What changed in this filing

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Item 9A. Controls and Procedures

2024-10-30 compared with 2023-10-12 · 676 added, 389 removed, 1179 unchanged (47% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-K, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried out by us under the supervision and with the participation of our management, including our President, Chief Executive Officer and Chairman and Chief Financial Officer.

Based on that evaluation, our President, Chief Executive Officer and Chairman and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by the report to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Form 10-K, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")), which have been designed to provide reasonable assurance that the information required to be disclosed by us, in reports filed under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, carried out by us under the supervision of our Chief Executive Officer and Chief Financial Officer, and with the participation of our management, we concluded that our disclosure controls and procedures were not effective, as of July 31, 2024, as a result of the material weaknesses in our internal control over financial reporting discussed below.

Notwithstanding our material weaknesses, we have concluded that the consolidated financial statements and other financial information included in this Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the U.S.

A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

All internal control systems, no matter how well designed, have inherent limitations.

1 unchanged sentence

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of July 31, 2023.

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control – Integrated Framework (2013) .

Based on our assessment, we determined that, as of July 31, 2023, our internal control over financial reporting was effective based on those criteria.

Deloitte and Touche LLP, our independent registered public accounting firm, has performed an audit of our internal control over financial reporting as of July 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

This audit is required to be performed in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Our independent auditors were given unrestricted access to all financial records and related data.

Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2024.

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control – Integrated Framework (2013) (the "COSO framework") .

Based on our assessment, we determined that, as of July 31, 2024, our internal control over financial reporting was not effective based on those criteria as a result of material weaknesses described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

We did not design and maintain an effective control environment commensurate with our financial reporting requirements based on the criteria in the COSO framework, as we lacked a sufficient complement of resources with an appropriate level of knowledge and experience to establish effective process and controls.

The control environment material weakness contributed to other material weaknesses within our system of internal control over financial reporting at the control activity level, where we did not design and implement effective control activities, including controls related to revenue, inventory and other assets.

Deficiencies in control activities contributed to accounting errors and the potential for there to have been material accounting errors within revenue, inventory and other assets.

Deloitte and Touche LLP, our independent registered public accounting firm, has performed an audit of our internal control over financial reporting as of July 31, 2024.

Deloitte’s audit reports appear on pages F-2 and F-3 of this annual report.

Changes In Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our fiscal quarter ended July 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than for the material weaknesses described above, there have been no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our fiscal quarter ended July 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan

Our remediation efforts are ongoing and we will continue our initiatives to hire additional skilled resources in program management and accounting and finance related functions, and implement and document policies, procedures, and internal controls.

Remediation of the identified material weaknesses and strengthening of our internal control environment will require a substantial effort throughout fiscal 2025 and beyond, as necessary.

We will test the ongoing operating effectiveness of the new and existing controls in future periods.

The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

OTHER INFORMATION

28 unchanged sentences

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

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

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

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

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

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

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

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

(with respect to the Melville, New York facility )

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

Consulting Agreement, dated January 3, 2022, between Comtech and Fred Kornberg

Exhibit 10.2 to the Registrant's Form 8-K, filed January 5, 2022

Restricted Stock Award Agreement with Fred Kornberg Pursuant to the Comtech Telecommunications Corp.

2000 Stock Incentive Plan

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

Certificate of Designations of Serie s B-1 Convertible Preferred Stock, dated June 17, 2024

Exhibit 3.1 to the Registrant's Form 8-K filed June 18, 2024

Certificate of Elimination of Series B-1 Convertible Preferred Stock, dated October 23, 2024

Certificate of Designations of Series B- 2 Convertible Preferred Stock, dated October 17, 2024

Exhibit 3.1 to the Registrant’s Form 8-K, filed October 18, 2024

Form of Warrant Agreement

Exhibit 4.1 to the Registrant’s Form 8-K, filed October 18, 2024

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

Third Amended and Restated 2001 Employee Stock Purchase Plan

5 unchanged sentences

Form of Stock Option Agreement for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2020

Exhibit 10(d)(3) to the Registrant's Form 2020 Form 10-K

Form of Performance Share Agreement pursuant to the 2000 Stock Incentive Plan

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

Exhibit 10(d)(3) to the Registrant's 2020 Form 10-K

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

Exhibit 10(e)(2) to the Registrant's 2023 Form 10-K

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

Exhibit 10(f)(2) to the Registrant's 2019 Form 10-K

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

Exhibit 10(y) to the Registrant’s 2016 Form 10-K

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

Exhibit 10(ab) to the Registrant’s 2016 Form 10-K

Form of Restricted Stock Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2019

Exhibit 10(g)(3) to the Registrant's 2019 Form 10-K

Description of Exhibit

Incorporated By

Reference to Exhibit

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

2 unchanged sentences

Exhibit 10(h)(1) to the Registrant’s 2017 Form 10-K

Form of Restricted Stock Unit Agreement for Employees pursuant to the 2000 Stock Incentive Plan - 2016

Exhibit 10(z) to the Registrant’s 2016 Form 10-K

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

Exhibit 10.2 to the Registrant's Form 10-Q, filed June 7, 2012

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

1 unchanged sentence

Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2020

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

Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2020

Exhibit 10.1 to the Registrant's Form 10-Q, filed June 3, 2020

Description of Exhibit

Incorporated By

Reference to Exhibit

10( g )( 4 )*

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

2 unchanged sentences

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

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

Exhibit 10.1 to the Registrant's Form 10-Q, filed June 7, 2012

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

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

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

Exhibit 10(i)(3) to the Registrant's 2023 Form 10-K

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

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

Description of Exhibit

Incorporated By

Reference to Exhibit

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

8 unchanged sentences

Exhibit 10.1 to the Registrant's Form 10-Q, filed December 4, 2019

Agreement and Plan of Merger, dated November 22, 2015, among Comtech Telecommunications Corp., Typhoon Acquisition Corp.

and TeleCommunication Systems, Inc.

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

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

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

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

and the Investors named therein

Credit Agreement, dated as of June 17, 2024, among Comtech Telecommunications Corp.

and the lenders named therein

Exhibit 10.1 to the Registrant’s Form 8-K, filed June 18, 2024

Waiver and Amendment No.

1 to Credit Agreement, dated as of October 17, 2024, by and among Comtech Telecommunications Corp., as borrower, the lenders named therein, TCW Asset Management Company LLC, as term loan agent, and Wingspire Capital LLC, as revolving agent

Exhibit 10.1 to the Registrant’s Form 8-K, filed October 18, 2024

Registration Rights Agreement, dated October 19, 2021, by and among Comtech Telecommunications Corp.

Subordinated Credit Agreement, dated as of October 17, 2024, by and among Comtech Telecommunications Corp., as borrower, the lenders named therein, and U.S.

Bank Trust Company, National Association, as agent

Exhibit 10.2 to the Registrant’s Form 8-K, filed October 18, 2024

Description of Exhibit

Incorporated By

Reference to Exhibit

Subscription and Exchange Agreement, dated as of Octo ber 17, 2024, by and among Comtech Telecommunications Corp.

and the Inves tors named therein

Exhibit 10.3 to the Registrant’s Form 8-K, filed October 18, 2024

Registration Rights A greement, dated Octobe r 17, 2024, by and among Comtech Telec ommunications Corp.

and the Investors named therein

Exhibit 10.5 to the Registrant’s Form 8-K, filed October 18, 2024

Form of Amended and Restated Voting Agreement

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

Form of Voti ng Agreement

Exhibit 10.4 to the Registrant’s Form 8-K, filed October 18, 2024

Cooperation Agreement dated December 16, 2021, by and among Comtech Telecommunications Corp., Outerbridge Partners, LP, Outerbridge Capital Management, LLC, Outerbridge Partners GP, LLC, Outerbridge Bartleby Fund, LP, Outerbridge Bartleby GP, LLC, and Rory Wallace

12 unchanged sentences

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

Description of Exhibit

Incorporated By

Reference to Exhibit

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

4 unchanged sentences

Exhibit 10.4 to the Registrant’s Form 8-K, filed September 13, 2022

Form of Executive Employment Agreement

Exhibit 10.1 to the Registrant’s Form 8-K, filed January 9, 2024

Employment Agreement between Comtech Telecommunications Corp.

and John Ratigan

Exhibit 10.1 to the Registrant’s Form 8-K, filed April 1, 2024

Employment Agreement A mendment 1 between Comtech Telecommunications Corp.

and John Ratigan

Exhibit 10.2 to the Registrant’s Form 8-K, filed April 1, 2024

Form of Reten tion Bonus Agreement

Exhibit 10.1 to the Registrant’s Form 8-K, filed May 2, 2024

Comtech Telecommunications Corp.

2023 Equity and Incentive P lan

Exhibit 10.4 to the Registrant’s Form 10-Q, filed June 18, 2024

Form of Restricted Stock U n it Agreement pursuant to the C o mtech Telecommunications C o rp.

2023 Equity and Incentive Plan

Exhibit 10.5 to the Registrant’s Form 10-Q, filed June 18, 2024

Form of Long Term Performance Award Agreement pursuant to the Comtech Telecommunications Corp.

2023 Equi ty and Incentive Plan

Exhibit 10.6 to the Registrant’s Form 10-Q, filed June 18, 2024

Description of Exhibit

Incorporated By

Reference to Exhibit

Form of Other Stock Award Agreement pursuant to the 2023 Equity and Incentive Plan

Form of Restricted Stock Unit Agreement to Non-employee Directors pursuant to the Comtech Telecommunications Corp.

2023 Equity and Incentive Plan

Form of Restricted Stock Agreement to Non-employee Directors pursuant to the Comtech Telecommunications Corp.

2023 Equity and Incentive Plan

Insider Trading Policies and Procedur es of the C o mpany

Subsidiaries of the Registrant

4 unchanged sentences

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Clawback Policy of the Company

101.INS The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2024, formatted in inline XBRL:

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October 30, 2024 By:

/s/Ken Peterman

(Date) Ken Peterman, Chairman of the Board

President and Chief Executive Officer

/s/John Ratigan

(Date) John Ratigan, President and

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title

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

(Date) Ken Peterman President and Chief Executive Officer

(Principal Executive Officer)

October 30, 2024 /s/John Ratigan Director, President and Chief Executive Officer

(Date) John Ratigan (Principal Executive Officer)

October 30, 2024 /s/Michael A.

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(Date) Bruce T.

October 12, 2023 /s/Lisa Lesavoy Director

(Date) Lisa Lesavoy

October 12, 2023 /s/Ellen M.

Lord Director

(Date) Ellen M.

October 12, 2023 /s/Mark Quinlan Director

October 30, 2024 /s/Mark Quinlan Chairman of the Board

(Date) Mark Quinlan

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Comtech Telecommunications Corp.

Melville, New York

Chandler, Arizona

Opinion on the Financial Statements

2 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

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

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2024, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 30, 2024, expressed an adverse opinion on the Company’s internal control over financial reporting because of material weaknesses.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and negative cash outflows from operations, and may be unable to maintain compliance with financial covenants required by its credit agreement that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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

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

Goodwill - Refer to Note 14 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

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

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

The Company used a combination of a market approach and the income approach, also known as the discounted cash flow ("DCF") method, to determine the present value of cash flows to estimate fair value.

In the DCF, the future cash flows for the Company’s reporting units were projected based on their estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures).

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

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

The goodwill balance was $284.2 million as of July 31, 2024, of which $174.1 million was allocated to the Terrestrial and Wireless Networks Reporting Unit (“Terrestrial and Wireless Networks”) and $110.1 million was allocated to the Satellite and Space Communications Reporting Unit (“Satellite and Space Communications”).

The fair value of Terrestrial and Wireless Networks exceeded its carrying value by 24.7% as of the measurement date and, therefore, no impairment was recognized.

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

The carrying value of the Satellite and Space Communications reporting unit exceeded its fair value by 10.4% primarily due to declines in financial performance.

Consequently, the Company recognized an impairment loss for goodwill, net, related to the Satellite and Space Communications reporting unit of $48,925,000 for the year ended July 31, 2024.

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

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

How the Critical Audit Matter Was Addressed in the Audit

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

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

7 unchanged sentences

◦ Developing a range of independent estimates and comparing those to the discount rate selected by management.

◦ Assessing the concluded fair value of the sum of the aggregate reporting units relative to the business enterprise as a whole based on market prices as of the impairment assessment date.

/s/ DELOITTE & TOUCHE LLP

5 unchanged sentences

Comtech Telecommunications Corp.

Melville, New York

Chandler, Arizona

Opinion on Internal Control over Financial Reporting

1 unchanged sentence

and subsidiaries (the “Company”) as of July 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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

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

In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of July 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended July 31, 2024, of the Company and our report dated October 30, 2024, expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding substantial doubt about the Company's ability to continue as a going concern.

Basis for Opinion

14 unchanged sentences

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management's assessment:

The Company did not design and maintain an effective control environment commensurate with their financial reporting requirements based on the criteria in the COSO framework, as the Company lacked a sufficient complement of resources with an appropriate level of knowledge and experience to establish effective process and controls.

The control environment material weakness contributed to other material weaknesses within the Company’s system of internal control over financial reporting at the control activity level, where the Company did not design and implement effective control activities, including controls related to revenue, inventory and other assets.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements, and financial statement schedule, as of and for the year ended July 31, 2024, of the Company, and this report does not affect our report on such financial statements.

/s/ DELOITTE & TOUCHE LLP

25 unchanged sentences

Operating lease liabilities, current 7,869,000 8,645,000

Dividends payable — 2,746,000

Contract liabilities 65,834,000 66,351,000

10 unchanged sentences

Convertible preferred stock, par value $ 0.10 per share;

authorized 125,000 shares;

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

authorized and issued 171,827 shares at July 31, 2024 (includes accrued dividends of $ 1,341,000 ) and authorized 125,000 shares;

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

180,076,000 112,211,000

1 unchanged sentence

Preferred stock, par value $ 0.10 per share;

authorized and unissued 1,875,000 shares

authorized and unissued 1,828,173 and 1,875,000 shares at July 31, 2024 and 2023, respectively

Common stock, par value $ 0.10 per share;

21 unchanged sentences

Amortization of intangibles 21,154,000 21,396,000 21,396,000

Impairment of long-lived assets, including goodwill 64,525,000 — —

CEO transition costs 2,916,000 9,090,000 13,554,000

Loss on business divestiture 1,199,000 — —

Proxy solicitation costs — — 11,248,000

Acquisition plan expenses — — 100,292,000

237,069,000 199,120,000 213,588,000

3 unchanged sentences

Interest (income) and other 678,000 1,226,000 ( 703,000 )

Write-off of deferred financing costs 1,832,000 — —

Change in fair value of warrants and derivatives ( 4,273,000 ) — —

Change in fair value of convertible preferred stock purchase option

3 unchanged sentences

Net loss $ ( 99,985,000 ) ( 26,899,000 ) ( 33,052,000 )

Loss on extinguishment of convertible preferred stock ( 19,555,000 ) — —

Adjustments to reflect redemption value of convertible preferred stock:

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Fiscal Years Ended July 31, 2024, 2023 and 2022

Series A Convertible Preferred Stock Common Stock Additional

Convertible Preferred Stock Common Stock Additional

Paid-in Capital Retained Earnings Treasury Stock Stockholders'

2 unchanged sentences

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

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

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

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

Common stock issued for acquisition of UHP Networks Inc.

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

Cash dividends declared ($ 0.40 per share)

— — — — — ( 10,189,000 ) — — ( 10,189,000 )

Accrual of dividend equivalents, net of reversal ($ 0.40 per share)

— — — — — ( 380,000 ) — — ( 380,000 )

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

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

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

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

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

3 unchanged sentences

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

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

Common stock issued for settlement of UHP Networks Inc.

earn-out liability — — 961,302 96,000 8,818,000 — — — 8,914,000

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

21 unchanged sentences

Balance as of July 31, 2023 100,000 112,211,000 43,096,271 4,310,000 636,925,000 238,913,000 15,033,317 ( 441,849,000 ) 438,299,000

Equity-classified stock award compensation — — — — 6,096,000 — — — 6,096,000

Issuance of employee stock purchase plan shares — — 52,604 5,000 249,000 — — — 254,000

Issuance of restricted stock, net of forfeiture — — ( 2,686 ) — — — — — —

Net settlement of stock-based awards — — 619,920 62,000 ( 3,125,000 ) — — — ( 3,063,000 )

Loss on extinguishment of convertible preferred stock ( 100,000 ) ( 115,721,000 ) — — — ( 19,555,000 ) — — ( 19,555,000 )

Issuance of convertible preferred stock 171,827 172,035,000 — — — — — — —

Convertible preferred stock issuance costs — ( 4,349,000 ) — — — — — — —

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 15,900,000 — — — ( 15,900,000 ) — — ( 15,900,000 )

Reversal of dividend equivalents — — — — — 107,000 — — 107,000

Net loss — — — — — ( 99,985,000 ) — — ( 99,985,000 )

Balance as of July 31, 2024 171,827 $ 180,076,000 43,766,109 $ 4,377,000 $ 640,145,000 $ 103,580,000 15,033,317 $ ( 441,849,000 ) $ 306,253,000

See accompanying notes to consolidated financial statements.

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Amortization of stock-based compensation 6,096,000 10,107,000 7,767,000

Amortization of deferred financing costs 3,985,000 1,852,000 811,000

Amortization of cost to fulfill assets 960,000 959,000 469,000

Write-off of deferred financing costs 1,832,000 — —

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

Amortization of deferred financing costs 1,852,000 811,000 736,000

Change in fair value of warrants and derivatives ( 4,273,000 ) — —

Change in fair value of convertible preferred stock purchase option liability — — ( 1,005,000 )

Paid-in-kind interest under Term Loan 337,000 — —

Loss on business divestiture 1,199,000 — —

Changes in other liabilities ( 4,110,000 ) ( 4,133,000 ) ( 4,132,000 )

Loss (gain) on disposal of property, plant and equipment 889,000 48,000 ( 310,000 )

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

Provision for allowance for doubtful accounts 1,422,000 261,000 838,000

Provision for excess and obsolete inventory 2,801,000 4,871,000 4,447,000

Deferred income tax benefit ( 2,990,000 ) ( 6,060,000 ) ( 5,856,000 )

Other — — ( 225,000 )

Changes in assets and liabilities, net of effects of business acquisitions:

Impairment of long-lived assets, including goodwill 64,525,000 — —

Changes in assets and liabilities, net of effects of divestitures:

Accounts receivable ( 38,305,000 ) ( 39,709,000 ) 33,567,000

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Cash flows from investing activities:

Net cash acquired from acquisition of UHP — — 1,304,000

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

Proceeds from business divestiture, net 33,225,000 — —

Purchases of property, plant and equipment ( 13,083,000 ) ( 18,311,000 ) ( 19,619,000 )

Net cash used in investing activities ( 18,311,000 ) ( 19,619,000 ) ( 15,483,000 )

Net cash provided by (used in) investing activities 20,142,000 ( 18,311,000 ) ( 19,619,000 )

Cash flows from financing activities:

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

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

Proceeds from term loan facilities 157,140,000 — —

Repayment of term loan facilities ( 48,800,000 ) ( 1,875,000 ) —

Net (payments) borrowings under revolving loans ( 85,300,000 ) 36,900,000 ( 71,000,000 )

Payment of deferred financing costs ( 10,294,000 ) ( 3,809,000 ) ( 140,000 )

Proceeds from issuance of convertible preferred stock 43,200,000 — 100,000,000

Payment of convertible preferred stock issuance costs ( 4,272,000 ) — ( 4,007,000 )

Cash dividends paid on common stock ( 268,000 ) ( 8,661,000 ) ( 11,048,000 )

Remittance of employees' statutory tax withholding for stock awards ( 3,815,000 ) ( 2,869,000 ) ( 6,109,000 )

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

Proceeds from issuance of employee stock purchase plan shares 254,000 470,000 734,000

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

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

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

Net cash provided by financing activities 47,825,000 20,051,000 8,415,000

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2024 2023 2022

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

Net increase (decrease) in cash and cash equivalents $ 13,472,000 ( 2,693,000 ) ( 9,207,000 )

Cash and cash equivalents at beginning of year 18,961,000 21,654,000 30,861,000

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Supplemental cash flow disclosure

Cash paid (received) during the year for:

Cash paid during the year for:

Interest $ 18,097,000 11,914,000 4,094,000

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Non-cash investing and financing activities:

Accrued remittance of employees' statutory tax withholdings for fully-vested share units $ 1,204,000 1,102,000 2,596,000

Cash dividends declared on common stock but unpaid (including accrual of dividend equivalents) $ 315,000 3,135,000 2,981,000

Adjustment to reflect redemption value of convertible preferred stock $ 15,900,000 7,007,000 10,216,000

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

Accrued deferred financing costs $ 1,114,000 — —

Accrued additions to property, plant and equipment $ 961,000 993,000 5,586,000

Accrued remittance of employees' statutory tax withholdings for fully-vested share units $ 424,000 1,204,000 1,102,000

Accrued shelf registration costs $ 170,000 — —

Unpaid convertible preferred stock issuance costs $ 77,000 — —

Cash dividends declared on common stock but unpaid, including (reversal) accrual of dividend equivalents $ ( 107,000 ) 315,000 3,135,000

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

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

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

Accrued deferred financing costs $ — — 139,000

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

See accompanying notes to consolidated financial statements.

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dollars, advance or milestone payments, credit insurance and irrevocable letters of credit in our favor.

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.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

Over the past three fiscal years, we incurred operating losses of $ 79,890,000 , $ 14,660,000 and $ 33,752,000 in fiscal 2024, 2023 and 2022, respectively.

In addition, over the past three fiscal years, net cash used in operating activities was $ 54,495,000 and $ 4,433,000 in fiscal 2024 and 2023, respectively, and net cash provided by operating activities was $ 1,997,000 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 Note (8) – “Credit Facility,” on June 17, 2024, we entered into a $ 222,000,000 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 $ 162,000,000 term loan (“Term Loan”) and $ 60,000,000 revolving 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 $ 194,163,000 and $ 199,067,000 , respectively.

At both July 31, 2024 and October 25, 2024, $ 32,500,000 was drawn on the Revolver Loan.

As of the issuance date, our available sources of liquidity approximate $ 28,700,000 , 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 $ 32,500,000 .

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

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

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

a minimum Average Liquidity requirement at each quarter end of $ 20,000,000 ;

and a minimum EBITDA of $ 35,000,000 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 $ 27,500,000 of Revolver Loan borrowings above $ 32,500,000 ;

(iv) permits the incurrence of $ 25,000,000 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 $ 25,000,000 (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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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;

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), as discussed further in Note (18) – “Cost Reduction Activities;”

• 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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(d) Revenue Recognition

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.

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

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

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

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

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

For service-based contracts in our Terrestrial and Wireless Networks segment, we also recognize revenue over time.

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Notes to Consolidated Financial Statements, Continued

Point in time accounting is principally applied to contracts in our Satellite and Space Communications segment, which includes satellite modems, solid-state and traveling wave tube amplifiers and to certain contracts for our solid-state, high-power RF amplifiers.

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

Point in time accounting is principally applied to contracts in our satellite ground station technologies product line (which includes satellite modem and traveling wave tube amplifiers).

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

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

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

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

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

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

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state and local governments.

Included in domestic sales are sales to Verizon Communications Inc.

("Verizon"), which were 10.6 %, 11.1 % and 10.7 % of consolidated net sales for fiscal 2023, 2022 and 2021, 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 and 2022, i ncluded in domestic sales are sales to Verizon Communications Inc.

("Verizon"), which were 10.6 % and 11.1 % of consolidated net sales, respectively.

International sales for fiscal 2024, 2023 and 2022 (which include sales to U.S.

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Notes to Consolidated Financial Statements, Continued

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

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

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

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

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

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

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

otherwise, such costs are capitalized and amortized over the estimated life of the contract.

During fiscal year 2024, incremental costs to obtain or fulfill contracts with an amortization period greater than one year were $ 2,863,000 .

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

Commissions payable to our internal sales and marketing employees or contractors that are incremental to the acquisition of long-term customer contracts are capitalized and amortized consistent with the pattern of revenue recognition through cost of sales on our Consolidated Statements of Operations.

Commissions payable that are not incremental to the acquisition of long-term contracts are expensed as incurred in selling, general and administrative expenses on our Consolidated Statements of Operations.

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

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

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Remaining performance obligations, which we refer to as backlog, exclude unexercised contract options and potential orders under indefinite delivery / indefinite quantity ("IDIQ") contracts.

As of July 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 662,215,000 (which represents the amount of our consolidated backlog).

As of July 31, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 798,915,000 (which represents the amount of our consolidated funded backlog).

We estimate that a substantial portion of our remaining performance obligations at July 31, 2024 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter.

During fiscal 2024, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(d) Cash and Cash Equivalents

(e) Cash and Cash Equivalents

Our cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash and have insignificant risk of change in value as a result of changes in interest rates.

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Cash equivalents are carried at cost, which approximates fair value.

(e) Inventories

Our inventories are stated at the lower of cost and net realizable value, the latter of which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

Our inventories are reduced to their estimated net realizable value by a charge to cost of sales in the period such excess costs are determined.

Our inventories are principally recorded using either average or standard costing methods.

At July 31, 2024, cash and cash equivalents includes $ 247,000 of cash deposited as collateral in connection with outstanding standby letters of credit to guarantee future performance on certain customer contracts.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

(f) Inventories

Our inventories are reduced to their estimated net realizable value by a charge to cost of sales in the period such excess costs are determined.

Our inventories are principally recorded using either average or standard costing methods.

Work-in-process (including our contracts-in-progress) and finished goods inventory reflect all accumulated production costs, which are comprised of direct production costs and overhead, and is reduced by amounts recorded in cost of sales as the related revenue is recognized.

Indirect costs relating to long-term contracts, which include expenses such as general and administrative, are charged to expense as incurred and are not included in our cost of sales or work-in-process (including our contracts-in-progress) and finished goods inventory.

(f) Long-Lived Assets

(g) Long-Lived Assets

Our machinery and equipment, which are recorded at cost, are depreciated or amortized over their estimated useful lives (three to eight years) under the straight-line method.

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

Capitalized values of properties and leasehold improvements under leases are amortized over the life of the lease or the estimated life of the asset, whichever is less.

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We define our reporting units to be the same as our operating segments.

We performed our annual goodwill impairment assessment for fiscal 2024 on August 1, 2023 (the first day of our fiscal 2024).

See Note (13) - " Goodwill " for more information.

Unless there are future indicators that the fair value of a reporting unit is more likely than not less than its carrying value, such as a significant adverse change in our future financial performance, our next impairment assessment for goodwill will be performed and completed in the first quarter of fiscal 2025.

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

We perform our annual goodwill impairment test as of the first day of the fiscal year (August 1).

Due to triggering events that occurred in the fourth quarter of fiscal year 2024, we performed a quantitative impairment test for each of our reporting units as of July 31, 2024.

See Note (14) - "Long-lived Assets, including Goodwill" for additional information.

The quantitative impairment test as of July 31, 2024 satisfies the Company’s annual goodwill impairment testing requirement as of August 1, 2024 due to the proximity of the testing dates.

We assess the recoverability of the carrying value of our other long-lived assets, including identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

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If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount.

(g) Income Taxes

Due to a triggering event relating to our subsidiary operations in Basingstoke, United Kingdom, we assessed the recoverability of the carrying value of our other long-lived assets related to these operations.

See Note (14) - "Long-lived Assets, including Goodwill" for additional information.

(h) Income Taxes

Income taxes are accounted for under the asset and liability method.

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The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We determine the uncertain tax positions taken or expected to be taken in income tax returns in accordance with the provisions of FASB ASC 740-10-25 " Income Taxes, " which prescribes a two-step evaluation process for tax positions.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

We measure and account for uncertain tax positions taken or expected to be taken in income tax returns in accordance with the provisions of FASB ASC 740-10-25 " Income Taxes, " which prescribes a two-step evaluation process for tax positions.

The first step is recognition based on a determination of whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position.

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Our policy is to recognize potential interest and penalties related to uncertain tax positions in income tax expense.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(h) Earnings Per Share

(i) Earnings Per Share

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

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

Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, warrants issued to our lenders in connection with entering the Credit Facility, settlement of escrow arrangements related to our acquisition of UHP Networks Inc.

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

The warrants contingently issuable to our preferred shareholders upon a repurchase of the Series B-1 Convertible Preferred Stock are not reflected in diluted EPS.

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

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However, the numerator for EPS calculations for each respective period is reduced by the compensation expense related to these awards.

Weighted average common shares of 174,000 related to warrants issued in connection with entering the Credit Facility on June 17, 2024 were not included in our diluted EPS calculation for fiscal 2024 because their effect would have been anti-dilutive.

Weighted average common shares of 98,000 , 260,000 and 591,000 related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation for fiscal 2024, 2023 and 2022, respectively, because their effect would have been anti-dilutive.

As of July 31, 2024, all of the shares held in escrow related to the UHP acquisition were settled.

Weighted average common shares of 13,581,000 , 4,570,000 and 3,342,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for fiscal 2024, 2023 and 2022, respectively, because their effect would have been anti-dilutive.

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Net loss $ ( 99,985,000 ) ( 26,899,000 ) ( 33,052,000 )

Loss on extinguishment of convertible

preferred stock ( 19,555,000 ) — —

Convertible preferred stock issuance costs ( 4,349,000 ) — ( 4,007,000 )

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Denominator for basic and diluted calculation 28,799,000 28,002,000 26,506,000

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

As discussed further in Note (16) - " Convertible Preferred Stock ," such shares of preferred stock represent a "participating security" as defined in ASC 260.

As a result, our EPS calculations for fiscal 2024, 2023 and 2022 were based on the two-class method.

Given the net loss attributable to common stockholders for fiscal 2024, 2023 and 2022, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

(i) Fair Value Measurements and Financial Instruments

(j) Fair Value Measurements and Financial Instruments

Using the fair value hierarchy described in FASB ASC 820 " Fair Value Measurements and Disclosures," we valued our cash and cash equivalents using Level 1 inputs that were based on quoted market prices.

We believe that the carrying amounts of our other current financial assets (such as accounts receivable) and other current liabilities (including accounts payable and accrued expenses) approximate their fair values due to their short-term maturities.

The fair value of our Credit Facility that we entered into on October 31, 2018 approximates its carrying amount due to its variable interest rate and pricing grid that is dependent upon our leverage ratio as of the end of each fiscal quarter.

We believe that the carrying amounts of our other current financial assets (such as accounts receivable) and other current liabilities (including accounts payable, accrued expenses and the current portion of long-term debt) approximate their fair values due to their short-term maturities.

The fair value of the non-current portion of our long-term debt approximates its carrying amount due to its variable interest rate and pricing grid that is dependent upon our leverage ratio as of such date.

Level 3 inputs are unobservable inputs developed using the best available information under the circumstances.

Level 3 inputs are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect our assumptions related to how market participants would use similar inputs to price the asset or liability.

As further discussed in Note (8) - " Credit Facility," we used Level 3 inputs to value the warrants issued to lenders in connection with our Credit Facility.

As of July 31, 2024, we determined the fair value of such warrants based on the Black-Scholes option pricing model using the following estimates:

exercise price of $ 0.10 , risk free rate of 4.0 %, volatility of 55.0 %, and expected life of seven years.

We also used Level 3 inputs to value the embedded derivative liability associated with our Credit Facility.

As of July 31, 2024, we determined the fair value of the embedded derivative liability using a with-and-without scenario-based discounted cash flow method, which reflected our estimates regarding the probability and timing of events that could result in additional payments of interest and/or fees to such lenders as stated in our Credit Facility.

As further discussed in Note (16) - " Convertible Preferred Stock," we used Level 3 inputs to value warrants contingently issuable under the terms of our Convertible Preferred Stock.

As of July 31, 2024, we determined the fair value of Convertible Preferred Stock warrants using the Monte Carlo simulation model with the following assumptions:

expected life of five months;

risk free rate of 3.9 %;

expected volatility of 60.0 %;

and dividend yield of 0 %.

As of July 31, 2024 and 2023, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

(j) Use of Estimates

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(k) Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amounts of net sales and expenses during the reported period.

We make significant estimates in many areas of our accounting, including but not limited to the following:

long-term contracts, stock-based compensation, intangible assets and liabilities including goodwill, provision for excess and obsolete inventory, allowance for doubtful accounts, warranty obligations and income taxes.

liquidity and going concern assessments, revenue recognition related to contracts accounted for over time, stock-based compensation, intangible assets (including goodwill) and liabilities, provision for excess and obsolete inventory, allowance for doubtful accounts, warranty obligations and income taxes.

Actual results may differ from those estimates.

(k) Comprehensive Income

(l) Comprehensive Income

In accordance with FASB ASC 220 " Comprehensive Income ," we report all changes in equity during a period, except those resulting from investment by owners and distribution to owners, for the period in which they are recognized.

Comprehensive income is the total of net income and all other non-owner changes in equity (or other comprehensive income) such as unrealized gains/losses on securities classified as available-for-sale, foreign currency translation adjustments and minimum pension liability adjustments.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(l) Reclassifications

Comprehensive income (loss) was the same as our net income (loss) in fiscal 2024, 2023 and 2022.

(m) Reclassifications

Certain reclassifications have been made to previously reported consolidated financial statements to conform to the fiscal 2024 presentation.

(m) Adoption of Accounting Standards and Updates

(n) Adoption of Accounting Standards and Updates

We are required to prepare our consolidated financial statements in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") which is the source for all authoritative U.S.

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

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.

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,

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

2025), with early adoption permitted.

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

(2) CEO Transition Costs

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

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

For the three fiscal years ended July 31, 2024, cumulative CEO transition costs aggregated $ 25,560,000 .

Fiscal 2024 - On March 12, 2024, Ken Peterman, our former Chairman of the Board, President and CEO, was terminated for cause and the Board of Directors appointed John Ratigan as interim Chief Executive Officer ("CEO") and Mark Quinlan as Chairman of the Board of Directors.

Prior to the changes, Mr.

Ratigan served as our Chief Corporate Development Officer and Mr.

Quinlan served as a member of our Board of Directors.

Upon termination of his employment, Mr.

Peterman was deemed to have resigned from his position as Chairman of the Board of Directors and as a director pursuant to his employment contract.

CEO transition costs of $ 2,916,000 incurred during fiscal 2024 primarily consisted of legal expenses and were expensed in our Unallocated segment.

Fiscal 2023 - On August 9, 2022, our Board of Directors appointed Ken Peterman as our Chairman of the Board, President and CEO.

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

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

7 unchanged sentences

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Business Divestiture

On November 7, 2023, we completed the divestiture of our solid-state RF microwave high power amplifiers and control components product line, which was included in our Satellite and Space Communications segment, pursuant to a stock sale agreement entered into on October 11, 2023 (the "PST Divestiture").

The final sales price for this divestiture was $ 35,459,000 .

As of July 31, 2024, we received net cash proceeds of $ 33,277,000 , which reflects $ 2,182,000 of transaction costs.

Based on the carrying amount of net assets related to the PST Divestiture (see below table), we recognized a GAAP pre-tax loss of $ 1,199,000 .

Such loss is presented in the " Loss on Business Divestiture " line item in our Consolidated Statements of Operations .

The carrying amount of the major classes of assets and liabilities related to the PST Divestiture ("PST Disposal Group") as of November 7, 2023 are as follows:

Cash and cash equivalents $ ( 71,000 )

Accounts receivable, net 4,168,000

Inventories, net 17,822,000

Prepaid expenses and other current assets 201,000

Property, plant and equipment, net 2,790,000

Operating lease right-of-use assets, net 5,379,000

Goodwill 14,587,000

Other assets, net 35,000

Total assets of disposal group held for sale $ 44,911,000

Accounts payable $ 3,081,000

Accrued expenses and other current liabilities 1,622,000

Operating lease liabilities, current 545,000

Contract liabilities 656,000

Operating lease liabilities, non-current 4,894,000

Deferred tax liability, net ( 363,000 )

Total liabilities of disposal group held for sale $ 10,435,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Accounts Receivable

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Management estimates that a substantial portion of the amounts not yet billed at July 31, 2024 will be billed and collected within one year.

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

Accounts receivable in the table above excludes $ 824,000 and $ 2,993,000 of long-term unbilled receivables presented within " Other Assets, Net " in the Consolidated Balance Sheets as of July 31, 2024 and July 31, 2023, respectively.

As of July 31, 2024, the U.S.

government (and its agencies), one U.K.

based international customer of troposcatter related technologies and AT&T represented 36.4 %, 11.3 % and 10.9 % of total accounts receivable, respectively.

There were no other customers which accounted for greater than 10.0% of total accounts receivable.

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

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

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(5) Inventories

6 unchanged sentences

As of July 31, 2024 and 2023, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $ 2,869,000 and $ 5,911,000 , respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $ 2,204,000 and $ 3,277,000 , respectively.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(6) Property, Plant and Equipment

1 unchanged sentence

Machinery and equipment $ 142,405,000 168,618,000

Internal-use software 28,869,000 25,214,000

Leasehold improvements 17,175,000 9,680,000

17 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Changes in our accrued warranty obligations during the fiscal years ended July 31, 2024 and 2023 were as follows:

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

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

Provision for warranty obligations 1,213,000 3,158,000

Adjustments for changes in estimates ( 493,000 ) ( 2,300,000 )

Charges incurred ( 1,538,000 ) ( 1,993,000 )

PST Divestiture ( 418,000 ) —

Balance at end of year $ 7,049,000 8,285,000

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(8) Credit Facility

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

As of July 31, 2022, the amount outstanding under our Credit Facility was $ 130,000,000 , which is reflected in the non-current portion of long-term debt on our consolidated balance sheet.

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

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

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

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

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

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

On November 30, 2022, we entered into a Second Amended and Restated Credit Agreement which provided a senior secured loan facility up to $ 300,000,000 , consisting of (i) a revolving loan facility with a borrowing limit up to $ 150,000,000 ;

and (ii) a $ 50,000,000 term loan.

At July 31, 2023, the amount outstanding under the credit facility was $ 164,404,000 , of which $ 160,029,000 , net of deferred financing fees of $ 621,000 , is reflected in the non-current portion of long-term debt on our Consolidated Balance Sheets.

On Nov ember 7, 2023, we entered into a Third Amended and Restated Credit Agreement (the "Prior Credit Facility " ), which provided f or a senior secured loan facility of up to $ 200,000,000 consisting of:

(i) a revolving loan facility with an initial borrowing limit of $ 150,000,000 ;

and (ii) a $ 50,000,000 te rm loan .

The Prior Credit Fac ility also provided for the following, among other things:

effective January 31, 2024 and April 30, 2024, (a) our borrowing limit under the revolving loan facility reduced to $ 140,000,000 and $ 135,000,000 , respectively;

(b) the term loa n amortization increased from $ 1,250,000 to $ 1,875,000 per quarter, with the remaining balance due upon maturity;

and (c) the Applicable Rate increased 0.25 %.

In connection with entering the Prior Credit Facility, we capitalized $ 5,941,000 of total financing costs and accounted for the amendments as debt modifications.

On June 17, 2024, we entered into a $ 222,000,000 senior secured loan facility with a new syndicate of lenders (the “Credit Facility”), which replaced our Prior Credit Facility.

The Credit Facility consists of:

(i) a $ 162,000,000 term loan (the "Term Loan" facility) and an asset-based revolving credit facility with revolving commitments in an aggregate principal amount of $ 60,000,000 , subject to borrowing base limitations as described below (the "Revolving Loan" facility).

At closing, $ 25,000,000 of the Revolving Loan was funded and, together with the Term Loan, the proceeds were used to repay the Prior Credit Facility in full and for working capital and other general corporate purposes.

The obligations under the Credit Facility are guaranteed by certain of our domestic and foreign subsidiaries (the “Guarantors), who have granted for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

The Credit Facility, which was amended October 17, 2024, has a maturity date which is the earlier of (x) July 31, 2028 or (y) 90 days prior to the earliest date that the debt under the Subordinated Credit Facility becomes due and payable (the "Maturity Date"), as discussed further below.

In connection with entering the Credit Facility, the Term Loan lenders received 1,435,884 detachable warrants ("Lender warrants") granted at an exercise price of $ 0.10 per common share which entitles the Term Loan lenders to purchase 1,435,884 shares of our common stock from us at any time and from time to time after the Closing Date and on or prior to June 17, 2031, subject to certain adjustments.

If the Term Loan is refinanced, the Term Loan lenders have the right to sell up to 50.0 % of the warrants back to us for cash, at a 10.0 % discount to the 30 -day volume weighted average price of our common stock, subject to certain adjustments.

We determined that the Lender warrants met the definition of a freestanding financial instrument that should be accounted for as a liability.

We established an initial Lender warrant liability of $ 3,011,000 which was allocated as a discount against the Term Loan proceeds.

The Lender warrant liability is classified in "Other Liabilities" on the Consolidated Balance Sheets and is remeasured to its estimated fair value each reporting period, using Level 3 fair value inputs, until the Lender warrants are exercised or expire.

Changes in the estimated fair value of the Lender warrant liability are recognized in our Consolidated Statement of Operations as a non-cash expense or benefit.

As of July 31, 2024, the Lender warrant liability was remeasured to $ 4,544,000 , resulting in a non-cash expense of $ 1,533,000 recorded in "Other expenses (income)" on the Consolidated Statements of Operations .

Additionally, we identified several embedded derivatives that require bifurcation from the Credit Facility under ASC 815-40 "Derivatives and Hedging - Contracts in Entity's Own Equity." Certain of these embedded features include events of default and contingent fee and interest rate increases and were determined to qualify as embedded derivatives, accounted for as one compound embedded derivative liability.

We established an initial embedded derivative liability of $ 3,116,000 , which was allocated as a discount against the Term Loan proceeds.

The embedded derivative liability is classified in "Other Liabilities" on the Consolidated Balance Sheets and is remeasured to its estimated fair value each reporting period, using Level 3 fair value inputs, until the embedded derivative features have zero probability of occurring or expire.

Changes in the estimated fair value of the embedded derivative liability are recognized in our Consolidated Statement of Operations as a non-cash expense or benefit.

As of July 31, 2024, the embedded derivative liability was remeasured to $ 3,041,000 , resulting in $ 75,000 of income recorded in " Other expenses (income) " on the Consolidated Statements of Operations .

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

In connection with entering the Credit Facility, we paid fees of $ 15,035,000 , including:

(i) $ 9,979,000 of financing fees, of which $ 6,626,000 is attributable to the Term Loan and $ 3,353,000 is attributable to the Revolving Loan;

and (ii) $ 5,056,000 of closing fees, representing approximately 3.0 % of the Term Loan commitment plus certain other reimbursable expenses paid directly to the Term Loan lenders and accounted for as a discount against the Term Loan proceeds.

Additionally, a $ 2,430,000 Term Loan exit fee, which was earned on the closing date and is payable directly to the Term Loan lenders at maturity or earlier, as defined, was accounted for as a discount against the Term Loan proceeds.

The financing fees and discounts attributable to the Term Loan are amortized as interest expense over the life of the debt and are presented as a deduction to the borrowings outstanding under the Term Loan.

The financing fees attributable to the Revolving Loan are capitalized on the Consolidated Balance Sheets and amortized as interest expense over the life of the debt.

As of July 31, 2024, the amount outstanding under our Credit Facility was as follows:

2 unchanged sentences

Less unamortized deferred financing costs related to Term Loan 6,425,000

Less unamortized discount related to Term Loan 13,202,000

Term Loan, net 142,036,000

Revolving Loan Facility 116,900,000

Revolving Loan 32,500,000

Amount outstanding under Credit Facility, net 174,536,000

1 unchanged sentence

Non-current portion of long-term debt $ 170,486,000

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

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

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

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

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

During the fiscal year ended July 31, 2024, we had outstanding balances under our credit facilities ranging from $ 156,241,000 to $ 202,000,000 .

As of July 31, 2024, total net deferred financing costs related to the Credit Facility were $ 9,676,000 and are being amortized over the term of the Credit Facility through the Maturity Date.

The refinancing of our Prior Credit Facility is considered a debt extinguishment and, as such, $ 1,832,000 of net deferred financing costs primarily related to the Prior Credit Facility were expensed in fiscal 2024 and included in interest expense reported on our Consolidated Statement of Operations .

Interest expense related to our Credit Facility and Prior Credit Facility, including amortization of deferred financing costs and discounts, recorded during the fiscal years ended July 31, 2024, 2023 and 2022 was $ 22,058,000 , $ 14,931,000 and $ 4,933,000 , respectively.

Our blended interest rate approximated 12.26 %, 8.89 % and 3.41 % for fiscal 2024, 2023 and 2022, respectively.

Availability under the Revolving Loan is subject to eligibility criteria set forth in the Credit Facility, and equal to a borrowing base in an amount equal to, from time to time:

(a) 85 % of the net book value of billed and invoiced accounts receivables of the Borrowing Base Parties, as defined;

plus (b) 85 % of the net book value of accounts receivables that the Borrowing Base Parties have the right to bill but have not yet billed up to the lesser of (i) 12.5 % of the amount calculated pursuant to the sum of clauses (a) and (b) and (ii) $ 15.0 million of such accounts;

plus (c) 60 % of the net book value of all inventory of the Borrowing Base Parties, less (d) customary reserves.

The Credit Facility provides that (a) Revolving Loans comprised of (i) Base Rate Loans shall bear interest at the Base Rate plus an additional margin ranging from 3.75 % to 4.25 %, depending on the average quarterly revolving loan usage during the applicable determination period and (ii) SOFR Loans shall bear interest at the Term SOFR rate plus an additional margin ranging from 4.75 % to 5.25 %, depending on the average quarterly revolving loan usage during the applicable determination period and (b) Term Loans comprised of (i) Base Rate Loans shall bear interest at the Base Rate plus an additional margin ranging from 7.50 % to 9.00 %, depending on our net leverage ratio during the applicable determination period and (ii) SOFR Loans shall bear interest at the Term SOFR rate plus an additional margin ranging from 8.50 % to 10.00 %, depending on our net leverage ratio during the applicable determination period.

The Term Loans bear both cash interest and interest paid-in-kind ("PIK").

PIK interest is fixed at 2.50 % and is to be capitalized and added to the outstanding principal on each interest payment date.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

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

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

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

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

The Credit Facility also contains customary negative covenants, subject to negotiated exceptions, including but not limited to:

(i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements.

The Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business.

The Term Loan is subject to 2.50 % amortization per annum, payable on the last day of each fiscal quarter.

The first Term Loan repayment of $ 675,000 was paid on July 31, 2024 and quarterly Term Loan repayments thereafter are $ 1,012,500 , with the remaining Term Loan balance due on the Maturity Date.

The Credit Facility contains (a) customary representations, warranties and affirmative covenants;

(b) customary conditions to drawing the Revolver;

(i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, including the disposition of assets by any Loan Party to any Subsidiary that is not a Subsidiary Loan Party, (vi) restricted payments, including stockholder dividends, (vii) distributions, including the repayment of subordinated intercompany and third party indebtedness, and (viii) certain other restrictive agreements;

(d) certain financial covenants, including a maximum Net Leverage Ratio, minimum Fixed Charge Coverage Ratio, Minimum Average Liquidity and Minimum EBITDA;

(e) customary optional and mandatory prepayment events;

and (f) customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business.

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

The Credit Facility provides for, among other things:

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

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

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

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

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

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

Our Minimum Liquidity was $ 28,500,000 compared to the Minimum Liquidity requirement of $ 25,000,000 .

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

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

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

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

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

Under the Credit Facility, for the trailing twelve months ("TTM") ended July 31, 2024, we were required to maintain a maximum Net Leverage Ratio of 3.25 x TTM Adjusted EBITDA, a minimum Fixed Charge Coverage Ratio of 1.20 x TTM Adjusted EBITDA and Minimum Average Liquidity of $ 20,000,000 .

As discussed below, on October 17, 2024, we entered into an amendment to the Credit Facility to waive a Net Leverage Ratio and Fixed Charge Coverage Ratio event of default as of July 31, 2024.

Subsequent Event

On October 17, 2024, we entered into an amendment to the Credit Facility (the “Amended Credit Facility”) in order to (i) waive certain events of default that occurred under the Credit Facility, including in connection with our Net Leverage Ratio and Fixed Charge Coverage Ratio for the 4 quarter period ended July 31, 2024.

and (ii) amend the Credit Facility.

As a result the Amended Credit Facility, there are no ongoing events of default under the Credit Facility.

The Amended Credit Facility also amends the Credit Agreement to, amongst other things;

(i) increase the interest rate margins applicable to the loans (as described in further detail below);

(ii) modify certain financial and collateral reporting requirements;

(iii) provide the lenders a consent right with respect to $ 27,500,000 of revolver borrowings above $ 32,500,000 (i.e., the current amount of revolver borrowings outstanding);

(iv) permit the incurrence of $ 25,000,000 of senior unsecured subordinated debt (the "Subordinated Credit Agreement") (as described in further Note (19) – “Subsequent Event - Subordinated Credit Agreement” );

(v) amend the Maturity Date;

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

Under the Amended Credit Facility, the interest rate margins that are applicable to the Revolving Loan are increased by 1.00 % at each level.

Accordingly, the Amended Credit Facility provides that Revolving Loans comprised of (i) Base Rate Loans shall bear interest at the Base Rate plus an additional margin ranging from 4.75 % to 5.25 %;

and (ii) SOFR Loans shall bear interest at the Term SOFR rate plus an additional margin ranging from 5.75 % to 6.25 %, each depending on the average quarterly revolving loan usage during the applicable determination period.

The Amended Credit Facility provides that the interest rate margins on the Term Loans are 12.00 % per annum for Base Rate Loans and 13.00 % per annum for SOFR Loans until the first business day of the month following January 31, 2025, when the Company has delivered financial statements demonstrating compliance with the financial covenants under the Amended Credit Facility.

If demonstrated, the interest rate margins revert to the margins provided under the Existing Credit Facility with respect to Term Loans, specifically, (i) Base Rate Loans shall bear interest at the Base Rate plus an additional margin ranging from 7.50 % to 9.00 %;

and (ii) SOFR Loans shall bear interest at the Term SOFR rate plus an additional margin ranging from 8.50 % to 10.00 %, each depending on our Net Leverage Ratio during the applicable determination period.

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

COMTECH TELECOMMUNICATIONS CORP.

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Operating leases $ 677,000 3,211,000 15,233,000

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

The following table is a reconciliation of future cash flows relating to operating lease liabilities presented on our Consolidated Balance Sheets as of July 31, 2024:

Fiscal 2025 $ 8,263,000

9 unchanged sentences

Weighted-average discount rate 3.54 %

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

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

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

Lease payments made during the fiscal year ended July 31, 2023 and 2022 were $ 688,000 and $ 675,000 , respectively.

The current lease provides for our use of the premises as they exist through December 2031.

The annual rent of the facility for calendar year 2024 is $ 691,000 and is subject to customary adjustments.

We have a right of first refusal in the event of a sale of the facility.

As of July 31, 2024, we do not have any material rental commitments that have not commenced.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(10) Income Taxes

5 unchanged sentences

$ ( 100,280,000 ) ( 30,847,000 ) ( 37,075,000 )

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

Fiscal Years Ended July 31,

19 unchanged sentences

Revaluation of convertible preferred stock option liability — — — — ( 211,000 ) 0.6

Nondeductible transaction costs — — — — 402,000 ( 0.5 )

Revaluation of warrants ( 897,000 ) 0.9 — — — —

Nondeductible executive compensation — — 1,484,000 ( 4.8 ) 2,801,000 ( 7.6 )

Fines and penalties — — ( 1,000 ) — — —

Audit settlements — — 18,000 — 6,000 —

Change in the beginning of the year valuation allowance for deferred tax assets — — — — ( 805,000 ) 1.1

PST Divestiture 1,384,000 ( 1.4 ) — — — —

Change in valuation allowance 10,177,000 ( 10.0 ) 2,834,000 ( 9.2 ) 2,009,000 ( 5.4 )

1 unchanged sentence

Foreign income taxes ( 389,000 ) 0.4 ( 269,000 ) 0.9 ( 478,000 ) 1.3

Goodwill impairment 9,549,000 ( 9.5 ) — — — —

Other, net 384,000 ( 0.5 ) 442,000 ( 1.6 ) 246,000 ( 0.7 )

16 unchanged sentences

Deferred revenue, non-current 4,664,000 4,463,000

163(j) Interest Expense Limitation 3,423,000 549,000

Other 1,278,000 1,868,000

7 unchanged sentences

Net deferred tax liabilities $ ( 6,271,000 ) ( 8,903,000 )

At July 31, 2023, our net deferred tax liability of $ 8,903,000 includes $ 591,000 of foreign net deferred tax assets that were recorded as other assets, net in our Consolidated Balance Sheets.

At July 31, 2024, our net deferred tax liability of $ 6,271,000 includes $ 78,000 of foreign net deferred tax liabilities that were recorded as other liabilities, net in our Consolidated Balance Sheets.

At July 31, 2023, our net deferred tax liability of $ 8,903,000 includes $ 591,000 of foreign net deferred tax assets that were recorded as other assets, net in our Consolidated Balance Sheets.

We provide for income taxes under the provisions of ASC 740 which requires an asset and liability based approach in accounting for income taxes.

We account for income taxes pursuant to ASC 740, which requires an asset and liability based approach in accounting for income taxes.

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of them will not be realized.

If management determines that it is more-likely-than-not that some or all of its deferred tax assets will not be realized, a valuation allowance will be recorded against such deferred tax assets.

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

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

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

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

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

We have state research and experimentation credit carryforwards of $ 8,936,000 , which expire through 2043.

At July 31, 2024, we have federal research and experimentation credits carryforwards of $ 7,991,000 which begin to expire in 2033.

We have state research and experimentation credit carryforwards of $ 9,234,000 which begin to expire in 2025.

We believe that it is more-likely-than-not that the benefit from certain state research and experimentation credits will not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 8,502,000 on the deferred tax assets relating to these state credits.

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

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

At July 31, 2024, we have a nominal amount of federal net operating loss carryforwards which begin to expire in 2038.

We have state net operating loss carryforwards of $ 3,652,000 which begin to expire in 2025.

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

In recognition of this risk, we have provided a valuation allowance of $ 3,448,000 on the deferred tax assets relating to these state net operating loss carryforwards.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

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

We believe that it is more likely than not that certain net operating loss carryforwards may not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 5,799,000 on the deferred tax assets relating to these net operating loss carryforwards.

We have foreign deferred tax assets relating to research and experimentation credits of $ 377,000 , which will begin to expire in 2038.

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

At July 31, 2024, we have federal and state capital loss carryforwards of $ 14,473,000 which mostly expire in 2026.

We believe it to be more-likely-than-not that the benefit from these federal and state capital loss carryforwards will not be realized.

In recognition of this risk, we have provided a full valuation allowance on the deferred tax assets relating to these federal and state capital loss carryforwards.

With respect to our remaining U.S.

federal and state net deferred tax assets as of July 31, 2024, we believe it to be more-likely-than-not that the benefit from such assets will not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 2,799,000 on these net deferred tax assets.

At July 31, 2024, we have foreign deferred tax assets relating to research and experimentation credits of $ 335,000 which begin to expire in 2039.

We have foreign deferred tax assets relating to net operating loss carryforwards of $ 14,624,000 which begin to expire in 2032.

We believe that it is more-likely-than-not that certain foreign deferred tax assets, which include these net operating loss carryforwards, may not be realized.

In recognition of this risk, we have provided a valuation allowance of $ 15,666,000 on these deferred tax assets.

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

At July 31, 2024 and 2023, total unrecognized tax benefits were $ 8,605,000 and $ 9,166,000 , respectively, including interest of $ 224,000 and $ 210,000 , respectively.

2 unchanged sentences

Of the total unrecognized tax benefits, $ 7,679,000 and $ 8,286,000 at July 31, 2024 and 2023, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized.

Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our consolidated financial statements.

We believe it is reasonably possible that the gross unrecognized tax benefits could decrease by as much as $ 622,000 in the next 12 months due to the expiration of a statute of limitations related to federal, state and foreign tax positions.

We believe it is reasonably possible that the gross unrecognized tax benefits could decrease by as much as $ 512,000 in the next 12 months due to the expiration of statute of limitations related to federal, state and foreign tax positions.

Our policy is to recognize potential interest and penalties relating to uncertain tax positions in income tax expense.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

11) Stock-Based Compensation

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended and/or restated from time to time (the "Plan") and our 2001 Employee Stock Purchase Plan, as amended and/or restated from time to time (the "ESPP"), and recognize related stock-based compensation in our consolidated financial statements.

In December 2023, our stockholders approved the Comtech Telecommunications Corp.

2023 Equity and Incentive Plan (the “2023 Plan”).

The 2023 Plan replaced the Comtech Telecommunications Corp.

Amended and Restated 2000 Stock Incentive Plan (the "Prior Plan" and collectively, the "Plans").

Under the 2023 Plan, the number of shares of common stock initially available for all awards, other than substitute awards granted in connection with a corporate transaction, will be (i) 1,600,000 shares plus (ii) 69,683 shares of common stock that were available for awards under the Prior Plan, as of the effective date of the 2023 Plan and (iii) certain expired or cancelled awards recycled back into the 2023 Plan.

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to the 2023 Plan, as amended and/or restated from time to time and our 2001 Employee Stock Purchase Plan, as amended and/or restated from time to time (the "ESPP"), and recognize related stock-based compensation in our consolidated financial statements.

The 2023 Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants):

1 unchanged sentence

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

As of July 31, 2024, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 13,562,500 .

11 unchanged sentences

Through July 31, 2024, we have cumulatively issued 1,051,110 shares of our common stock to participating employees in connection with our ESPP.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

14 unchanged sentences

At July 31, 2024, unrecognized stock-based compensation of $ 6,183,000 , net of estimated forfeitures of $ 687,000 , is expected to be recognized over a weighted average period of 1.9 years.

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

Total stock-based compensation capitalized and included in ending inventory at both July 31, 2024 and 2023 was $ 198,000 .

There are no liability-classified stock-based awards outstanding as of July 31, 2024 or 2023.

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

5 unchanged sentences

ESPP 79,000 121,000 200,000

Stock based compensation expense 10,107,000 7,767,000 9,983,000

Stock based compensation expense before CEO transition costs 6,096,000 10,107,000 7,767,000

CEO transition costs related to equity-classified stock-based

3 unchanged sentences

Net stock-based compensation expense $ 4,798,000 11,319,000 12,895,000

In connection with the March 12, 2024 termination of our former CEO for cause, a combined total of 581,021 performance shares and RSUs were cancelled.

ESPP stock-based compensation expense primarily relates to the 15 % discount offered to participants in the ESPP.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled.

10 unchanged sentences

Expired/canceled ( 588,735 ) 26.86

Exercised ( 1,220 ) 17.88

Outstanding at July 31, 2022 483,480 24.43

Expired/canceled ( 242,970 ) 24.89

Exercised ( 1,220 ) 17.88

Outstanding at July 31, 2023 240,510 23.96

6 unchanged sentences

There were no stock options exercised during the fiscal years ended July 31, 2024 and 2023.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

1 unchanged sentence

There were no stock options granted during fiscal years ended July 31, 2024, 2023 or 2022.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

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

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

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

As of July 31, 2024, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level, except for two of our former CEO's, whose achievement was based on maximum performance pursuant to their pre-existing change-in-control agreements.

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

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

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

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

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

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

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

In July 2024 and 2023, we granted shares of our common stock to certain employees in lieu of non-equity incentive compensation.

COMTECH TELECOMMUNICATIONS CORP.

1 unchanged sentence

Notes to Consolidated Financial Statements, Continued

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

On July 31, 2024, 479,257 other stock-based awards were granted to certain employees in lieu of fiscal 2024 non-equity incentive compensation.

Also, on July 27, 2024, 243,098 fully vested share units (previously granted in lieu of fiscal 2023 non-equity incentive compensation) were settled by delivery of 158,941 shares of our common stock after reduction of share units retained to satisfy employees’ statutory tax withholding requirements.

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

Cumulatively, through July 31, 2024, 2,147,701 share units and other stock-based awards granted have been settled.

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

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

During fiscal 2024, we reversed $ 107,000 of previously accrued dividend equivalents due to forfeitures and paid out $ 268,000 .

During fiscal 2023 and 2022, we accrued $ 315,000 and $ 389,000 , respectively, of dividend equivalents (net of forfeitures) and paid out $ 366,000 and $ 531,000 , respectively.

2 unchanged sentences

With respect to the actual settlement of stock-based awards for income tax reporting, during the fiscal years ended July 31, 2024, 2023 and 2022, we recorded an income tax expense of $ 723,000 , $ 591,000 and $ 924,000 , respectively.

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

Subsequent Events

4 unchanged sentences

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

Satellite and Space Communications is organized into four technology areas:

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

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

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 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 station 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.

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Terrestrial and Wireless Networks is organized into three service areas:

1 unchanged sentence

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");

Wireless/VolP 911 location and routing services to connect emergency calls to Public Safety Answering Points ("PSAPs");

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

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

3 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

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

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

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

Our Adjusted EBITDA metric for the Satellite and Space Communications and Terrestrial and Wireless Networks segments do not consider allocation of any indirect expenses that are unrelated to the segment's operations, or any of the following:

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

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

1 unchanged sentence

Our Adjusted EBITDA is also used by our management in assessing the Company's operating results.

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

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

Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA or EBITDA (as such terms are defined in our Prior Credit Facility and 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.

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

Fiscal Year Ended July 31, 2024

1 unchanged sentence

Net sales $ 324,069,000 216,334,000 — $ 540,403,000

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

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

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

Operating (loss) income $ ( 54,202,000 ) 21,670,000 ( 47,358,000 ) $ ( 79,890,000 )

Net (loss) income $ ( 55,491,000 ) 20,955,000 ( 65,449,000 ) $ ( 99,985,000 )

Provision for (benefit from) income taxes 666,000 669,000 ( 1,630,000 ) ( 295,000 )

Interest expense 25,000 — 22,128,000 22,153,000

Interest (income) and other 598,000 46,000 34,000 678,000

Write-off of deferred financing costs — — 1,832,000 1,832,000

Change in fair value of warrants and

derivatives — — ( 4,273,000 ) ( 4,273,000 )

Amortization of stock-based compensation — — 6,096,000 6,096,000

1 unchanged sentence

Depreciation 3,867,000 7,927,000 365,000 12,159,000

Impairment of long-lived assets, including

goodwill 64,525,000 — — 64,525,000

Amortization of cost to fulfill assets 960,000 — — 960,000

CEO transition costs — — 2,916,000 2,916,000

Restructuring costs 3,822,000 605,000 8,043,000 12,470,000

Strategic emerging technology costs 4,110,000 — — 4,110,000

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

Loss on business divestiture — — 1,199,000 1,199,000

Adjusted EBITDA $ 29,767,000 44,671,000 ( 28,739,000 ) $ 45,699,000

7 unchanged sentences

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

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

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

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

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

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

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

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

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

Change in fair value of convertible

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

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

3 unchanged sentences

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

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

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

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

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

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

4 unchanged sentences

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

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

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

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

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

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

1 unchanged sentence

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

Change in fair value of convertible

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

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

1 unchanged sentence

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

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

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

1 unchanged sentence

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

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

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

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

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

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

Long-lived assets acquired in connection

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

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

3 unchanged sentences

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

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

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

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

During fiscal 2024, our Unallocated segment incurred $ 8,043,000 of restructuring costs focused on:

(i) streamlining our operations and supply chain, (ii) legal and other expenses primarily related to divestiture activities, and (iii) efforts to refinance our Prior Credit Facility and improve liquidity.

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

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

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

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

During fiscal 2024, 2023 and 2022, our Satellite and Space Communications segment recorded $ 3,822,000 , $ 5,725,000 and $ 5,666,000 , respectively, of restructuring costs primarily incurred to streamline our operations and improve efficiency, including costs related to the relocation of certain of our satellite ground station production facilities to our new 146,000 square foot facility in Chandler, Arizona.

In addition, during fiscal 2024, 2023 and 2022, we incurred $ 4,110,000 , $ 3,833,000 and $ 1,197,000 , respectively, of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations.

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

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

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

There were no similar incremental operating costs recorded in fiscal 2024 or 2023.

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

See Note (8) - " Credit Facility " for further discussion.

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

Intersegment sales in fiscal 2024, 2023 and 2022 between the Satellite and Space Communications segment and the Terrestrial and Wireless Networks segment were nominal.

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(a) Legal Proceedings and Other Matters

Settled Litigation Related to the Convertible Preferred Stock Issuance

In October 2021, Anthony Franchi (the “Plaintiff”) brought a putative class action in the Court of Chancery of the State of Delaware against the Company's current directors, the Company, White Hat Capital Partners LP (“White Hat”) and Magnetar Capital LLC (“Magnetar”), which was fully resolved by the parties and the case dismissed by court order on May 3, 2022.

The ultimate resolution of this matters did not result in a material adverse effect on our consolidated results of operations and financial condition.

Other Matters

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however, we cannot be sure that we will be able to maintain or obtain insurance coverage at acceptable costs or in sufficient amounts or that our insurer will not disclaim coverage as to such claims.

Accordingly, pending or future claims asserted against us by a party that we agree 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.

Accordingly, pending or future claims asserted against us by a party that we are obligated 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.

There are certain other pending and threatened legal actions which arise in the normal course of business, in addition to certain matters related to the termination of our former CEO for cause in March 2024.

Although the ultimate outcome of these matters is difficult to accurately predict, we believe that the outcome of these other matters will not have a material adverse effect on our consolidated financial condition or results of operations.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

There are certain other pending and threatened legal actions which arise in the normal course of business.

Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the outcome of these other pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations.

(b) Employment Change of Control and Indemnification Agreements

As of July 31, 2023, we had an employment agreement with Ken Peterman, our former Chairman of the Board, President and CEO, which was entered into on August 9, 2022.

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

On March 12, 2024, we announced the termination of Mr.

Peterman for cause and upon termination of his employment, Mr.

Peterman was deemed to have resigned from his position as Chairman of the Board of Directors and as a director pursuant to his employment contract.

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

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The Company entered into a separation agreement with Mr.

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

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

Transition costs related to Mr.

Fiscal 2024 transition costs of $ 2,916,000 primarily consisted of legal expenses associated with the termination of Mr.

In fiscal 2023 transition costs related to Mr.

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

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Porcelain in October 2022.

Also, in connection with Mr.

Also in fiscal 2023, in connection with Mr.

Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $ 1,000,000 expense related to a cash sign-on bonus.

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Porcelain and Mr.

Peterman were expensed in our Unallocated segment during fiscal 2023.

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

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

(13) Goodwill

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

Peterman were expensed in our Unallocated segment.

We have also 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.

(14) Long-lived Assets, including Goodwill

The following table represents goodwill by reportable operating segment as of July 31, 2024 and July 31, 2023:

Satellite and Space Communications Terrestrial and Wireless Networks Total

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

Balance as of July 31, 2023 $ 173,602,000 174,090,000 $ 347,692,000

PST Divestiture ( 14,587,000 ) — ( 14,587,000 )

Goodwill impairment ( 48,925,000 ) — ( 48,925,000 )

Balance as of July 31, 2024 $ 110,090,000 174,090,000 $ 284,180,000

During the first quarter of fiscal 2024, we determined that the PST Disposal Group met the criteria to be classified as held for sale.

Because the PST Disposal Group represented the disposal of a portion of the Satellite and Space Communications reporting unit, we assigned $ 14,587,000 of goodwill to the PST Disposal Group on a relative fair value basis.

For purposes of allocating goodwill to the PST Disposal Group, we determined the fair value of the PST Disposal Group (based on consideration received from the sale transaction) and the fair value of the retained businesses of the Satellite and Space Communications reporting unit (based on a combination of the income and market approach).

In conjunction with the relative fair value allocation, we tested goodwill assigned to the PST Disposal Group and retained businesses of the Satellite and Space Communications reporting unit for impairment and concluded that no impairment existed at the time the held for sale criteria were met.

As discussed further in Note (3) - " Business Divestiture ," we completed the PST Divestiture in the second quarter of fiscal 2024 and reduced goodwill by $ 14,587,000 as part of determining the loss on business divestiture.

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

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

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

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

We also considered overall business conditions.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

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

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

We also considered overall business conditions.

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

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Finally, we compared our estimates of fair values to our total public market capitalization and assessed implied control premiums based on our common stock price of $ 3.17 as of the date of testing.

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

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

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

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

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

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2024 (the start of our fiscal 2025).

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

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

Ultimately, based on our quantitative evaluation, we determined that the carrying value of our Satellite and Space Communications reporting unit exceeded its fair value and recognized a goodwill impairment loss of $ 48,925,000 in fiscal 2024 in our Consolidated Statements of Operations.

We also determined that our Terrestrial and Wireless Networks reporting unit had an estimated fair value in excess of its carrying value of at least 24.7 % and concluded that our goodwill for this reporting unit was not impaired.

In connection with our decision in July 2024 to exit our subsidiary operations in Basingstoke, United Kingdom, such operations became a separate asset group (the “U.K.

Asset Group”) and we assessed the recoverability of the carrying value of the U.K.

Asset Group under the accounting standards for assets held and used as of July 31, 2024.

The undiscounted future cash flows to complete the exit of our Basingstoke operations indicated that the carrying amount of the asset group is not recoverable.

The fair value of the U.K.

Asset Group was estimated using an income approach and was lower than the U.K Asset Group’s carrying amount.

As a result, we recorded a long-lived asset impairment charge of $ 15,600,000 within the Satellite and Space Communications segment in our fiscal 2024 Consolidated Statements of Operations.

We allocated $ 9,925,000 of this impairment to the carrying value of Intangibles with Finite Lives, net, $ 2,651,000 to Property, Plant & Equipment, net, $ 1,873,000 to Other Assets, net and $ 1,151,000 to Operating Lease Right-of-Use Assets, net.

In addition, as disclosed in Note (1) Summary of Significant Accounting and Reporting Policies, Liquidity and Going Concern , 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 a Fixed Charge Coverage Ratio covenants as of July 31, 2024.

Although we have cured our defaults under the Credit Facility, a sustained significant decline in our actual operating performance, as compared to our forecast, and/or a continued sustained decline in our common stock price, may require us to perform another interim quantitative impairment test, which may result in an impairment of the goodwill assigned to both of our reporting units by an amount that could be material if we conclude our forecasted operating results will be adversely impacted for the foreseeable future.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2025 (the start of our fiscal 2026).

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

(15) Intangible Assets

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2029 16,353,000

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

We review net intangible assets with finite lives for impairment when an event occurs indicating the potential for impairment.

Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of July 31, 2023.

Based on our last assessment, we performed an impairment assessment of our Satellite and Space Communications segment’s long-lived assets in response to triggering events indicating potential impairment, namely the overall decline in financial performance of the segment and the Company’s decision to either complete a sale or wind-down our steerable antenna operations in the United Kingdom by the end of the first quarter of fiscal 2025.

As such, we recognized an impairment loss of $ 9,925,000 , related to net intangible assets with definite lives, which is included within intangible asset accumulated amortization in the table above.

See Note (1)(h) - " Summary of Significant Accounting and Reporting Policies, Long-Lived Assets " for more information We believe that the carrying values of our remaining net intangible assets were recoverable as of July 31, 2024.

However, if business conditions deteriorate, we may be required to record impairment losses, and/or increase the amortization of intangibles in the future.

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(16) Convertible Preferred Stock

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 $ 125,000,000 , 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 $ 100,000,000 .

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

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

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 our Series A Convertible Preferred Stock, par value $ 0.10 per share (the “Series A Convertible Preferred Stock”), for an aggregate purchase price of up to $ 125,000,000 , or $ 1,000 per share.

On October 19, 2021, pursuant to the terms of the Subscription Agreement, the Investors purchased an aggregate of 100,000 shares of Series A Convertible Preferred Stock for an aggregate purchase price of $ 100,000,000 .

White Hat Capital Partners LP is affiliated with Mark Quinlan, who serves as Chairman of our Board of Directors.

On December 13, 2023, we and the Investors agreed to change certain terms of the Series A Convertible Preferred Stock, effected through an Exchange Agreement (the “Exchange Agreement”), pursuant to which the Investors exchanged (the “Series A Exchange”) all 100,000 shares of Series A Convertible Preferred Stock outstanding for 100,000 shares of our newly issued Series A-1 Convertible Preferred Stock, par value $ 0.10 per share (the “Series A-1 Convertible Preferred Stock”), with an initial liquidation preference of $ 1,134.20 per share.

As a result of the Series A Exchange, no shares of Series A Convertible Preferred Stock remain outstanding.

On January 22, 2024, we entered into a Subscription and Exchange Agreement (the “Subscription and Exchange Agreement”) with the Investors, relating to:

(i) the issuance and sale of 45,000 shares of Series B Convertible Preferred Stock, par value $ 0.10 per share (the “Series B Convertible Preferred Stock”), for an aggregate purchase price of $ 45,000,000 , or $ 1,000 per share (the “Primary Issuance”), (ii) the exchange of 100,000 shares of our Series A-1 Convertible Preferred Stock for 115,721.22 shares of Series B Convertible Preferred Stock (the “Series B Exchange”) and (iii) the issuance to the Investors of 5,400 shares of Series B Convertible Preferred Stock in lieu of cash for certain expense reimbursements (the “Additional Issuance” and, together with the Primary Issuance and the Series B Exchange, the “Series B Issuance”).

As a result of the Series B Exchange, no shares of Series A-1 Convertible Preferred Stock remain outstanding.

We received $ 43,200,000 of cash proceeds from the Primary Issuance, net of $ 1,800,000 for certain expense reimbursements.

On June 17, 2024, in connection with entering into the Credit Facility discussed in Note (8) - "Credit Facility," we and the Investors agreed to change certain terms of the Series B Convertible Preferred Stock.

The changes altered the preferred holders’ existing consent rights and existing put rights alongside payments upon a change of control following specified asset sales, in each case consistent with the Credit Facility.

To effect these changes, we and the Investors entered into a Subscription and Exchange Agreement (the “Series B-1 Exchange”), pursuant to which the Investors:

(i) exchanged, in a transaction exempt from registration under the Securities Act of 1933, all of the 166,121.22 shares of Series B Convertible Preferred Stock outstanding for 166,121.22 shares of our newly issued Series B-1 Convertible Preferred Stock, par value $ 0.10 per share, with an initial liquidation preference of $ 1,036.58 per share, and (ii) received 5,705.83 additional shares of Series B-1 Convertible Preferred Stock.

Also, on June 17, 2024, we and the Investors entered into a Voting Agreement and Registration Rights Agreement and filed a Series B-1 Certificate of Designations with the Secretary of State of Delaware, complete copies of which are documented and filed with the SEC.

Except for the changes described above, the powers, preferences and rights of the Series B-1 Convertible Preferred Stock are substantially the same as those of the Series B Convertible Preferred Stock, including, without limitation, that the shares of Series B-1 Convertible Preferred Stock are convertible into shares of common stock at a conversion price of $ 7.99 per share (the same as the current conversion price of the Series B Convertible

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

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

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

The Convertible Preferred Stock initially had a liquidation preference of $ 1,000 per share with each share entitled to a cumulative dividend (the “Dividend”) at the rate of 6.5 % per annum, compounding quarterly, paid-in-kind or paid in cash, at our election.

For any quarter in which we elect not to pay the Dividend in cash with respect to a share of Convertible Preferred Stock, such Dividend becomes part of the liquidation preference of such share.

In addition, no dividend or other distribution on our common stock in excess of our $ 0.10 per share per quarter will be declared or paid on the common stock unless, at the time of such declaration and payment, an equivalent dividend or distribution is declared and paid on the Convertible Preferred Stock (the “Participating Dividend”), provided that in the case of any such dividend in the form of cash, in lieu of a cash payment, such Participating Dividend will become part of the liquidation preference of the shares of the Convertible Preferred Stock.

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

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

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

Holders of the Convertible Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis, as well as are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Convertible Preferred Stock, authorizations or issuances of securities of the Company, the payment of dividends other than dividends on common stock in the ordinary course consistent with past practice on a quarterly basis in an amount not to exceed our current dividend rate of $ 0.10 per share per quarter, related party transactions, repurchases or redemptions of securities of the Company (other than the repurchase of up to $ 25,000,000 of shares of common stock), dispositions of businesses or assets, the incurrence of certain indebtedness and certain amendments or extensions of our existing Credit Facility.

Holders will have the right to require the Company to repurchase such holder's Convertible Preferred Stock on a date occurring either (a) on or after October 19, 2026 (the “Optional Repurchase Trigger Date”) at a price equal to the liquidation preference or (b) in connection with a conversion of Convertible Preferred Stock, pursuant to which the number of shares of common stock issuable upon such conversion would exceed 19.99 % of the issued and outstanding shares of common stock as of October 18, 2021 (such excess shares, "Excess Conversion Shares"), at any time after the date that is 91 days after the maturity date of the Company's existing Credit Facility, at a price per share equal to the number of Excess Conversion Shares multiplied by the Last Reported Sales Price (as defined) of common stock on the applicable conversion date.

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

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

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

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

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

Preferred Stock, and subject to the same adjustments).

We did not receive any cash proceeds from the Series B-1 Exchange.

The Series B-1 Convertible Preferred Stock ranks senior to the shares of our common stock, with respect to the payment of dividends and the distribution of assets upon a liquidation, dissolution or winding up of the Company.

The Series B-1 Convertible Preferred Stock has an initial liquidation preference of $ 1,036.58 per share with each share entitled to a cumulative dividend (the “Dividend”) at the rate of 9.00 % per annum, compounding quarterly, paid-in-kind, or 7.75 % per annum, compounding quarterly, paid in cash, at our election, or 6.50 % per annum, in respect of any shares of Series B-1 Convertible Preferred Stock that remain outstanding following the redemption of at least fifty percent ( 50 %) of the Series B-1 Preferred Stock pursuant to the exercise of an asset sale put right and/or an asset sale call right as described below.

For any quarter in which we elect not to pay the Dividend in cash, such Dividend becomes part of the liquidation preference of the Series B-1 Convertible Preferred Stock.

In addition, no dividend or other distribution on our common stock will be declared or paid on our common stock unless, at the time of such declaration and payment, an equivalent dividend or distribution is declared and paid on the Series B-1 Convertible Preferred Stock (the “Participating Dividend”), provided that in the case of any such dividend in the form of cash, in lieu of a cash payment, such Participating Dividend will become part of the liquidation preference of the Series B-1 Convertible Preferred Stock.

Such Participating Dividend results in the Series B-1 Convertible Preferred Stock meeting the definition of a "participating security" for purposes of our earnings per share calculations.

The shares of Series B-1 Convertible Preferred Stock are convertible into shares of common stock at the option of the holder thereof at any time.

At any time after July 22, 2027, we have the right to mandate conversion of the Series B-1 Convertible Preferred Stock, subject to certain restrictions based on the price of our common stock in the preceding thirty ( 30 ) trading days.

The conversion price for the Series B-1 Convertible Preferred Stock is $ 7.99 , subject to certain adjustments set forth in the certificate of designations governing the Series B-1 Convertible Preferred Stock (the "Series B-1 Certificate of Designations").

Holders of the Series B-1 Convertible Preferred Stock are entitled to vote with the holders of our common stock on an as-converted basis, and are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Series B-1 Convertible Preferred Stock, authorizations or issuances of securities of the Company (other than the issuance of up $ 50,000,000 of shares of common stock), the payment of dividends, related party transactions, repurchases or redemptions of securities of the Company, dispositions of businesses or assets involving consideration having a fair value in excess of $ 75,000,000 , the incurrence of certain indebtedness and certain amendments or extensions of our Credit Facility on terms and conditions that, taken as a whole, (A) are materially different from the existing Credit Facility or (B) adversely affect our ability to perform our obligations in connection with an optional repurchase of the Series B-1 Convertible Preferred Stock, in each case, subject to the exceptions and qualifications set forth in the Series B-1 Certificate of Designations.

Holders have the right to require us to repurchase their Series B-1 Convertible Preferred Stock (at 1.0 x the liquidation preference, plus accrued and unpaid dividends) on a date occurring either:

(a) on or after October 31, 2028 or (b) upon the consummation of an asset sale meeting certain criteria.

We have the right to repurchase all, or less than all, of the Series B-1 Convertible Preferred Stock upon the consummation of an asset sale meeting the same criteria, other than an asset sale that would result in a change of control.

In addition, each holder will have the right to cause us to repurchase its Series B-1 Convertible Preferred Stock in connection with a Change of Ccontrol (as defined in the Series B-1 Certificate of Designations) at 1.5 x (or 1.0x in the case of Series B-1 Convertible Preferred Stock issued in the Additional Issuance) the liquidation preference, plus accrued and unpaid dividends.

Any repurchase described above would be subject to the terms set forth in the Series B-1 Certificate of Designations.

Upon a repurchase of the Series B-1 Convertible Preferred Stock occurring as a result of an asset sale described above, we will issue each respective holder a warrant (a “Warrant”).

A Warrant will represent the right to acquire our common stock, as further described in the Subscription and Exchange Agreement, for a term of five years and six months from the issuance of such Warrant, at an initial exercise price equal to the conversion price on the date of issuance of such Warrant, subject to certain adjustments.

We determined that our obligation to issue a Warrant met the definition of a freestanding financial instrument that should be accounted for as a liability.

We established an initial Warrant liability of $ 6,440,000 , which was included in the consideration given to the Investors for purposes of determining the loss on extinguishment of the Series A-1 Convertible Preferred Stock as of January 31, 2024.

COMTECH TELECOMMUNICATIONS CORP.

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Notes to Consolidated Financial Statements, Continued

Warrant liability is classified in " Other Liabilities " on the Consolidated Balance Sheets and is remeasured to its estimated fair value each reporting period, using Level 3 fair value inputs, until the Warrant is exercised or expires.

Changes in the estimated fair value of the Warrant will be recognized in our Consolidated Statement of Operations as a non-cash expense or benefit.

As of July 31, 2024, the Warrant liability was remeasured, resulting in a $ 5,730,000 reduction to its estimated fair value.

We accounted for the cancellation of our Series A-1 Convertible Preferred Stock and Series B Convertible Preferred Stock as extinguishments based on a qualitative assessment of the terms of the preferred shares exchanged.

We recognized a $ 19,555,000 loss on extinguishment, representing the aggregate value of the Warrant and additional issuances related to certain expense reimbursements.

As the Series A-1 Convertible Preferred Stock and Series B Convertible Preferred Stock were each classified as temporary equity, the loss on extinguishment was accounted for as a dividend to the holders and charged against retained earnings, and included in net loss attributable to common shareholders.

In accordance with ASC 480, " Distinguishing Liabilities from Equity ," specifically ASC 480-10-S99-3A(2), SEC Staff Announcement:

Classification and Measurement of Redeemable Securities , we have classified the Convertible Preferred Stock outside of permanent equity as temporary equity since the redemption of such shares is not solely within our control and we could be required by the holder to redeem the shares for cash or other assets, at their option.

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

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

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

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

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

Classification and Measurement of Redeemable Securities , we classified the Series B-1 Convertible Preferred Stock outside of permanent equity as temporary equity since the redemption of such shares is not solely within our control and we could be required by the holder to redeem the shares for cash or other assets, at their option.

Upon the Series B-1 Exchange, the initial redemption value (and estimated fair value) of the Series B-1 Convertible Preferred Stock was $ 178,112,000 .

We have elected to adjust the carrying value of the Series B-1 Convertible Preferred Stock to its current redemption value of $ 180,076,000 , which includes $ 623,000 of cumulative dividends paid-in-kind and $ 1,341,000 of accumulated and unpaid dividends.

During fiscal 2024, the adjustments charged against retained earnings to increase the carrying value of outstanding convertible preferred stock to their respective redemption values totaled $ 15,900,000 , of which $ 12,390,000 related to the Series B and B-1 Convertible Preferred Stock and $ 3,510,000 related to the Series A and A-1 Convertible Preferred Stock (while outstanding).

Subsequent Event

On October 17, 2024, we and the Investors agreed to change certain terms of the Series B-1 Convertible Preferred Stock.

The changes (i) altered the date on which preferred holders can opt to have us repurchase their Series B-2 Convertible Preferred Shares (as defined below) in certain circumstances, (ii) provided for increases to the dividend rate in certain circumstances and provided for an option for the preferred holders to elect to receive dividends in cash (to the extent permitted by law), and (iii) clarified the preferred holders’ existing consent rights, among other things.

To effect the changes described above, we and the Investors entered into a Subscription and Exchange Agreement, pursuant to which the Investors (i) exchanged (the “Series B-2 Exchange”) all of the 171,827.05 shares of Series B-1 Convertible Preferred Stock outstanding for 171,827.05 shares of our newly issued Series B-2 Convertible Preferred Stock, par value $ 0.10 per share, with an initial liquidation preference of $ 1,067.87 per share (the per share liquidation preference of the Series B-1 Convertible Preferred Stock as of the date of issuance), and (ii) received 3,436.53 additional shares of Series B-2 Convertible Preferred Stock (collectively, the “Series B-2 Convertible Preferred Stock”).

We did not receive any cash proceeds from the exchange and issuance of Series B-2 Convertible Preferred Stock.

As a result of the Series B-2 Exchange, no shares of Series B-1 Convertible Preferred Stock remain outstanding as of October 17, 2024.

(17) Stockholders’ Equity

3 unchanged sentences

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Common Stock Repurchase Program

2 unchanged sentences

There were no repurchases made during the fiscal years ended July 31, 2024 or 2023.

Common Stock Dividends

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

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

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

(17) Cost Reduction

(18) Cost Reduction Activities

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

2 unchanged sentences

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

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

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(18) Subsequent Events

On October 11, 2023, we entered into a stock sale agreement relating to our solid-state RF microwave high power amplifiers and control components product line, which is included in our Satellite and Space Communications segment.

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

The preliminary sales price for this divestiture is $ 35,000,000 in cash, plus contingent consideration up to $ 5,000,000 based on the achievement of a revenue target or the receipt of an anticipated contract award as specified in the stock sale agreement.

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

In fiscal 2024, we continued to transform and integrate our businesses, and in July 2024 made a decision to exit our subsidiary operations in Basingstoke U.K.

and recorded total severance costs of $ 2,616,000 in selling, general and administrative expenses in our Consolidated Statements of Operations, of which a substantial portion was related to our Satellite and Space Communications segment.

After net payments of $ 3,139,000 during fiscal 2024, our severance liability as of July 31, 2024 was $ 1,029,000 .

(19) Subsequent Event

Subordinated Credit Agreement

On October 17, 2024 (the "closing date"), we entered into a subordinated credit agreement with the existing holders of our convertible preferred stock and U.S.

Bank Trust Company, National Association, as agent (the “Subordinated Credit Agreement”) which provides a subordinated unsecured term loan facility in the aggregate principal amount of $ 25,000,000 (the “Subordinated Credit Facility”).

The proceeds of the Subordinated Credit Facility (i) cured our default on certain financial covenants under the Amended Credit Agreement with respect to the fourth quarter of fiscal 2024, (ii) provide us with additional liquidity and (iii) will fund our general working capital needs, including support of our transformation initiatives.

The Subordinated Credit Facility is subject to a Make-Whole Amount with respect to certain repayments or prepayments.

The Make-Whole Amount is an amount equal to (i) from the closing date through (but not including) the date that is nine months thereafter, $ 25,000,000 multiplied by 33.0 %, (ii) from the date that is nine months after the closing date through (but not including) the date that is the second anniversary of the closing date, $ 25,000,000 multiplied by 50.0 %, (iii) from the second anniversary of the closing date and thereafter, $ 25,000,000 multiplied by 75.0 % plus, in the case of clause (iii), interest accrued on $ 25,000,000 at the Make-Whole Interest Rate (as defined below) starting on the second anniversary of the closing date 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 Facility.

The obligations under the Subordinated Credit Facility are guaranteed by the same guarantors under the Amended Credit Facility and matures 90 days after the Maturity Date under the Amended Credit Facility as discussed in Note (8) – “Credit Facility.” The Subordinated Credit Facility contains customary representations, warranties and affirmative covenants, in each case substantially consistent with the representations and warranties and affirmative covenants under the Amended Credit Agreement.

The Subordinated Credit Facility contains customary negative covenants, subject to negotiated exceptions, including but not limited to:

The outstanding Subordinated Credit Facility will not be considered debt for purposes of our financial covenant testing under the Credit Facility.

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

COMTECH TELECOMMUNICATIONS CORP.

5 unchanged sentences

period Charged to

expenses Charged to

other accounts

- describe Transfers

expenses Transfers

- describe Balance at

3 unchanged sentences

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

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

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

Inventory reserves:

Year ended July 31,

2023 $ 23,121,000 4,871,000 (D) — ( 3,333,000 ) (E) $ 24,659,000

2022 20,229,000 4,447,000 (D) — ( 1,555,000 ) (E) 23,121,000

2021 19,076,000 4,364,000 (D) — ( 3,211,000 ) (E) 20,229,000

2024 $ 24,659,000 2,801,000 (C) ( 9,189,000 ) (D) $ 18,271,000

2023 23,121,000 4,871,000 (C) ( 3,333,000 ) (D) 24,659,000

2022 20,229,000 4,447,000 (C) ( 1,555,000 ) (D) 23,121,000

Valuation allowance for deferred tax assets:

Year ended July 31,

2023 $ 31,227,000 4,617,000 (F) — ( 1,366,000 ) (F) $ 34,478,000

2022 28,384,000 2,947,000 (F) — ( 104,000 ) (F) 31,227,000

2021 11,471,000 17,750,000 (F) — ( 837,000 ) (F) 28,384,000

2024 $ 34,478,000 12,343,000 (E) ( 1,933,000 ) (E) $ 44,888,000

2023 31,227,000 4,617,000 (E) ( 1,366,000 ) (E) 34,478,000

2022 28,384,000 2,947,000 (E) ( 104,000 ) (E) 31,227,000

(A) Provision for doubtful accounts.

(B) Write-off of uncollectible receivables.

2016-13, on a modified-retrospective basis, which requires companies to utilize an impairment model (current expected credit loss ("CECL”)) for most financial assets measured at amortized cost and certain other financial instruments, which include, but are not limited to trade receivables and contract assets.

(D) Provision for excess and obsolete inventory.

(E) Write-off of inventory.

(F) Change in valuation allowance.

(B) Write-off of uncollectible receivables and allowance for doubtful account receivables relating to the PST Divestiture.

(D) Write-off of inventory and PST inventory reserve relating to the PST Divestiture.

(E) Change in valuation allowance.

See Note (10) - "Income Taxes" for further discussion.

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

What changed 10-K

Item 9A. Controls and Procedures