, we amended the Credit Facility, which waived certain defaults or events of default, including in connection with our Net Leverage Ratio and Fixed Charge Coverage Ratio covenants as of July 31, 2024.

The amendment also provides for, among other things:

(i) an increase to the interest rate margins applicable to the loans;

(ii) a modification of certain financial and collateral reporting requirements;

(iii) a lender and agent consent right with respect to $27.5 million of Revolver borrowings above $32.5 million;

(iv) our ability to incur $25.0 million of senior unsecured subordinated debt;

(v) a maturity date based on the earlier of (x) July 31, 2028 or (y) 90 days prior to the earliest date that the debt under the Subordinated Credit Agreement (as defined below) becomes due and payable;

and (vi) a suspension of financial covenant testing through the end of our fiscal quarter ending January 31, 2025.

On October 17, 2024, we also entered into a Subordinated Credit Agreement with the existing holders of our Convertible Preferred Stock (the “Subordinated Credit Agreement”), which provides a subordinated unsecured term loan facility in the aggregate principal amount of $25.0 million (the “Subordinated Credit Facility”).

The proceeds of the Subordinated Credit Facility:

(i) cured our default on certain financial covenants under the Credit Facility, as discussed above;

(ii) provides additional liquidity to us;

and (iii) funds our general working capital needs, including support of our transformation initiatives.

See "Notes to Consolidated Financial Statements" included in "Part II - Item 8.

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

Effective October 28, 2024, the Board of Directors appointed John Ratigan as our President and CEO and a member of the Board.

Ratigan had been serving as our interim CEO since March 2024.

Business Outlook

As we enter fiscal 2025, business conditions continue to be challenging, and the operating environment is largely unpredictable, due to many factors including, but not limited to:

uncertainties related to our recently announced transformation strategy and associated actions we may take;

uncertainties related to our ability to operate as going concern, fluctuations in interest rates;

continuing resolutions associated with the U.S.

Federal budget;

repercussions of military conflicts in Russia, Ukraine and the Middle East;

and a potential global recession.

Order and production delays, contract protests, delayed cash collections from customers, disruptions in component availability, increased pricing both for labor and parts, lower levels of factory utilization and higher logistics and operational costs resulting from such conditions have or could impact our business as well.

In light of these business conditions and resulting challenges, we anticipate variability from time to time as we move through our transformation strategy.

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

4 unchanged sentences

Comparison of Fiscal 2024 and 2023

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

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

Consolidated net sales were $540.4 million and $550.0 million for fiscal 2024 and 2023, respectively, representing a decrease of $9.6 million, or 1.7%.

The decrease reflects lower net sales in our Satellite and Space Communications segment offset, in part, by an increase in net sales in our Terrestrial and Wireless Networks segment, as further discussed below.

The prior year included a full year of operations related to our solid state, high power amplifier product line divested in November 2023 (the "PST Divestiture").

Adjusted for the PST Divestiture and despite very challenging business conditions in fiscal 2024, our consolidated net sales grew slightly from fiscal 2023.

Satellite and Space Communications

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

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

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

Marine Corps and VSAT equipment for the U.S.

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

Net sales in our Satellite and Space Communications segment were $324.1 million for fiscal 2024 as compared to $337.8 million for fiscal 2023, a decrease of $13.7 million, or 4.1%.

Fiscal 2024 primarily reflects significantly higher net sales of our troposcatter and SATCOM solutions to U.S.

government customers (including progress toward delivering next-generation troposcatter terminals to the U.S.

Marine Corps and U.S.

Army), offset by lower net sales of satellite ground infrastructure solutions (including X/Y steerable antennas), high power solid state amplifiers related to the PST Divestiture in November 2023 and COMET troposcatter terminals to international customers.

Our Satellite and Space Communications segment represented 60.0% of consolidated net sales for fiscal 2024 as compared to 61.4% for fiscal 2023.

3 unchanged sentences

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

Also, during the fourth quarter of fiscal 2024, as part of our recently announced transformation strategy, we made the decision to cease operations located in the United Kingdom related to our X/Y steerable antenna product line.

As a result, we do not anticipate generating any meaningful sales from this product line in fiscal 2025 and beyond.

Terrestrial and Wireless Networks

Net sales in our Terrestrial and Wireless Networks segment were $212.2 million for fiscal 2023, as compared to $206.5 million for fiscal 2022, an increase of $5.7 million, or 2.8%, reflecting higher sales of our NG-911 solutions and services, offset in part by lower sales of our trusted location and messaging solutions and cyber security training services.

Net sales in our Terrestrial and Wireless Networks segment were $216.3 million for fiscal 2024, as compared to $212.2 million for fiscal 2023, an increase of $4.1 million, or 1.9%, reflecting higher net sales of our NG-911 and call handling services, offset in part by lower net sales of our location based solutions.

Our Terrestrial and Wireless Networks segment represented 40.0% of consolidated net sales for fiscal 2024 as compared to 38.6% for fiscal 2023.

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

Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2024 was 1.70x.

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

1 unchanged sentence

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

Also, on October 17, 2024, we announced that we are exploring strategic alternatives for our Terrestrial and Wireless Networks segment, which is in advanced stages.

Accordingly, future results of operations can be impacted by the timing and outcome of such initiatives.

There can be no assurance that the exploration of strategic alternatives will result in a transaction or other strategic changes or outcomes.

Geography and Customer Type

9 unchanged sentences

Sales to U.S.

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

government customers include sales to the U.S.

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

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

state and local governments.

Included in domestic sales are sales to Verizon Communications Inc.

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

For fiscal 2024, except for the U.S.

government, there were no customers that represented more than 10% of consolidated net sales.

For fiscal 2023, included in domestic sales are sales to Verizon Communications Inc.

("Verizon"), which were 10.6% of consolidated net sales.

International sales for fiscal 2024 and 2023 (which include sales to U.S.

5 unchanged sentences

Gross profit, as a percentage of consolidated net sales, for fiscal 2024 was 29.1% as compared to 33.5% for fiscal 2023.

Our gross profit (both in dollars and as a percentage of consolidated net sales) reflects an increase in net sales and overall product mix changes, including significantly higher net sales of our troposcatter and SATCOM solutions to U.S.

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

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

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

Our gross profit (both in dollars and as a percentage of consolidated net sales) reflects overall product mix changes (including the impact of the PST Divestiture, as discussed above.

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

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

Our Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for fiscal 2024 decreased in comparison to fiscal 2023.

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

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

Similar operating costs were not incurred in fiscal 2023.

The gross profit percentage in the more recent period reflects changes in products and services mix, as discussed above, and higher expected costs at completion as we advanced certain nonrecurring engineering related projects in our satellite ground infrastructure product line through development and toward production.

Also, fiscal 2024 gross profit in this segment reflects challenging business conditions related to our steerable antenna operations located in the United Kingdom that we recently announced exiting.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for fiscal 2024 decreased in comparison to fiscal 2023.

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

The gross profit percentage in the more recent period reflects changes in products and services mix, as discussed above.

Included in consolidated cost of sales are provisions for excess and obsolete inventory of $2.8 million and $4.9 million, for fiscal 2024 and 2023, respectively.

1 unchanged sentence

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

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

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

On October 17, 2024, we announced that we are executing a strategy to transform Comtech into a pure-play satellite and space communications company.

Ongoing and future actions supporting the transformation strategy include the pursuit of further portfolio-shaping opportunities to enhance profitability, efficiency and focus and the implementation of additional organizational, operational and cost-savings initiatives to both achieve profitable results from operations as well as to align our go-forward cost structure with a pure-play focus on satellite and space communications.

While anticipated to improve our profitability in future periods, such actions may result in near term restructuring charges, including an increase in our provision for excess and obsolete inventory.

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

Our consolidated gross profit, as a percentage of consolidated net sales may also be impacted by the timing and outcome of actions we may take related to our transformation strategy initiatives.

Selling, General and Administrative Expenses .

1 unchanged sentence

As a percentage of consolidated net sales, selling, general and administrative expenses were 22.8% and 21.8% for fiscal 2024 and 2023, respectively.

During fiscal 2023 and 2022, we incurred $10.9 million and $6.0 million, respectively, of restructuring costs primarily to streamline our operations and improve efficiency, including severance and costs related to the relocation of certain of our satellite ground station production facilities to our new 146,000 square foot facility in Chandler, Arizona.

During fiscal 2024 and 2023, we incurred $12.5 million and $10.9 million, respectively, of restructuring costs primarily related to streamlining our operations and improving efficiency, including severance and costs associated with the relocation of certain of our satellite ground infrastructure production facilities to our 146,000 square foot facility in Chandler, Arizona.

Fiscal 2024 costs also include those activities supporting the PST Divestiture in November 2023 and, more recently, our announced pursuit of strategic alternatives related to our Terrestrial and Wireless Networks segment.

Excluding restructuring costs, selling, general and administrative expenses for fiscal 2024 and 2023 would have been $110.9 million or 20.5% and $109.2 million or 19.9%, respectively, of consolidated net sales.

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

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

Such spending is expected to continue during fiscal 2024.

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

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

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

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $4.8 million in fiscal 2024 as compared to $8.0 million in fiscal 2023.

Although higher in the prior fiscal 2023 period, both fiscal 2024 and 2023 include fully vested stock-based awards granted to certain employees in lieu of annual non-equity incentive compensation.

Also, the more recent period reflects a benefit associated with the forfeitures of stock-based awards related to our former CEO.

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

2 unchanged sentences

As a percentage of consolidated net sales, research and development expenses were 4.5% and 8.8% for fiscal 2024 and 2023, respectively.

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

For fiscal 2024 and 2023, research and development expenses of $12.9 million and $22.4 million, respectively, related to our Satellite and Space Communications segment, and $10.6 million and $25.2 million, respectively, related to our Terrestrial and Wireless Networks segment.

The remaining research and development expenses of $0.5 million and $1.0 million in fiscal 2024 and 2023, respectively, related to the amortization of stock-based compensation expense.

During fiscal 2024 and 2023, we incurred $4.1 million and $3.8 million, respectively, of strategic emerging technology costs in our Satellite and Space Communications segment for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

We are progressing with our evaluation of this new market in relation to our long-term business strategies, and expect to complete such evaluation in fiscal 2024.

We expect strategic emerging technology costs to decrease in fiscal 2025 as a result of our fourth quarter fiscal 2024 decision to cease operations related to our steerable antenna product line in the United Kingdom.

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

During fiscal 2024 and 2023, customers reimbursed us $18.9 million and $14.0 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

In addition to the recent increases in customer-funded research and development activities, in fiscal 2024, we also experienced an increase in engineering efforts related to cost to fulfill contract assets and internal use software, for which we capitalized $2.9 million and $3.8 million, respectively.

As a result of these trends, a more focused prioritization of resources across various programs and the impact of prior reductions in force announced in fiscal 2023, our research and development expenses for financial reporting purposes significantly decreased in fiscal 2024 as compared to historical periods.

Amortization of Intangibles.

Amortization relating to intangible assets with finite lives was $21.4 million (of which $7.3 million was for the Satellite and Space Communications segment and $14.1 million was for the Terrestrial and Wireless Networks segment) for both fiscal 2023 and 2022.

Proxy Solicitation Costs .

During fiscal 2022, we incurred $11.2 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now settled proxy contest initiated by a shareholder.

There were no similar costs during fiscal 2023.

Amortization relating to intangible assets with finite lives was $21.2 million for fiscal 2024 (of which $6.7 million was for the Satellite and Space Communications segment and $14.5 million was for the Terrestrial and Wireless Networks segment) and $21.4 million for fiscal 2023 (of which $7.3 million was for the Satellite and Space Communications segment and $14.1 million was for the Terrestrial and Wireless Networks segment).

Impairment of Long-lived Assets, including Goodwill.

During the fourth quarter of fiscal year 2024, our lower-than-expected financial performance, cured default on certain credit facility covenants and sustained decrease in our stock price since August 1, 2023 were each considered triggering events requiring an interim quantitative goodwill impairment test as of July 31, 2024.

Based on our quantitative evaluation, we determined that our Satellite and Space Communications reporting unit had an estimated fair value below its carrying value and concluded that our goodwill in this reporting unit was impaired.

As a result, in the fourth quarter of fiscal 2024, we recognized a non-cash $48.9 million goodwill impairment charge in our Satellite and Space Communications reporting unit.

In addition to testing goodwill associated with our Satellite and Space Communications reporting unit for impairment, we also assessed the recoverability of the carrying values of our other long-lived assets, including identifiable intangible assets with finite useful lives.

Such testing also considered our decision in the fourth quarter of fiscal 2024 to cease our steerable antenna operations located in the United Kingdom.

Based on our evaluation, we determined that the fair value of the asset group related to such operations was lower than its carrying value and recorded a non-cash $15.6 million long-lived asset impairment charge in our Satellite and Space Communications segment.

See "Notes to Consolidated Financial Statements" included in "Part II - Item 8.

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

CEO Transition Costs .

CEO transition costs were $9.1 million for fiscal 2023.

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

Peterman, as President and CEO.

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

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

The cash portion of the transition costs of $3.6 million 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, which was paid in January 2023.

CEO transition costs related to Mr.

Porcelain and Mr.

Peterman were expensed in our Unallocated segment.

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

Of such amount, $10.3 million related to Mr.

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

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

CEO transition costs related to Mr.

Kornberg were expensed in our Unallocated segment.

Operating Income (Loss).

For the three fiscal years ended July 31, 2024, cumulative CEO transition costs aggregated $25.6 million.

CEO transition costs were $2.9 million for fiscal 2024 and principally consisted of legal expenses related to the March 2024 termination of our former CEO, Mr.

Peterman, for cause due to conduct unrelated to our business strategy, financial results or previously filed financial statements.

CEO transition costs were $9.1 million for fiscal 2023, of which $7.4 million related to our former President and CEO, Mr.

Porcelain, pursuant to his separation agreement with the Company, and $1.7 million related our other former CEO, Mr.

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

CEO transition costs are expensed in our Unallocated segment.

Loss on Business Divestiture.

In connection with the PST Divestiture, during fiscal 2024, we recorded a $1.2 million loss in our Unallocated segment due to the acquirer not achieving certain post-divestiture earn-out criteria.

Although a loss for GAAP purposes, the PST Divestiture resulted in a gain for tax purposes.

However, we completed the PST Divestiture in a tax efficient manner as we utilized a portion of the capital loss carryforward (related to the failed 2020 Gilat acquisition) which was set to expire in 2026.

Operating (Loss) Income.

Operating loss for fiscal 2024 and 2023 was $79.9 million and $14.7 million, respectively.

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

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

Fiscal Years Ended July 31,

1 unchanged sentence

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

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

Operating (loss) income $ (54.2) $ 15.0 $ 21.7 $ 12.3 $ (47.4) $ (42.0) $ (79.9) $ (14.7)

Percentage of related net sales NA 4.5 % 10.0 % 5.8 % NA NA NA NA

Our GAAP operating loss of $79.9 million for fiscal 2024 reflects:

(i) a $64.5 million non-cash charge related to the impairment of certain long-lived assets, including goodwill, in our Satellite and Space Communications segment;

(ii) $21.2 million of amortization of intangibles;

(iii) $12.5 million of restructuring costs (of which $3.8 million, $0.6 million and $8.1 million related to our Satellite and Space Communications, Terrestrial and Wireless Networks and Unallocated segments, respectively);

(iv) $6.1 million of amortization of stock-based compensation;

(v) $4.1 million of strategic emerging technology costs;

(vi) $2.9 million of CEO transition costs;

(vii) a $1.2 million loss on the PST Divestiture reported in our Unallocated segment;

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

Excluding such items, our consolidated operating income for fiscal 2024 would have been $33.5 million.

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

(i) $21.4 million of amortization of intangibles;

5 unchanged sentences

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

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

(i) $21.4 million of amortization of intangibles;

(ii) $13.6 million of CEO transition costs;

(iii) $11.2 million of proxy solicitation costs;

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

(v) $6.0 million of restructuring costs;

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

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

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

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

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

The decrease in operating income, excluding the above items, from $41.6 million for fiscal 2023 to $33.5 million for fiscal 2024 primarily reflects lower consolidated net sales and gross profit (both in dollars and as a percentage of consolidated net sales) and higher selling, general and administrative expenses (due to increased headcount, legal and professional fees and cash incentive compensation), offset in part by lower research and development expenses in both of our reportable operating segments, as discussed above.

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

The increase in our Satellite and Space Communications segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2023 was driven primarily by an increase in related segment net sales and lower research and development expenses, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2023 was driven primarily by changes in products and services mix, as discussed above.

Excluding the impact of CEO transition costs, proxy solicitation costs and its respective portion of restructuring charges, Unallocated expenses for fiscal 2023 would have been $29.0 million, as compared to $21.9 million for fiscal 2022.

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

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

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

The significant decrease in our Satellite and Space Communications segment operating income for fiscal 2024 primarily reflects the non-cash impairment charge related to certain long-lived assets, including goodwill, and lower net sales and gross profit (both in dollars and as a percentage of related segment net sales), offset in part by lower research and development expenses, as discussed above.

The significant increase in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2024 reflects lower research and development expenses, as discussed above.

Excluding the loss on the PST Divestiture, the impact of CEO transition costs and its respective portion of restructuring charges in each period, Unallocated expenses for fiscal 2024 would have been $35.3 million, as compared to $29.0 million for fiscal 2023.

The increase in Unallocated expenses, excluding such items, was primarily due to higher selling, general and administrative expenses, as discussed above.

Amortization of stock-based compensation was $6.1 million and $10.1 million, respectively, for fiscal 2024 and 2023.

Although higher in the prior fiscal 2023 period, both fiscal 2024 and 2023 include fully vested stock-based awards granted to certain employees in lieu of annual non-equity incentive compensation.

Also, stock-based compensation for the more recent period reflects a benefit associated with the forfeitures of awards related to our former CEO.

Interest Expense and Other.

Interest expense was $22.2 million and $15.0 million for fiscal 2024 and 2023, respectively.

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

The increase is due to a higher average debt balance outstanding during fiscal 2024, a general rise in interest rates compared to the prior year and higher interest rates under our Credit Facility entered into in June 2024 (see "Notes to Consolidated Financial Statements - Note (8) - Credit Facility" included in " Part II - Item 8.

Financial Statements and Supplementary Data " for further discussion of the Credit Facility).

Our effective interest rate (including amortization of deferred financing costs) in fiscal 2024 was approximately 12.3% as compared to 8.9% in fiscal 2023.

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

Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our Credit Facility is approximately 14.8%.

Interest (Income) and Other.

1 unchanged sentence

All of our available cash and cash equivalents are currently invested in bank deposits and money market deposit accounts which, at this time, are currently yielding an immaterial interest rate.

Change in Fair Value of Convertible Preferred Stock Purchase Option Liability.

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

There was no similar adjustment recorded during fiscal 2023.

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

Write-off of Deferred Financing Costs.

During the fourth quarter of fiscal 2024, in connection with the extinguishment and refinancing of our Prior Credit Facility through a new syndicate of lenders, we fully expensed all $1.8 million of the remaining deferred financing costs related to the Prior Credit Facility.

Change in Fair Value of Warrants.

During fiscal 2024, we recorded a $4.3 million net benefit from the remeasurement of warrants.

The net benefit was driven by the impact of a lower market price of our common stock after the issuance of the warrants to the holders of our Series B-1 Convertible Preferred Stock in January 2024, offset in part by a higher market price of our common stock after the issuance of warrants to certain lenders under our Credit Facility in June 2024.

See "Notes to Consolidated Financial Statements - Note (16) - Convertible Preferred Stock" and " Note (8) - Credit Facility" included in " Part II - Item 8.

Financial Statements and Supplementary Data " for more information.

Benefit from Income Taxes.

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

For fiscal 2024 and 2023, we recorded tax benefits of $0.3 million and $3.9 million, respectively.

Our effective tax rate (excluding discrete tax items) for fiscal 2024 was 8.1%, as compared to 14.5% for fiscal 2023.

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

For purposes of determining our 14.5% annual effective tax rate for fiscal 2023, CEO transition costs are considered significant, unusual or infrequently occurring discrete tax items and are excluded from the computation of our effective tax rate.

The decrease in the rate is primarily due to changes in expected product and geographical mix.

For purposes of determining our 8.1% effective tax rate for fiscal 2024, the impairment of long-lived assets, including goodwill, the change in fair value of warrants, CEO transition costs and the impact of the PST Divestiture are each considered significant, unusual or infrequently occurring discrete tax items and excluded from the computation of our effective tax rate.

For purposes of determining our 14.5% effective tax rate for fiscal 2023, CEO transition costs were considered significant, unusual or infrequently occurring discrete tax items and excluded from the computation of our effective tax rate.

During fiscal 2024, we recorded a net discrete tax expense of $2.7 million, primarily related to stock-based awards and the establishment of a valuation allowance on U.S.

net deferred tax assets, partially offset by the reversal of tax contingencies no longer required due to the expiration of applicable statute of limitations.

During fiscal 2023, we recorded a net discrete tax benefit of $0.8 million, primarily related to the reversal of tax contingencies no longer required due to the expiration of applicable statute of limitations and the deductible portion of CEO transition costs, offset in part by the settlement of stock-based awards and the finalization of certain tax accounts in connection with our fiscal 2022 federal and state income tax returns.

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

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

Our U.S federal income tax returns for fiscal 2021 through 2023 are subject to potential future IRS audit.

3 unchanged sentences

During fiscal 2024 and 2023, consolidated net loss attributable to common stockholders was $135.4 million and $33.9 million, respectively.

In addition to those items discussed above, the more recent period also includes:

(i) $19.6 million of expenses related to the exchange of our Series A-1 Convertible Preferred Stock for Series B Convertible Preferred Stock on January 22, 2024 (inclusive of the initial fair value of warrants issued to such holders) and the exchange of our Series B Convertible Preferred Stock for Series B-1 Convertible Preferred Stock on June 17, 2024;

(ii) $11.6 million of dividends related to our Convertible Preferred Stock outstanding during fiscal 2024;

and (iii) $4.3 million of Series B Convertible Preferred Stock issuance costs (consisting of third party financial advisor, legal and professional fees).

Adjusted EBITDA.

3 unchanged sentences

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

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

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

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

Change in fair value of convertible

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

Net (loss) income $ (55.5) 15.5 21.0 12.3 (65.4) (54.7) $ (100.0) (26.9)

Provision for (benefit from) income taxes 0.7 (1.7) 0.7 (0.2) (1.6) (2.0) (0.3) (3.9)

Interest expense — — — — 22.1 15.0 22.2 15.0

Interest (income) and other 0.6 1.2 — 0.2 — (0.2) 0.7 1.2

Write-off of deferred financing costs — — — — 1.8 — 1.8 —

Change in fair value of warrants and derivatives — — — — (4.3) — (4.3) —

Amortization of stock-based compensation — — — — 6.1 10.1 6.1 10.1

1 unchanged sentence

Depreciation 3.9 4.1 7.9 7.6 0.4 0.2 12.2 11.9

Impairment of long-lived assets, including goodwill 64.5 — — — — — 64.5 —

Amortization of cost to fulfill assets 1.0 1.0 — — — — 1.0 1.0

CEO transition costs — — — — 2.9 9.1 2.9 9.1

Proxy solicitation costs — — — — — 11.2 — 11.2

Restructuring costs 3.8 5.7 0.6 1.3 8.1 3.9 12.5 10.9

Strategic emerging technology costs 4.1 3.8 — — — — 4.1 3.8

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

Loss on business divestiture — — — — 1.2 — 1.2 —

Adjusted EBITDA $ 29.8 37.0 44.7 35.3 (28.7) (18.8) $ 45.7 53.5

Percentage of related net sales 9.2 % 11.0 % 20.6 % 16.6 % NA NA 8.5 % 9.7 %

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

The increase in our Satellite and Space Communications segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is primarily due to an increase in related segment net sales and lower research and development expenses, as discussed above.

The decrease in our Terrestrial and Wireless Networks segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is primarily due to changes in products and services mix, as discussed above.

The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for fiscal 2024 as compared to fiscal 2023 primarily reflects lower consolidated net sales and gross profit (both in dollars and as a percentage of consolidated net sales) and higher selling, general and administrative expenses, offset in part by lower research and development expenses in both of our reportable operating segments, as discussed above.

The decrease in our Satellite and Space Communications segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, primarily reflects lower net sales and gross profit (both in dollars and as a percentage of related segment net sales), offset in part by lower research and development expenses, as discussed above

The increase in our Terrestrial and Wireless Networks segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, reflects lower research and development expenses, offset in part by a lower gross profit percentage on related segment net sales, as discussed above.

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

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for fiscal 2022 and 2021 to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the table may not foot due to rounding).

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

Also, our consolidated Adjusted EBITDA could be impacted by the timing and outcome of our recently announced strategy to transform Comtech into a pure-play satellite and space communications company.

Reconciliations of our GAAP consolidated operating loss, net loss attributable to common stockholders and net loss per diluted common share for fiscal 2024 and 2023 to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the table may not foot due to rounding).

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

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

6 unchanged sentences

$ (79.9) $ (135.4) $ (4.70)

Loss on extinguishment of convertible preferred stock

Adjustments to reflect redemption value of convertible preferred stock

Change in fair value of warrants and derivatives

— (4.3) (0.15)

Impairment of long-lived assets, including goodwill

64.5 63.8 2.21

Amortization of intangibles

3 unchanged sentences

Amortization of stock-based compensation

10.1 7.9 0.28

CEO transition costs

Strategic emerging technology costs 4.1 3.8 0.13

CEO transition costs

Loss on business divestiture 1.2 1.2 0.04

Amortization of cost to fulfill assets 1.0 1.0 0.03

Net discrete tax benefit

— (0.3) (0.01)

Net discrete tax expense

Non-GAAP measures $ 33.5 $ 2.8 $ 0.10

7 unchanged sentences

21.4 16.6 0.59

CEO transition costs

13.6 13.0 0.49

Proxy solicitation costs

Restructuring costs

10.9 8.3 0.30

Amortization of stock-based compensation

Restructuring costs

10.1 7.9 0.28

CEO transition costs

Strategic emerging technology costs

COVID-19 related costs

Amortization of cost to fulfill assets

Change in fair value of convertible preferred stock purchase option

Net discrete tax benefit

— (0.3) (0.01)

Net discrete tax expense

Non-GAAP measures $ 41.6 $ 18.5 $ 0.65

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before 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 analysis expenses and other.

Our definition of Adjusted EBITDA may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and therefore may not be comparable to similarly titled measures used by other companies.

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before interest, income taxes, depreciation expense, amortization of intangibles, amortization of stock-based compensation, amortization of cost to fulfill assets, restructuring costs, strategic emerging technology costs (for next-generation satellite technology), change in fair value of warrants and derivatives, write-off of deferred financing costs, CEO transition costs, impairment of long-lived assets, including goodwill, loss on business divestiture and, in the past, acquisition plan expenses, change in fair value of convertible preferred stock purchase option liability, COVID-19 related costs, facility exit costs, proxy solicitation costs and strategic alternatives analysis expenses and other.

Although closely aligned, our definition of Adjusted EBITDA is different than 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.

Adjusted EBITDA is also a measure frequently requested by our investors and analysts.

We believe that investors and analysts may use Adjusted EBITDA, along with other information contained in our SEC filings, in assessing our performance and comparability of our results with other companies.

We believe that investors and analysts may use Adjusted EBITDA, along with other information contained in our SEC filings, including GAAP measures, in assessing our performance and comparability of our results with other companies.

Our Non-GAAP measures reflect the GAAP measures as reported, adjusted for certain items as described herein and also excludes the effects of our outstanding convertible preferred stock.

These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct our business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP.

These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP in the tables presented herein, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring.

These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP measures in the tables presented herein, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring.

Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP.

Investors are advised to carefully review the GAAP financial results that are disclosed in our SEC filings.

We have not quantitatively reconciled our Q1 fiscal 2024 Adjusted EBITDA target to the most directly comparable GAAP measure because items such as adjustments to the provision for income taxes, and interest expense, which are specific items that impact these measures, have not yet occurred, are out of our control, or cannot be predicted.

As we have not provided targets for fiscal 2025, we have also not quantitatively reconciled our fiscal 2025 outlook to comparable GAAP measures.

Furthermore, even if targets had been provided, items such as stock-based compensation, adjustments to the provision for income taxes, amortization of intangibles and interest expense, which are specific items that impact these measures, have not yet occurred, are out of our control, or cannot be predicted.

For example, quantification of stock-based compensation expense requires inputs such as the number of shares granted and market price that are not currently ascertainable.

Accordingly, reconciliations to the Non-GAAP forward looking metrics are not available without unreasonable effort and such unavailable reconciling items could significantly impact our financial results.

5 unchanged sentences

For fiscal 2024, our cash flows reflect the following:

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

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

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

• Net cash used in investing activities for fiscal 2023 and 2022 was $18.3 million and $19.6 million, respectively.

Net cash used during fiscal 2023 and 2022 primarily reflects capital expenditures to build-out cloud-based computer networks to support our previously announced NG-911 contract wins and capital investments and building improvements in connection with the opening of our new high-volume technology manufacturing centers.

Net cash used in both periods also relates to expenditures for property, plant and equipment upgrades and enhancements.

• Net cash used in operating activities was $54.5 million and $4.4 million for fiscal 2024 and 2023, respectively.

Net cash used in operating activities for fiscal 2024 and net cash provided by operating activities for fiscal 2023 would have been $38.5 million and $9.6 million, respectively, when excluding $16.0 million and $14.0 million, respectively, in aggregate cash payments for restructuring costs (including severance), CEO transition costs and strategic emerging technology costs for next-generation satellite technology.

The period-over-period decrease in cash flows from operating activities reflects overall changes in net working capital requirements, principally the timing of:

(i) payments to vendors;

and (ii) progress toward completion on contracts accounted for over time, including related shipments, billings and collections.

More specifically, in fiscal 2024, we experienced a significant increase in the overall level of contract assets (i.e., unbilled receivables) related to large, long-term contracts with certain U.S.

government and international customers.

While such contract assets are trending lower more recently due to shipments, billings and collections from our customers, such contract activity did result in a material increase in working capital during our fiscal 2024.

• Net cash provided by investing activities in fiscal 2024 was $20.1 million compared to net cash used in investing activities in fiscal 2023 of $18.3 million.

Fiscal 2024 includes $33.2 million of net cash proceeds from the PST Divestiture, offset in part by capital expenditures to build-out cloud-based computer networks to support our previously announced NG-911 contract wins and capital investments and building improvements in connection with our manufacturing facilities.

• Net cash provided by financing activities was $47.8 million and $20.1 million for fiscal 2024 and 2023, respectively.

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

During fiscal 2022 we received an aggregate of $100.0 million in proceeds related to the issuance of a new series of Convertible Preferred Stock to certain investors.

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

During fiscal 2024, we entered into a new Credit Facility and repaid in full the outstanding borrowings under our Prior Credit Facility.

During fiscal 2024, with respect to term loans, we received net proceeds of $157.1 million and made $48.8 million in total repayments.

During fiscal 2024, we had revolving loan net repayments of $85.3 million, as compared to revolving loan net borrowings of $36.9 million in fiscal 2023.

During fiscal 2024, we paid financing costs of $10.3 million in connection with our credit facilities.

During fiscal 2024, we received an aggregate of $43.2 million in net proceeds related to the issuance of our Series B Convertible Preferred Stock, and also paid $4.3 million in related issuance costs (consisting of third party financial advisor, legal and professional fees).

During fiscal 2024 and 2023, we paid $0.3 million and $8.7 million, respectively, in cash dividends to our common stockholders.

We also made $3.8 million and $2.9 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during fiscal 2024 and 2023, respectively.

The Credit Facility is discussed below and in "Notes to Consolidated Financial Statements - Note (7) - Credit Facility" included in "Part II - Item 8.

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

The Convertible Preferred Stock is discussed below and in "Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock" included in "Part II - Item 8.

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

Credit Facility

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

Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), for detailed information related to our Credit Facility entered into on June 17, 2024, which replaced the Prior Credit Facility previously entered into on November 7, 2023.

As of July 31, 2024, the amount outstanding under our Credit Facility was $194.2 million, comprised of $32.5 million under the Revolving Loan and $161.7 million under the Term Loan.

During fiscal 2024, we had outstanding balances under our credit facilities ranging from $156.2 million to $202.0 million.

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

Convertible Preferred Stock

See " Notes to Consolidated Financial Statements - Note (16) - Convertible Preferred Stock " included in " Part II - Item 8.

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

Subordinated Credit Agreement

See " Notes to Consolidated Financial Statements - Note (19) - Subsequent Event " included in " Part II - Item 8.

Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), for additional information on our Subordinated Credit Agreement, which we entered into on October 17, 2024.

Liquidity and Going Concern

Pursuant to the requirements of ASC Topic 205-40, " Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern ," we are required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern.

This evaluation does not take into consideration the potential mitigating effect of our plans that have not been fully implemented or are not within our control as of the date the audited Consolidated Financial Statements are issued.

When substantial doubt exists, we are required to evaluate whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern.

The mitigating effect of our plans, however, is only considered if both (i) it is probable that the plans will be effectively implemented within one year after the date that the Consolidated Financial Statements are issued, and (ii) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Consolidated Financial Statements are issued.

As of the date these financial statements were issued (the "issuance date"), we evaluated whether the following adverse conditions, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern over the next twelve months beyond the issuance date.

Over the past three fiscal years, we incurred operating losses of $79.9 million, $14.7 million and $33.8 million in fiscal 2024, 2023 and 2022, respectively.

In addition, over the past three fiscal years, net cash used in operating activities was $54.5 million and $4.4 million in fiscal 2024 and 2023, respectively, and net cash provided by operating activities was $2.0 million in fiscal 2022.

Our ability to meet future anticipated liquidity needs over the next year beyond the issuance date will largely depend on our ability to generate positive cash inflows from operations, maximize our borrowing capacity under our Credit Facility, as discussed further below, and or secure other sources of outside capital.

While we believe we will be able to generate sufficient positive cash inflows, maximize our borrowing capacity and secure outside capital, there can be no assurance our plans will be successfully implemented and, as such, we may be unable to continue as a going concern over the next year beyond the issuance date.

As discussed further in " Notes to Consolidated Financial Statements - Note (8) - Credit Facility " included in " Part II - Item 8.

Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), on June 17, 2024, we entered into a $222.0 million credit facility with a new syndicate of lenders, which replaced our prior credit facility.

As further discussed below, we subsequently amended the credit facility on October 17, 2024 (the "Credit Facility").

The Credit Facility consists of a committed $162.0 million term loan (“Term Loan”) and $60.0 million revolver loan (“Revolver Loan”).

At July 31, 2024 and October 25, 2024 (the date closest to the issuance date), total outstanding borrowings under the Credit Facility were $194.2 million and $199.1 million, respectively.

At both July 31, 2024 and October 25, 2024, $32.5 million was drawn on the Revolver Loan.

As of the issuance date, our available sources of liquidity approximate $28.7 million, consisting solely of qualified cash and cash equivalents.

That is, our available sources of liquidity do not include the remaining portion of the committed Revolver Loan due to the lenders' consent right, discussed below, to any borrowings that exceed $32.5 million.

The Credit Facility, among other things, requires compliance with new restrictive and financial covenants, including:

a maximum allowable Net Leverage Ratio of 3.25x for the fiscal quarter ending January 31, 2025;

a minimum Fixed Charge Coverage Ratio of 1.20x for the fiscal quarter ending January 31, 2025;

a minimum Average Liquidity requirement at each quarter end of $20.0 million;

and a minimum EBITDA of $35.0 million for the fiscal quarter ending October 31, 2025.

Such ratios adjust under the Credit Facility in future periods.

The Credit Facility was amended on October 17, 2024 to waive certain defaults or events of default, including in connection with our Net Leverage Ratio and Fixed Charge Coverage Ratio covenants as of July 31, 2024.

The amendment also provides for, among other things:

(i) increases the interest rate margins applicable to the loans;

(ii) modifies certain financial and collateral reporting requirements;

(iii) provides a lender consent right with respect to $27.5 million of Revolver Loan borrowings above $32.5 million;

(iv) permits the incurrence of $25.0 million of senior unsecured subordinated debt (as described below);

(v) amends the maturity date to the earlier of (x) July 31, 2028 or (y) 90 days prior to the earliest date that the debt under the Subordinated Credit Agreement (as defined below) becomes due and payable;

and (vi) suspends financial covenant testing through the end of our fiscal quarter ending January 31, 2025.

In addition, we entered into a Subordinated Credit Agreement with the existing holders of our Convertible Preferred Stock (the “Subordinated Credit Agreement”) on October 17, 2024, which provides a subordinated unsecured term loan facility in the aggregate principal amount of $25.0 million (the “Subordinated Credit Facility”).

The proceeds of the Subordinated Credit Facility:

(i) cured our default on certain financial covenants under the Credit Facility, as discussed above;

(ii) provides

additional liquidity to us;

and (iii) funds our general working capital needs, including support of our strategic transformation initiatives, as discussed below.

Our ability to meet our current obligations as they become due may be impacted by our ability to remain compliant with the financial covenants required by the Credit Facility, or to obtain future waivers or amendments from the lenders in the event compliance is not maintained.

While we believe we will be able to secure such waivers or amendments, as needed, there can be no assurance such waivers or amendments will be secured or on terms that are acceptable to us.

If we are unable to secure waivers or amendments, the lenders may declare an event of default, which would cause an immediate acceleration and repayment of all outstanding principal, interest and fees due under our Credit Facility.

Absent our ability to repay the forgoing amounts upon the declaration of an event of default, the lenders may exercise their rights and remedies under the Credit Facility, which may include, among others, a seizure of substantially all of our assets and/or the liquidation of our operations.

If an event of default occurs that allows the lenders to exercise these rights and remedies over the next year beyond the issuance date, we will be unable to continue as a going concern.

As of the issuance date, our plans to address our ability to continue as a going concern include, among other things:

• executing a strategy to transform Comtech into a pure-play satellite and space communications company (ongoing and future actions supporting our transformation strategy include:

an exploration of strategic alternatives for our Terrestrial and Wireless Networks segment, which is well underway;

the pursuit of further portfolio-shaping opportunities to enhance profitability, efficiency and focus;

• pursuing initiatives to reduce investments in working capital, namely accounts receivable and inventory;

• improving process disciplines to attain and maintain profitable operations by entering into more favorable sales or service contracts;

• reevaluating our business plans to identify opportunities (e.g., within our Satellite and Space Communications segment) to focus future investment on our most strategic, high-margin revenue opportunities;

• reevaluating our business plans to identify opportunities to further reduce capital expenditures;

• seeking opportunities to improve liquidity through any combination of debt and/or equity financing (including possibly restructuring our Credit Facility, Convertible Preferred Stock and/or Subordinated Credit Agreement);

• seeking other strategic transactions and/or measures including, but not limited to, the potential sale or divestiture of assets.

While we believe the implementation of some or all of the elements of our plans over the next year beyond the issuance date will be successful, these plans are not all solely within management’s control and, as such, we can provide no assurance our plans are probable of being effectively implemented as of the issuance date.

Therefore, the adverse conditions and events described above are uncertainties that raise substantial doubt about our ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future.

Accordingly, the accompanying consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

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

Our material cash requirements could increase beyond our current expectations due to factors such as:

(i) an inability to meet our current obligations under our Credit Facility as they become, or to obtain future waivers or amendments from the lenders in the event compliance is not maintained;

(ii) general economic conditions;

(iii) a change in government spending priorities and or contracting decisions;

(iv) larger than usual customer orders;

(v) a future redemption by the holders of our Convertible Preferred Stock;

or (vi) actions we may take related to our strategic transformation.

Also, in light of our recently announced strategic transformation initiatives, we continue to review and evaluate our capital allocation plans.

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

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

In addition to making capital investments for our high-volume manufacturing centers, we have been making significant capital expenditures and building out cloud-based computer networks to support our previously announced NG-911 contract wins.

We expect capital investments for these and other initiatives to continue in fiscal 2025.

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

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

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

Treasury securities.

Many of our money market mutual funds invest in direct obligations of the U.S.

Money market mutual funds we invest in are direct obligations of the U.S.

government, bank securities guaranteed by the Federal Deposit Insurance Corporation, certificates of deposit and commercial paper and other securities issued by other companies.

1 unchanged sentence

Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.

In addition to making capital investments for our new high-volume manufacturing centers, we have been making significant capital expenditures and building out cloud-based computer networks to support our previously announced NG-911 contract wins for the states of Pennsylvania, South Carolina and Arizona.

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

On July 13, 2022, we filed a $200.0 million shelf registration statement with the SEC for the sale of various types of securities, including debt.

3 unchanged sentences

There were no repurchases of our common stock during fiscal 2024 and 2023.

During the third quarter of fiscal 2023, encouraged by the progress that we have made related to our One Comtech transformation, our launch of EVOKE and our emerging growth opportunities, as previously disclosed, our Board of Directors, together with management, adjusted the Company’s capital allocation plans and determined to forgo a common stock dividend, thereby increasing our financial flexibility for future investments.

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

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

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

In our first quarter of fiscal 2022, we secured a $100.0 million strategic growth investment to enhance our financial flexibility and strengthen our ability to capitalize on large contract awards and growing customer demand by making crucial investments in our satellite and space communications and terrestrial and wireless network solutions.

Based on our current revenue visibility, we believe that our existing cash and cash equivalent balances, our cash generated from operating activities and amounts potentially available under our Credit Facility will be sufficient to meet our currently anticipated cash requirements in the next twelve months and beyond.

Our material cash requirements could increase beyond our current expectations due to factors such as general economic conditions, a change in government spending priorities, larger than usual customer orders, or a future redemption by the holders of our Series A Convertible Preferred Stock.

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

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

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

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

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

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

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

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

Credit Facility

As discussed further in " Notes to Consolidated Financial Statements - Note (7) - Credit Facility " included in " Part II - Item 8.

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

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

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

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

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

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

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

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

At July 31, 2023, we had $1.0 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit.

During fiscal 2023, we had outstanding balances under the Credit Facility ranging from $130.0 million to $183.3 million.

As of July 31, 2023, our Secured Leverage Ratio was 3.54x trailing twelve months ("TTM") Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA.

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

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

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

Convertible Preferred Stock

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

Financial Statements and Supplementary Data, " included in this Form 10-K (which discussion is incorporated herein by reference), on October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value $0.10 per share (the "Convertible Preferred Stock"), for an aggregate purchase price of up to $125.0 million, or $1,000 per share.

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

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

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

In fiscal 2023, we adjusted the Company’s capital allocation plans and determined to forgo a common stock dividend.

At July 31, 2024, we had $247,000 of cash deposited as collateral in connection with outstanding standby letters of credit to guarantee future performance on certain customer contracts and no commercial letters of credit outstanding.

In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment.

5 unchanged sentences

Credit Facility - interest payments 92,800 28,985

Operating and financing lease obligations 57,340 9,478

Operating lease obligations 43,690 8,263

Contractual cash obligations $ 330,653 41,298

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

See " Notes to Consolidated Financial Statements - Note (1)(c) - Liquidity and Going Concern " included in " Part II - Item 8.

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

See " Notes to Consolidated Financial Statements - Note (9) -"Leases " included in " Part II - Item 8.

1 unchanged sentence

As discussed further in " Notes to Consolidated Financial Statements - Note (16) - Convertible Preferred Stock " included in " Part II - Item 8.

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

(i) in the event of the occurrence of an asset sale trigger;

(ii) in the event of a satisfaction of the existing Credit Facility;

and (iii) in all other cases, October 31, 2028.

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

As discussed further in " Notes to Consolidated Financial Statements - Note (19) - Subsequent Events - Subordinated Credit Agreement " included in " Part II - Item 8.

Financial Statements and Supplementary Data, " (which discussion is incorporated herein by reference), included in this Form 10-K, there are defined make-whole amounts with respect to certain repayments or prepayment of such subordinated debt equal to:

(i) from the October 17, 2024 through (but not including) July 17, 2025, $25.0 million multiplied by 33.0%;

(ii) from July 17, 2025 through (but not including) October 17, 2026, $25.0 million multiplied by 50.0%;

and (iii) from October 17, 2026 and thereafter, $25.0 million multiplied by 75.0% plus, in the case of clause (iii), interest accrued on $25.0 million at the make-whole interest rate (as defined below) starting on October 17, 2026 and calculated as of any such date of determination.

The make-whole interest rate is a rate equal to 16.0% per annum, which is increased by 2.0% per annum upon the occurrence and during the continuation of an event of default under the Subordinated Credit Agreement.

In the ordinary course of business, we include indemnification provisions in certain of our customer contracts.

4 unchanged sentences

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

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

We entered into employment and/or change of control agreements with certain of our executive officers and certain key employees.

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

5 unchanged sentences

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

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

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

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

Financial Statements and Supplementary Data, " included in this Form 10-K, (which discussion is incorporated herein by reference), during fiscal 2024 the following FASB ASUs have been issued and incorporated into the FASB ASC and have not yet been adopted by us as of July 31, 2024:

• FASB ASU No.

2023-07, which requires the disclosure of significant segment expenses, by reportable segment, regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss.

The disclosure of other segment items by reportable segment are also required and would constitute the difference between segment revenues less these significant segment expenses and reported segment profit or loss.

On an annual basis, the update requires an entity to disclose the CODM's title and position, as well as describe how the CODM uses the reported measures.

Additionally, all existing annual disclosures about segment profit or loss must be provided on an interim basis in addition to the disclosure of significant segment expenses and other segment items.

This ASU is effective for fiscal years beginning after December 15, 2023 (our fiscal year beginning on August 1, 2024) and for interim periods within fiscal years beginning after December 15, 2024 (our interim period beginning on August 1, 2025), with early adoption permitted.

The adoption of this guidance will impact our disclosures only and we do not expect it to have a material impact on our consolidated financial statements.

• FASB ASU No.

2023-09 enhances and establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements.

Most notably under the new requirements is greater disaggregation of information in the effective tax rate reconciliation, including the inclusion of both percentages and amounts, specific categories, and additional information for reconciling items meeting a quantitative threshold defined by the guidance.

Additionally, disclosures of income taxes paid and income tax expense must be disaggregated by federal, state and foreign taxes, with income taxes paid further disaggregated for individual jurisdictions that represent 5 percent or more of total income taxes paid.

This ASU is effective for fiscal years beginning after December 15, 2024 (our fiscal year beginning on August 1, 2025), with early adoption permitted.

We are evaluating the impact of this ASU on our consolidated financial statements and disclosures.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis