COMTECH TELECOMMUNICATIONS CORP /DE/ 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures 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. ("U.S. GAAP"). 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 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. 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 U.S. GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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. 80 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 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. ITEM 9B. OTHER INFORMATION Securities Trading Plans of Directors and Officers During the three months ended July 31, 2024, none of our directors or officers adopted or terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408(a) of Regulation S-K). ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 81 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Certain information concerning directors and officers is incorporated by reference to our Proxy Statement for the Annual Meeting of Stockholders (the "Proxy Statement") which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information regarding securities authorized for issuance under equity compensation plans and certain information regarding security ownership of certain beneficial owners and management is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information regarding certain relationships and related transactions is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information regarding principal accountant fees and services is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year. 82 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) (1) The Registrant’s financial statements together with a separate index are annexed hereto. (2) The Financial Statement Schedule listed in a separate index is annexed hereto. (3) Exhibits required by Item 601 of Regulation S-K are listed below. Exhibit Number Description of Exhibit Incorporated By Reference to Exhibit 3(a)(i) Restated Certificate of Incorporation of the Registrant, dated August 18, 2006 Exhibit 3(a)(i) to the Registrant’s 2006 Form 10-K 3(a)(ii) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Comtech Telecommunications Corp., dated December 28, 2021 Exhibit 3.1 to the Registrant's Form 8-K, filed December 30, 2021 3(a)(iii) Third Amended and Restated By-Laws of the Registrant, dated September 26, 2017 Exhibit 3(a)(ii) to the Registrant’s 2017 Form 10-K 3(a)(iv) 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 3(a)(v) Certificate of Elimination of Series B-1 Convertible Preferred Stock, dated October 23, 2024 3(a)(vi) 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 4(a)(i) Form of Warrant Agreement Exhibit 4.1 to the Registrant’s Form 8-K, filed October 18, 2024 4(a)(ii) Description of Comtech Telecommunications Corp.'s Securities Registered Pursuant to Section 12 of the Exchange Act 10(a)* Third Amended and Restated 2001 Employee Stock Purchase Plan Appendix B to the Registrant’s Proxy Statement, filed November 18, 2022 10(b)* 2000 Stock Incentive Plan, Amended and Restated, dated December 15, 2022 Appendix A to the Registrant’s Proxy Statement, filed November 18, 2022 10(c)(1)* Form of Stock Option Agreement pursuant to the 2000 Stock Incentive Plan Exhibit 10(f)(7) to the Registrant’s 2005 Form 10-K 10(c)(2)* 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 2020 Form 10-K 10(d)(1)* 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 10(e)(1)* 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 10(f)( 1 )* 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 10(f)( 2 )* Form of Restricted Stock Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan - 2022 Exhibit 10(g)(4) to the Registrant's 2022 Form 10-K 10(g)(1)* Form of Restricted Stock Unit Agreement for Employees pursuant to the 2000 Stock Incentive Plan - 2017 Exhibit 10(h)(1) to the Registrant’s 2017 Form 10-K 10(g)(2)* Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Non-employee Directors pursuant to the 2000 Stock Incentive Plan Exhibit 10(aa) to the Registrant’s 2016 Form 10-K 10(g)(3)* 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 83 Exhibit Number 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 Exhibit 10(h)(7) to the Registrant's 2022 Form 10-K 10(g)( 5 )* Form of Restricted Stock Unit Agreement (eligible for dividend equivalents) for Employees pursuant to the 2000 Stock Incentive Plan - 2022 Exhibit 10(h)(8) to the Registrant's 2022 Form 10-K 10(h)( 1 )* 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 10(i)(1)* Form of Share Unit Agreement (eligible for dividend equivalents) for Employees pursuant to the 2000 Stock Incentive Plan Exhibit 10.2 to the Registrant's Form 10-Q, filed December 9, 2013 10(i)(2)* Form of Share Unit Agreement (eligible for dividend equivalents) for Employees pursuant to the 2000 Stock Incentive Plan - 2018 Exhibit 10(j)(2) to the Registrant's 2018 Form 10-K 10(j)* Form of Indemnification Agreement between the Registrant and the Named Executive Officers and Certain Other Executive Officers Exhibit 10.1 to Registrant’s Form 8-K, filed on March 8, 2007 10(k)(1)* Form of Change-in-Control Agreement (Tier 1) Exhibit 10(l)(1) to the Registrant's 2022 Form 10-K 10(k)(2)* 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 Exhibit 10(l)(2) to the Registrant's 2022 Form 10-K 10(k)(3)* Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers (California Employees) Exhibit 10.3 to the Registrant’s Form 8-K, filed June 7, 2017 10(k)(4)* Form of Change-in-Control Agreement (Tier 2) between the Registrant and Certain Named Executive Officers (other than the CEO) and Certain Other Executive Officers (Divisional/Subsidiary Presidents) Exhibit 10.4 to the Registrant’s Form 8-K, filed June 7, 2017 10(k)(5)* 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 Divisional/Subsidiary Presidents) Exhibit 10.5 to the Registrant’s Form 8-K, filed June 7, 2017 10(k)(6)* Form of Change-in-Control Agreement (Tier 3) between the Registrant and Certain Non-Executive Officers Exhibit 10.6 to the Registrant’s Form 8-K, filed June 7, 2017 10(l)* Retirement and Transition Agreement, dated September 30 2019 Exhibit 10.1 to the Registrant's Form 10-Q, filed December 4, 2019 10(m)(1) 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 10(m)(2) 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 10(m)(3) 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 84 Exhibit Number Description of Exhibit Incorporated By Reference to Exhibit 10(n)(1) 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 10(n)(2) 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 10(n)(3) Form of Voti ng Agreement Exhibit 10.4 to the Registrant’s Form 8-K, filed October 18, 2024 10(o) 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 Exhibit 10.1 to the Registrant's Form 8-K, filed December 21, 2021 10(p)(1)* Employment Agreement, dated December 31, 2021, between Comtech and Michael Porcelain Exhibit 10.1 to the Registrant's Form 8-K, filed January 5, 2022 10(p)(2)* Restricted Stock Unit Agreement with Michael Porcelain Pursuant to the Comtech Telecommunications Corp. 2000 Stock Incentive Plan Exhibit 10.2 to the Registrant's Form 10-Q, filed March 10, 2022 10(p)(3)* Separation Agreement and General Release with Michael Porcelain, dated August 9, 2022 Exhibit 10.1 to the Registrant's Form 8-K, filed August 10, 2022 10(q)(1)* CEO Employment Agreement with Ken Peterman, dated September 12, 2022 Exhibit 10.1 to the Registrant’s Form 8-K, filed September 13, 2022 10(q)(2)* Restricted Stock Unit Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp. 2000 Stock Incentive Plan Exhibit 10.2 to the Registrant’s Form 8-K, filed September 13, 2022 10(q)(3)* Long-Term Performance Share Award Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp. 2000 Stock Incentive Plan Exhibit 10.3 to the Registrant’s Form 8-K, filed September 13, 2022 10(q)(4)* Long-Term Performance Share Award (VWAP) Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp. 2000 Stock Incentive Plan Exhibit 10.4 to the Registrant’s Form 8-K, filed September 13, 2022 10(r) Form of Executive Employment Agreement Exhibit 10.1 to the Registrant’s Form 8-K, filed January 9, 2024 10(s)(1) Employment Agreement between Comtech Telecommunications Corp. and John Ratigan Exhibit 10.1 to the Registrant’s Form 8-K, filed April 1, 2024 10(s)(2) 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 10(t) Form of Reten tion Bonus Agreement Exhibit 10.1 to the Registrant’s Form 8-K, filed May 2, 2024 10(u) Comtech Telecommunications Corp. 2023 Equity and Incentive P lan Exhibit 10.4 to the Registrant’s Form 10-Q, filed June 18, 2024 10(v)(1) 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 10(v)(2) 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 85 Exhibit Number Description of Exhibit Incorporated By Reference to Exhibit 10(v)(3) Form of Other Stock Award Agreement pursuant to the 2023 Equity and Incentive Plan 10(v)(4) Form of Restricted Stock Unit Agreement to Non-employee Directors pursuant to the Comtech Telecommunications Corp. 2023 Equity and Incentive Plan 10(v)(5) Form of Restricted Stock Agreement to Non-employee Directors pursuant to the Comtech Telecommunications Corp. 2023 Equity and Incentive Plan 19 Insider Trading Policies and Procedur es of the C o mpany 21 Subsidiaries of the Registrant 23.1 Consent of Independent Registered Public Accounting Firm 31.1 Certification of CEO and Chairman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of CEO and Chairman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 97 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: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statement of Cash Flows, and (v) Notes to Consolidated Financial Statements 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) * Management contract or compensatory plan or arrangement. ITEM 16. FORM 10-K SUMMARY None. 86 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMTECH TELECOMMUNICATIONS CORP. October 30, 2024 By: /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 30, 2024 /s/John Ratigan Director, President and Chief Executive Officer (Date) John Ratigan (Principal Executive Officer) October 30, 2024 /s/Michael A. Bondi Chief Financial Officer (Date) Michael A. Bondi (Principal Financial and Accounting Officer) October 30, 2024 /s/Wendi Carpenter Director (Date) Wendi Carpenter October 30, 2024 /s/Judy Chambers Director (Date) Judy Chambers October 30, 2024 /s/Bruce T. Crawford Director (Date) Bruce T. Crawford October 30, 2024 /s/Mark Quinlan Chairman of the Board (Date) Mark Quinlan October 30, 2024 /s/Dr. Yacov A. Shamash Director (Date) Dr. Yacov A. Shamash October 30, 2024 /s/Lawrence J. Waldman Director (Date) Lawrence J. Waldman 87 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Index to Consolidated Financial Statements and Schedule Page Reports of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) F- 2 Consolidated Financial Statements: Balance Sheets as of July 31, 2024 and 2023 F- 7 Statements of Operations for each of the years in the three-year period ended July 31, 2024 F- 8 Statements of Convertible Preferred Stock and Stockholders' Equity for each of the years in the three-year period ended July 31, 2024 F- 9 Statements of Cash Flows for each of the years in the three-year period ended July 31, 2024 F- 10 Notes to Consolidated Financial Statements F- 12 Additional Financial Information Pursuant to the Requirements of Form 10-K: Schedule II – Valuation and Qualifying Accounts and Reserves S- 1 Schedules not listed above have been omitted because they are either not applicable or the required information has been provided elsewhere in the consolidated financial statements or notes thereto. F - 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Comtech Telecommunications Corp. Chandler, Arizona Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Comtech Telecommunications Corp. and subsidiaries (the "Company") as of July 31, 2024 and 2023, the related consolidated statements of operations, convertible preferred stock and stockholders’ equity, and cash flows, for each of the three years in the period ended July 31, 2024, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). 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, 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 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F - 2 Net Sales – Over Time Accounting Using the Cost-to-Cost Measure for Specific Identified Material Contracts — Refer to Note 1 to the financial statements Critical Audit Matter Description The Company’s determination of revenue recognition for specific identified material contracts accounted for over time involves estimating the total costs needed to complete the specific identified contracts and updating those estimates throughout the life of those specific identified contracts. This requires management to make significant estimates related to forecasts of future costs for the identified specific contracts. Changes in these estimates for the identified specific contracts could have a significant impact on the Company’s results of operations. Given the significant judgment and estimates used in management’s projections, auditing the Company’s estimates at completion and estimates to completion involved especially subjective judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s determination of revenue recognition for specific identified material contracts accounted for over time included the following, among others: • We tested the effectiveness of the controls over the development of the initial contract cost to complete estimate and monitoring of estimates at completion and estimates to completion. • For each specific identified material contract selected, we performed the following: ◦ Evaluated whether the contract was properly included in management’s calculation of overtime revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation. ◦ Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers. ◦ Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated. ◦ Evaluated the estimates of total cost and profit for the performance obligation by: ▪ Performing a retrospective review by comparing the estimated margins at contract inception to the actual margins as of year-end in order to assess management’s ability to accurately estimate costs. ▪ Inquiring and corroborating the estimates to complete and the estimates at completion with the Project Manager (i.e., someone outside of Finance/Accounting) to understand significant variances in costs and completeness of the estimates at completion and estimates to completion. ▪ Testing the estimates to complete through a combination of tests of details, in which we selected individual costs within the estimate to complete and obtained supporting documentation, and where we developed an expectation of the estimate to complete and compared it to the recorded balance. ◦ Tested the accuracy and completeness of costs incurred during the current fiscal year. This testing included agreeing labor costs to employee timesheets and agreeing the labor rate to either rates agreed upon with the customer in the contract or rates from the Company’s payroll records. ◦ Tested the mathematical accuracy of management’s calculation of revenue for the performance obligation. F - 3 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 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 $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. 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 and Satellite and Space Communications 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. • We evaluated management’s ability to accurately forecast future revenues and operating margins by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s revenue forecasts and forecasts of operating margins by comparing the forecasts to: ◦ Historical revenues and operating margins. ◦ Internal communications to management and the Board of Directors. ◦ Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies. • With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by: ◦ Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation. ◦ 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 Jericho, New York October 30, 2024 We have served as the Company’s auditor since 2015. F - 4 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Comtech Telecommunications Corp. Chandler, Arizona Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Comtech Telecommunications Corp. 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, 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. F - 5 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 Jericho, New York October 30, 2024 F - 6 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Consolidated Balance Sheets As of July 31, 2024 and 2023 Assets 2024 2023 Current assets: Cash and cash equivalents $ 32,433,000 18,961,000 Accounts receivable, net 195,595,000 163,159,000 Inventories, net 93,136,000 105,845,000 Prepaid expenses and other current assets 15,387,000 17,521,000 Total current assets 336,551,000 305,486,000 Property, plant and equipment, net 47,328,000 53,029,000 Operating lease right-of-use assets, net 31,590,000 44,410,000 Goodwill 284,180,000 347,692,000 Intangibles with finite lives, net 194,828,000 225,907,000 Deferred financing costs, net 3,251,000 2,349,000 Other assets, net 14,706,000 17,364,000 Total assets $ 912,434,000 996,237,000 Liabilities, Convertible Preferred Stock and Stockholders’ Equity Current liabilities: Accounts payable $ 42,477,000 64,241,000 Accrued expenses and other current liabilities 62,245,000 66,990,000 Current portion of long-term debt 4,050,000 4,375,000 Operating lease liabilities, current 7,869,000 8,645,000 Contract liabilities 65,834,000 66,351,000 Interest payable 1,072,000 1,368,000 Total current liabilities 183,547,000 211,970,000 Non-current portion of long-term debt, net 170,486,000 160,029,000 Operating lease liabilities, non-current 30,258,000 41,763,000 Income taxes payable 2,231,000 2,208,000 Deferred tax liability, net 6,193,000 9,494,000 Long-term contract liabilities 21,035,000 18,419,000 Other liabilities 12,355,000 1,844,000 Total liabilities 426,105,000 445,727,000 Commitments and contingencies (See Note 13) Convertible preferred stock, par value $ 0.10 per share; 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 Stockholders’ equity: Preferred stock, par value $ 0.10 per share; 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; authorized 100,000,000 shares; issued 43,766,109 shares and 43,096,271 shares at July 31, 2024 and 2023, respectively 4,377,000 4,310,000 Additional paid-in capital 640,145,000 636,925,000 Retained earnings 103,580,000 238,913,000 748,102,000 880,148,000 Less: Treasury stock, at cost ( 15,033,317 shares at July 31, 2024 and 2023) ( 441,849,000 ) ( 441,849,000 ) Total stockholders’ equity 306,253,000 438,299,000 Total liabilities, convertible preferred stock and stockholders’ equity $ 912,434,000 996,237,000 See accompanying notes to consolidated financial statements. F - 7 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Consolidated Statements of Operations Fiscal Years Ended July 31, 2024, 2023 and 2022 2024 2023 2022 Net sales $ 540,403,000 549,994,000 486,239,000 Cost of sales 383,224,000 365,534,000 306,403,000 Gross profit 157,179,000 184,460,000 179,836,000 Expenses: Selling, general and administrative 123,198,000 120,003,000 114,858,000 Research and development 24,077,000 48,631,000 52,532,000 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 — — 11,248,000 237,069,000 199,120,000 213,588,000 Operating loss ( 79,890,000 ) ( 14,660,000 ) ( 33,752,000 ) Other expenses (income): Interest expense 22,153,000 14,961,000 5,031,000 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 liability — — ( 1,005,000 ) Loss before benefit from income taxes ( 100,280,000 ) ( 30,847,000 ) ( 37,075,000 ) Benefit from income taxes ( 295,000 ) ( 3,948,000 ) ( 4,023,000 ) 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: Dividend on convertible preferred stock ( 11,551,000 ) ( 7,007,000 ) ( 5,204,000 ) Convertible preferred stock issuance costs ( 4,349,000 ) — ( 4,007,000 ) Establishment of initial convertible preferred stock purchase option liability — — ( 1,005,000 ) Net loss attributable to common stockholders $ ( 135,440,000 ) $ ( 33,906,000 ) $ ( 43,268,000 ) Net loss per share: Basic $ ( 4.70 ) ( 1.21 ) ( 1.63 ) Diluted $ ( 4.70 ) ( 1.21 ) ( 1.63 ) Weighted average number of common shares outstanding – basic 28,799,000 28,002,000 26,506,000 Weighted average number of common and common equivalent shares outstanding – diluted 28,799,000 28,002,000 26,506,000 See accompanying notes to consolidated financial statements. F - 8 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity Fiscal Years Ended July 31, 2024, 2023 and 2022 Convertible Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Stockholders' Equity Shares Amount Shares Amount Shares Amount 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) — — — — 7,388,000 — — — 7,388,000 Issuance of employee stock purchase plan shares — — 49,138 5,000 725,000 — — — 730,000 Issuance of restricted stock, net of forfeiture — — 132,854 13,000 ( 13,000 ) — — — — Net settlement of stock-based awards — — 247,721 25,000 ( 4,640,000 ) — — — ( 4,615,000 ) Common stock issued for 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 — — — — — — — Convertible preferred stock issuance costs — ( 4,007,000 ) — — — — — — — Establishment of initial convertible preferred stock purchase option liability — ( 1,005,000 ) — — — — — — — Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 10,216,000 — — — ( 10,216,000 ) — — ( 10,216,000 ) Cash dividends declared ($ 0.40 per share) — — — — — ( 10,661,000 ) — — ( 10,661,000 ) Accrual of dividend equivalents, net of reversal ($ 0.40 per share) — — — — — ( 389,000 ) — — ( 389,000 ) Net loss — — — — — ( 33,052,000 ) — — ( 33,052,000 ) Balance as of July 31, 2022 100,000 105,204,000 42,672,827 4,267,000 625,484,000 278,683,000 15,033,317 ( 441,849,000 ) 466,585,000 Equity-classified stock award compensation — — — — 10,257,000 — — — 10,257,000 CEO transition costs related to equity-classified stock-based awards (See Note 11) — — — — 3,764,000 — — — 3,764,000 Issuance of employee stock purchase plan shares — — 54,617 5,000 429,000 — — — 434,000 Issuance of restricted stock, net of forfeiture — — 93,091 9,000 ( 9,000 ) — — — — Net settlement of stock-based awards — — 275,736 29,000 ( 3,000,000 ) — — — ( 2,971,000 ) Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends) — 7,007,000 — — — ( 7,007,000 ) — — ( 7,007,000 ) Cash dividends declared ($ 0.20 per share) — — — — — ( 5,549,000 ) — — ( 5,549,000 ) Accrual of dividend equivalents, net of reversal ($ 0.20 per share) — — — — — ( 315,000 ) — — ( 315,000 ) Net loss — — — — — ( 26,899,000 ) — — ( 26,899,000 ) 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. F - 9 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal Years Ended July 31, 2024, 2023 and 2022 2024 2023 2022 Cash flows from operating activities: Net loss $ ( 99,985,000 ) ( 26,899,000 ) ( 33,052,000 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization of property, plant and equipment 12,159,000 11,922,000 10,314,000 Amortization of intangible assets with finite lives 21,154,000 21,396,000 21,396,000 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 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 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 ) 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 Inventories ( 7,763,000 ) ( 14,885,000 ) ( 20,406,000 ) Prepaid expenses and other current assets 4,282,000 1,656,000 ( 3,190,000 ) Other assets ( 717,000 ) ( 3,356,000 ) ( 6,656,000 ) Accounts payable ( 18,930,000 ) 20,362,000 6,833,000 Accrued expenses and other current liabilities 755,000 671,000 ( 11,081,000 ) Contract liabilities 2,755,000 10,194,000 ( 1,362,000 ) Other liabilities, non-current 14,000 ( 324,000 ) ( 3,690,000 ) Interest payable ( 296,000 ) 1,197,000 ( 22,000 ) Income taxes payable ( 2,291,000 ) 1,673,000 ( 1,071,000 ) Net cash (used in) provided by operating activities ( 54,495,000 ) ( 4,433,000 ) 1,997,000 Cash flows from investing activities: 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 provided by (used in) investing activities 20,142,000 ( 18,311,000 ) ( 19,619,000 ) Cash flows from financing activities: 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 ) Proceeds from issuance of employee stock purchase plan shares 254,000 470,000 734,000 Payment of shelf registration costs ( 20,000 ) ( 101,000 ) — Repayment of principal amounts under finance lease and other obligations — ( 4,000 ) ( 15,000 ) Net cash provided by financing activities 47,825,000 20,051,000 8,415,000 (Continued) F - 10 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (continued) Fiscal Years Ended July 31, 2024, 2023 and 2022 2024 2023 2022 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 Cash and cash equivalents at end of year $ 32,433,000 18,961,000 21,654,000 Supplemental cash flow disclosure Cash paid during the year for: Interest $ 18,097,000 11,914,000 4,094,000 Income taxes, net $ 4,877,000 361,000 2,913,000 Non-cash investing and financing activities: Adjustment to reflect redemption value of convertible preferred stock $ 15,900,000 7,007,000 10,216,000 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 Establishment of initial convertible preferred stock purchase option liability $ — — 1,005,000 See accompanying notes to consolidated financial statements. F - 11 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Summary of Significant Accounting and Reporting Policies (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of Comtech Telecommunications Corp. and its subsidiaries ("Comtech," "we," "us," or "our"), all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Nature of Business We design, produce and market innovative products, systems and services for advanced communications solutions. We conduct our business through two reportable operating segments: Satellite and Space Communications and Terrestrial and Wireless Networks. Our business is highly competitive and characterized by rapid technological change. Our growth and financial position depends on our ability to keep pace with such changes and developments and to respond to the sophisticated requirements of an increasing variety of secure wireless communications technology users, among other things. Many of our competitors are substantially larger, and have significantly greater financial, marketing and operating resources and broader product lines than our own. A significant technological or sales breakthrough by others, including smaller competitors or new companies, could have a material adverse effect on our business. In addition, certain of our customers have technological capabilities in our product areas and could choose to replace our products with their own. International sales expose us to certain risks, including barriers to trade, fluctuations in foreign currency exchange rates (which may make our products less price competitive), political and economic instability, availability of suitable export financing, export license requirements, tariff regulations, and other United States ("U.S.") and foreign regulations that may apply to the export of our products, as well as the generally greater difficulties of doing business abroad. We attempt to reduce the risk of doing business in foreign countries by seeking contracts denominated in U.S. dollars, advance or milestone payments, credit insurance and irrevocable letters of credit in our favor. (c) Liquidity and Going Concern Pursuant to the requirements of ASC Topic 205-40, " Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern ," we are required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern. This evaluation does not take into consideration the potential mitigating effect of our plans that have not been fully implemented or are not within our control as of the date the audited Consolidated Financial Statements are issued. When substantial doubt exists, we are required to evaluate whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of our plans, however, is only considered if both (i) it is probable that the plans will be effectively implemented within one year after the date that the Consolidated Financial Statements are issued, and (ii) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Consolidated Financial Statements are issued. As of the date these financial statements were issued (the "issuance date"), we evaluated whether the following adverse conditions, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern over the next twelve months beyond the issuance date. F - 12 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES 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. F - 13 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); and • 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. F - 14 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. Under ASC 606, we follow a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance obligations; and (5) recognize revenue using one of the following two methods: • Over time - We recognize revenue using the over time method when there is a continuous transfer of control to the customer over the contractual period of performance. This generally occurs when we enter into a long-term contract relating to the design, development or manufacture of complex equipment or technology platforms to a buyer’s specification (or to provide services related to the performance of such contracts) for which we have determined there is no alternative use, as defined in ASC 606. Continuous transfer of control is typically supported by contract clauses which allow our customers to unilaterally terminate a contract for convenience, pay for costs incurred plus a reasonable profit and take control of work-in-process. Revenue recognized over time is generally based on the extent of progress toward completion of the related performance obligations. The selection of the method to measure progress requires judgment and is based on the nature of the products or services provided. In certain instances, typically for firm fixed-price contracts, we use the cost-to-cost measure because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion, including warranty costs. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Costs to fulfill generally include direct labor, materials, subcontractor costs, other direct costs and an allocation of indirect costs. When these contracts are modified, the additional goods or services are generally not distinct from those already provided. As a result, these modifications form part of an existing contract and we must update the transaction price and our measure of progress for the single performance obligation and recognize a cumulative catch-up to revenue and gross profits. For over time contracts using a cost-to-cost measure of progress, we have an estimate at completion ("EAC") process in which management reviews the progress and execution of our performance obligations. This EAC process requires management judgment relative to assessing risks, estimating contract revenue and costs, and making assumptions for schedule and technical issues. Since certain contracts extend over a long period of time, the impact of revisions in revenue and/or cost estimates during the progress of work may impact current period earnings through a cumulative adjustment. Additionally, if the EAC process indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident. Contract revenue and cost estimates for significant contracts are generally reviewed and reassessed at least quarterly. The cost-to-cost method is principally used to account for contracts in our Satellite and Space Communications segment and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line within our Terrestrial and Wireless Networks segment. For service-based contracts in our Terrestrial and Wireless Networks segment, we also recognize revenue over time. These services are typically recognized as a series of services performed over the contract term using the straight-line method, or based on our customers’ actual usage of the networks and platforms which we provide. • Point in time - When a performance obligation is not satisfied over time, we must record revenue using the point in time accounting method which generally results in revenue being recognized upon shipment or delivery of a promised good or service to a customer. This generally occurs when we enter into short term contracts or purchase orders where items are provided to customers with relatively quick turn-around times. Modifications to such contracts and/or purchase orders, which typically provide for additional quantities or services, are accounted for as a new contract because the pricing for these additional quantities or services are based on standalone selling prices. F - 15 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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; customers do not control the asset (i.e., prior to delivery, customers cannot direct the use of the asset, sell or exchange the equipment, etc.); and, although many of our contracts have termination for convenience clauses and/or an enforceable right to payment for performance completed to date, our performance creates an asset with an alternative use through the point of delivery. In determining that our equipment has alternative use, we considered the underlying manufacturing process 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. Finished products are either configured to our standard configuration or based on our customers’ specifications. Finished products, whether built to our standard specification or to a customers’ specification, can be sold to a variety of customers and across many different end use applications with minimal rework, if needed, and without incurring a significant economic loss. When identifying a contract with our customer, we consider when it has approval and commitment from both parties, if the rights of the parties are identified, if the payment terms are identified, if it has commercial substance and if collectability is probable. When identifying performance obligations, we consider whether there are multiple promises and how to account for them. In our contracts, multiple promises are separated if they are distinct, both individually and in the context of the contract. If multiple promises in a contract are highly interrelated or comprise a series of distinct services performed over time, they are combined into a single performance obligation. In some cases, we may also provide the customer with an additional service-type warranty, which we recognize as a separate performance obligation. Service-type warranties do not represent a significant portion of our consolidated net sales. When service-type warranties represent a separate performance obligation, the revenue is deferred and recognized ratably over the extended warranty period. Our contracts, from time-to-time, may also include options for additional goods and services. To date, these options have not represented material rights to the customer as the pricing for them reflects standalone selling prices. As a result, we do not consider options we offer to be performance obligations for which we must allocate a portion of the transaction price. In many cases, we provide assurance-type warranty coverage for some of our products for a period of at least one year from the date of delivery. When identifying the transaction price, we typically utilize the contract's stated price as a starting point. The transaction price in certain arrangements may include estimated amounts of variable consideration, including award fees, incentive fees or other provisions that can either increase or decrease the transaction price. We estimate variable consideration as the amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the estimation uncertainty is resolved. The estimation of this variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (e.g., historical, current and forecasted) that is reasonably available to us. When allocating the contract’s transaction price, we consider each distinct performance obligation. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. We determine standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions, including geographic or regional specific factors, competitive positioning, internal costs, profit objectives and internally approved pricing guidelines related to the performance obligations. F - 16 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Most of our contracts with customers are denominated in U.S. dollars and typically are either firm fixed-price or cost reimbursable type contracts (including fixed-fee, incentive-fee and time-and-material type contracts). In almost all of our contracts with customers, we are the principal in the arrangement and report revenue on a gross basis. Transaction prices for contracts with U.S. domestic and international customers are usually based on specific negotiations with each customer and in the case of the U.S. government, sometimes based on estimated or actual costs of providing the goods or services in accordance with applicable regulations. Sales by geography and customer type, as a percentage of consolidated net sales, are as follows: Fiscal Years Ended July 31, 2024 2023 2022 United States U.S. government 33.7 % 31.3 % 27.2 % Domestic 44.8 % 44.7 % 47.8 % Total United States 78.5 % 76.0 % 75.0 % International 21.5 % 24.0 % 25.0 % Total 100.0 % 100.0 % 100.0 % Sales to U.S. government customers include sales to the U.S. Department of Defense ("DoD"), intelligence and civilian agencies, as well as sales directly to or through prime contractors. Domestic sales include sales to commercial customers, as well as to U.S. state and local governments. 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. domestic companies for inclusion in products that are sold to international customers) were $ 115,924,000 , $ 132,117,000 and $ 121,392,000 , respectively. Except for the U.S., no individual country (including sales to U.S. domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for fiscal 2024, 2023 and 2022. The following tables summarize our disaggregation of revenue consistent with information reviewed by our Chief Operating Decision Maker ("CODM") for the fiscal years ended July 31, 2024, 2023 and 2022. We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors which impact our business. See Note (12) - "Segment Information " for more information related to our segments. Fiscal Year Ended July 31, 2024 Satellite and Space Communications Terrestrial and Wireless Networks Total Geographical region and customer type U.S. government $ 179,816,000 2,504,000 $ 182,320,000 Domestic 48,793,000 193,366,000 242,159,000 Total United States 228,609,000 195,870,000 424,479,000 International 95,460,000 20,464,000 115,924,000 Total $ 324,069,000 216,334,000 $ 540,403,000 Contract type Firm fixed-price $ 275,428,000 216,334,000 $ 491,762,000 Cost reimbursable 48,641,000 — 48,641,000 Total $ 324,069,000 216,334,000 $ 540,403,000 Transfer of control Point in time $ 135,070,000 1,578,000 $ 136,648,000 Over time 188,999,000 214,756,000 403,755,000 Total $ 324,069,000 216,334,000 $ 540,403,000 F - 17 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Fiscal Year Ended July 31, 2023 Satellite and Space Communications Terrestrial and Wireless Networks Total Geographical region and customer type U.S. government $ 168,411,000 3,567,000 $ 171,978,000 Domestic 56,568,000 189,331,000 245,899,000 Total United States 224,979,000 192,898,000 417,877,000 International 112,777,000 19,340,000 132,117,000 Total $ 337,756,000 212,238,000 $ 549,994,000 Contract type Firm fixed-price $ 288,482,000 212,238,000 $ 500,720,000 Cost reimbursable 49,274,000 — 49,274,000 Total $ 337,756,000 212,238,000 $ 549,994,000 Transfer of control Point in time $ 197,808,000 2,968,000 $ 200,776,000 Over time 139,948,000 209,270,000 349,218,000 Total $ 337,756,000 212,238,000 $ 549,994,000 Fiscal Year Ended July 31, 2022 Satellite and Space Communications Terrestrial and Wireless Networks Total Geographical region and customer type U.S. government $ 127,536,000 5,061,000 $ 132,597,000 Domestic 50,274,000 181,976,000 232,250,000 Total United States 177,810,000 187,037,000 364,847,000 International 101,868,000 19,524,000 121,392,000 Total $ 279,678,000 206,561,000 $ 486,239,000 Contract type Firm fixed-price $ 249,497,000 206,561,000 $ 456,058,000 Cost reimbursable 30,181,000 — 30,181,000 Total $ 279,678,000 206,561,000 $ 486,239,000 Transfer of control Point in time $ 186,052,000 2,633,000 $ 188,685,000 Over time 93,626,000 203,928,000 297,554,000 Total $ 279,678,000 206,561,000 $ 486,239,000 F - 18 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES 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 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. For certain contracts with provisions that are intended to protect customers in the event we do not satisfy our performance obligations, billings occur subsequent to revenue recognition, resulting in unbilled receivables. Under ASC 606, unbilled receivables constitute contract assets. There were no material impairment losses recognized on contract assets during the fiscal years ended July 31, 2024, 2023 and 2022. On large long-term contracts, and for contracts with international customers that do not do business with us regularly, payment terms typically require advanced payments and deposits. Under ASC 606, payments received from customers in excess of revenue recognized to-date results in a contract liability. These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract. Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract. Under the typical payment terms for our contracts accounted for at a point in time, costs are accumulated in inventory until the time of billing, which generally coincides with revenue recognition. Of the current contract liability balance of $ 66,351,000 at July 31, 2023 and $ 64,601,000 at July 31, 2022, $ 48,902,000 and $ 53,079,000 was recognized as revenue during fiscal years 2024 and 2023, respectively. We recognize the incremental costs to obtain or fulfill a contract as an expense when incurred if the amortization period of the asset is one year or less; 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. Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the end of a fiscal period. Remaining performance obligations, which we refer to as backlog, exclude unexercised contract options and potential orders under indefinite delivery / indefinite quantity ("IDIQ") contracts. 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. (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. Our cash and cash equivalents, as of July 31, 2024 and 2023, amounted to $ 32,433,000 and $ 18,961,000 , respectively, and primarily consist of bank deposits and money market deposit accounts insured by the Federal Deposit Insurance Corporation. Cash equivalents are carried at cost, which approximates fair value. 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. F - 19 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (f) 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. 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. (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. Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. In accordance with FASB ASC 350 "Intangibles - Goodwill and Other" goodwill is not amortized. We periodically, at least on an annual basis in the first quarter of each fiscal year, review goodwill, considering factors such as projected cash flows and revenue and earnings multiples, to determine whether the carrying value of the goodwill is impaired. If we fail the quantitative assessment of goodwill impairment ("quantitative assessment"), we would be required to recognize an impairment loss equal to the amount that a reporting unit's carrying value exceeded its fair value; however, any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We define our reporting units to be the same as our operating segments. 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. We evaluate the recoverability of such assets based upon the expectations of undiscounted cash flows from such assets. 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. 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. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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. F - 20 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. The second step is to measure a tax position that meets the more-likely-than-not threshold. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. Our policy is to recognize potential interest and penalties related to uncertain tax positions in income tax expense. (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, 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. When calculating our diluted earnings per share, we consider the amount an employee must pay upon assumed exercise of stock-based awards and the amount of stock-based compensation cost attributed to future services and not yet recognized. There were no repurchases of our common stock during the fiscal years ended July 31, 2024, 2023 and 2022. See Note (17) - " Stockholders’ Equity " for more information. Weighted average stock options, RSUs and restricted stock outstanding of 1,050,000 , 972,000 and 1,656,000 shares for fiscal 2024, 2023 and 2022, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive. Our EPS calculations exclude 534,000 , 385,000 and 293,000 weighted average performance shares outstanding for fiscal 2024, 2023 and 2022, respectively, as the performance conditions have not yet been satisfied. 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. As a result, the numerator for our basic and diluted EPS calculation for fiscal 2024, 2023 and 2022 is the respective net loss attributable to common stockholders. F - 21 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations: Fiscal Years Ended July 31, 2024 2023 2022 Numerator: 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 ) Establishment of initial convertible preferred stock purchase option liability — — ( 1,005,000 ) Dividend on convertible preferred stock ( 11,551,000 ) ( 7,007,000 ) ( 5,204,000 ) Net loss attributable to common stockholders $ ( 135,440,000 ) ( 33,906,000 ) ( 43,268,000 ) Denominator: Denominator for basic and diluted calculation 28,799,000 28,002,000 26,506,000 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. (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, 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. F - 22 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: 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. (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 (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. (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"). 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, F - 23 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 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. The cash portion of the transition costs of $ 3,660,000 was paid to Mr. Porcelain in October 2022. Also, in connection with Mr. Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $ 1,000,000 expense related to a cash sign-on bonus, which was paid to Mr. Peterman in January 2023. CEO transition costs related to Mr. Porcelain and Mr. Peterman were expensed in our Unallocated segment during the first quarter of fiscal 2023. Fiscal 2022 - During fiscal 2022, we expensed $ 13,554,000 of transition costs related to former CEO, Fred Kornberg. F - 24 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 F - 25 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (4) Accounts Receivable Accounts receivable consists of the following at July 31, 2024 and 2023: 2024 2023 Receivables from commercial and international customers $ 53,108,000 52,438,000 Unbilled receivables from commercial and international customers 72,540,000 54,469,000 Receivables from the U.S. government and its agencies 20,682,000 31,149,000 Unbilled receivables from the U.S. government and its agencies 51,197,000 27,192,000 Total accounts receivable 197,527,000 165,248,000 Less allowance for doubtful accounts 1,932,000 2,089,000 Accounts receivable, net $ 195,595,000 163,159,000 Unbilled receivables as of July 31, 2024 relate to contracts-in-progress for which revenue has been recognized, but we have not yet earned the right to bill the customer for work performed to-date. Under ASC 606, unbilled receivables constitute contract assets. Management estimates that a substantial portion of the amounts not yet billed at July 31, 2024 will be billed and collected within one year. 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. (5) Inventories Inventories consist of the following at July 31, 2024 and 2023: 2024 2023 Raw materials and components $ 72,820,000 87,139,000 Work-in-process and finished goods 38,587,000 43,365,000 Total inventories 111,407,000 130,504,000 Less reserve for excess and obsolete inventories 18,271,000 24,659,000 Inventories, net $ 93,136,000 105,845,000 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. F - 26 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (6) Property, Plant and Equipment Property, plant and equipment consist of the following at July 31, 2024 and 2023: 2024 2023 Machinery and equipment $ 142,405,000 168,618,000 Internal-use software 28,869,000 25,214,000 Leasehold improvements 17,175,000 9,680,000 188,449,000 203,512,000 Less accumulated depreciation and amortization 141,121,000 150,483,000 Property, plant and equipment, net $ 47,328,000 53,029,000 Depreciation and amortization expense on property, plant and equipment amounted to $ 12,159,000 , $ 11,917,000 and $ 10,303,000 for the fiscal years ended July 31, 2024, 2023 and 2022, respectively. (7) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following at July 31, 2024 and 2023: 2024 2023 Accrued wages and benefits $ 22,131,000 21,994,000 Accrued contract costs 17,267,000 19,041,000 Accrued warranty obligations 7,049,000 8,285,000 Accrued commissions and royalties 5,396,000 4,659,000 Accrued legal costs 3,092,000 688,000 Other 7,310,000 12,323,000 Accrued expenses and other current liabilities $ 62,245,000 66,990,000 Accrued contract costs represent direct and indirect costs on contracts as well as estimates of amounts owed for invoices not yet received from vendors or reflected in accounts payable. Accrued warranty obligations as of July 31, 2024 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers. We generally provide warranty coverage for some of our products for a period of at least one year from the date of delivery. We record a liability for estimated warranty expense based on historical claims, product failure rates, consideration of contractual obligations, future costs to resolve software issues and other factors. Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs. Changes in our accrued warranty obligations during the fiscal years ended July 31, 2024 and 2023 were as follows: 2024 2023 Balance at beginning of year $ 8,285,000 9,420,000 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, 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. F - 27 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (8) Credit Facility 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 . F - 28 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: July 31, 2024 Term Loan $ 161,663,000 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 32,500,000 Amount outstanding under Credit Facility, net 174,536,000 Less current portion of long-term debt 4,050,000 Non-current portion of long-term debt $ 170,486,000 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. F - 29 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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; (c) 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, 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. 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. F - 30 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (9) Leases Our leases historically relate to the leasing of facilities and equipment. In accordance with FASB ASC 842 - "Leases" ("ASC 842"), we determine at inception whether an arrangement is, or contains, a lease and whether the lease should be classified as an operating or a financing lease. At lease commencement, we recognize a right-of-use ("ROU") asset and lease liability based on the present value of the future lease payments over the estimated lease term. We have elected to not recognize a ROU asset or lease liability for any leases with terms of twelve months or less. Instead, for such short-term leases, we recognize lease expense on a straight-line basis over the lease term. Certain of our leases include options to extend the term of the lease or to terminate the lease early. When it is reasonably certain that we will exercise a renewal option or will not exercise a termination option, we include the impact of exercising or not exercising such option, respectively, in the estimate of the lease term. As our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate ("IBR") on the commencement date to calculate the present value of future lease payments. Such IBR represents our estimated rate of interest to borrow on a collateralized basis over a term commensurate with the expected lease term. Some of our leases include payments that are based on the Consumer Price Index ("CPI") or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability using the index as of the lease commencement date. Other variable lease payments, such as common area maintenance, property taxes, and usage-based amounts, are required by ASC 842 to be excluded from the ROU asset and lease liability and expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset would also consider, to the extent applicable, any deferred rent upon adoption, lease pre-payments or initial direct costs of obtaining the lease (e.g., such as commissions). For all classes of leased assets, we elected the practical expedient to not separate lease components (i.e., the actual item being leased, such as the facility or piece of equipment) from non-lease components (i.e., the distinct elements of a contract not related to securing the use of the leased asset, such as common area maintenance and consumable supplies). Certain of our facility lease agreements (which are classified as operating leases) contain rent holidays or rent escalation clauses. For rent holidays and rent escalation clauses during the lease term, we record rental expense on a straight-line basis over the term of the lease. As of July 31, 2024, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased. The components of lease expense are as follows: Fiscal years ended July 31, 2024 2023 2022 Finance lease expense: Amortization of ROU assets $ — 5,000 13,000 Interest on lease liabilities — — 1,000 Operating lease expense 8,414,000 10,439,000 11,658,000 Short-term lease expense 293,000 435,000 402,000 Variable lease expense 4,381,000 4,031,000 4,619,000 Sublease income ( 67,000 ) ( 67,000 ) ( 67,000 ) Total lease expense $ 13,021,000 14,843,000 16,626,000 F - 31 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Additional information related to leases is as follows: Fiscal years ended July 31, 2024 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating leases - Operating cash outflows $ 8,983,000 10,604,000 11,864,000 Finance leases - Operating cash outflows — — 1,000 Finance leases - Financing cash outflows — 4,000 15,000 ROU assets obtained in the exchange for lease liabilities (non-cash): 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 Sheets as of July 31, 2024: Operating Fiscal 2025 $ 8,263,000 Fiscal 2026 6,857,000 Fiscal 2027 4,756,000 Fiscal 2028 4,019,000 Fiscal 2029 3,367,000 Thereafter 16,428,000 Total future undiscounted cash flows 43,690,000 Less: Present value discount 5,563,000 Lease liabilities $ 38,127,000 Weighted-average remaining lease terms (in years) 7.97 Weighted-average discount rate 3.54 % As of July 31, 2024, we do not have any material rental commitments that have not commenced. (10) Income Taxes Loss before benefit from income taxes consists of the following: Fiscal Years Ended July 31, 2024 2023 2022 U.S. $ ( 65,374,000 ) ( 21,327,000 ) ( 31,772,000 ) Foreign ( 34,906,000 ) ( 9,520,000 ) ( 5,303,000 ) $ ( 100,280,000 ) ( 30,847,000 ) ( 37,075,000 ) F - 32 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, 2024 2023 2022 Federal – current $ 377,000 ( 258,000 ) 287,000 Federal – deferred ( 2,345,000 ) ( 4,623,000 ) ( 4,888,000 ) State and local – current 1,181,000 1,412,000 348,000 State and local – deferred ( 834,000 ) ( 815,000 ) ( 442,000 ) Foreign – current 1,137,000 958,000 1,197,000 Foreign – deferred 189,000 ( 622,000 ) ( 525,000 ) Benefit from income taxes $ ( 295,000 ) ( 3,948,000 ) ( 4,023,000 ) The benefit from income taxes differed from the amounts computed by applying the U.S. Federal income tax rate as a result of the following: Fiscal Years Ended July 31, 2024 2023 2022 Amount Rate Amount Rate Amount Rate Computed "expected" tax benefit $ ( 21,059,000 ) 21.0 % ( 6,478,000 ) 21.0 % ( 7,786,000 ) 21.0 % Increase (reduction) in income taxes resulting from: State and local income taxes, net of federal benefit ( 127,000 ) 0.1 440,000 ( 1.4 ) 227,000 ( 0.6 ) Stock-based compensation 1,891,000 ( 1.9 ) 692,000 ( 2.2 ) 1,049,000 ( 2.8 ) Research and experimentation credits ( 1,251,000 ) 1.2 ( 2,576,000 ) 8.4 ( 1,484,000 ) 4.0 Foreign-derived intangible income deduction 43,000 — ( 517,000 ) 1.7 — — Revaluation of convertible preferred stock option liability — — — — ( 211,000 ) 0.6 Revaluation of warrants ( 897,000 ) 0.9 — — — — Nondeductible executive compensation — — 1,484,000 ( 4.8 ) 2,801,000 ( 7.6 ) 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 ) Remeasurement of deferred taxes — — — — ( 396,000 ) 1.1 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 ) Benefit from income taxes $ ( 295,000 ) 0.3 % ( 3,948,000 ) 12.8 % ( 4,023,000 ) 10.9 % F - 33 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at July 31, 2024 and 2023 are presented below: 2024 2023 Deferred tax assets: Inventory and warranty reserves $ 4,685,000 6,147,000 Compensation and commissions 3,401,000 3,221,000 Federal, state and foreign research and experimentation credits 17,559,000 19,308,000 Capitalized U.S. research and experimental expenditures 12,177,000 8,784,000 Stock-based compensation 2,409,000 4,774,000 Foreign scientific research and experimental development expenditures 1,720,000 2,118,000 Federal, state and foreign net operating losses 18,289,000 13,011,000 Federal and state capital losses 14,473,000 15,582,000 Lease liabilities 8,999,000 11,986,000 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 Less: valuation allowance ( 44,888,000 ) ( 34,478,000 ) Total deferred tax assets 48,189,000 57,333,000 Deferred tax liabilities: Plant and equipment ( 4,781,000 ) ( 4,883,000 ) Lease right-of-use assets ( 7,116,000 ) ( 10,510,000 ) Intangibles ( 42,563,000 ) ( 50,843,000 ) Total deferred tax liabilities ( 54,460,000 ) ( 66,236,000 ) Net deferred tax liabilities $ ( 6,271,000 ) ( 8,903,000 ) 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 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, 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. 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. F - 34 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. At July 31, 2024 and 2023, $ 2,231,000 and $ 2,208,000 , respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Consolidated Balance Sheets. The remaining unrecognized tax benefits of $ 6,374,000 and $ 6,958,000 at July 31, 2024 and 2023, respectively, were presented as an offset to the associated non-current deferred tax assets on our Consolidated Balance Sheets. 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. 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. The following table summarizes the activity related to our unrecognized tax benefits for fiscal years 2024, 2023 and 2022 (excluding interest): 2024 2023 2022 Balance at beginning of period $ 8,956,000 9,675,000 9,009,000 Increase related to current period 181,000 681,000 598,000 Increase related to prior periods 130,000 51,000 153,000 Expiration of statute of limitations ( 622,000 ) ( 1,406,000 ) ( 83,000 ) Decrease related to prior periods ( 264,000 ) ( 45,000 ) ( 2,000 ) Balance at end of period $ 8,381,000 8,956,000 9,675,000 Our U.S. federal income tax returns for fiscal 2021 through 2023 are subject to potential future Internal Revenue Service ("IRS") audit. None of our state income tax returns prior to fiscal 2020 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition. F - 35 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 11) Stock-Based Compensation Overview 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): (i) incentive and non-qualified stock options, (ii) restricted stock units ("RSUs"), (iii) RSUs with performance measures (which we refer to as "performance shares"), (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, "share units") and (vi) stock appreciation rights ("SARs"), among other types of awards. Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations. 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 . Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a stockholder who owns stock representing more than 10.0 % of the voting power, no more than five years . We expect to settle all outstanding awards under the Plan and employee purchases under the ESPP with the issuance of new shares of our common stock. As of July 31, 2024, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 11,468,463 shares (net of 6,679,364 expired and canceled awards), of which an aggregate of 9,526,985 have been exercised or settled. As of July 31, 2024, the following stock-based awards, by award type, were outstanding: July 31, 2024 Stock options 141,190 Performance shares 380,680 RSUs, restricted stock, share units and other stock-based awards 1,419,608 Total 1,941,478 Our ESPP provides for the issuance of up to 1,300,000 shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85 % of fair market value on the first or last day of each calendar quarter, whichever is lower. Through July 31, 2024, we have cumulatively issued 1,051,110 shares of our common stock to participating employees in connection with our ESPP. F - 36 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: Fiscal Years Ended July 31, 2024 2023 2022 Cost of sales $ 778,000 1,110,000 692,000 Selling, general and administrative expenses 4,777,000 7,960,000 6,312,000 Research and development expenses 541,000 1,037,000 763,000 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 awards — 3,764,000 7,388,000 Total stock-based compensation expense before income tax benefit 6,096,000 13,871,000 15,155,000 Estimated income tax benefit ( 1,298,000 ) ( 2,552,000 ) ( 2,260,000 ) Net stock-based compensation expense $ 4,798,000 11,319,000 12,895,000 Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. 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 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. Stock-based compensation expense, by award type, is summarized as follows: Fiscal Years Ended July 31, 2024 2023 2022 Stock options $ 60,000 87,000 519,000 Performance shares 480,000 973,000 1,136,000 RSUs, restricted stock, share units and other stock-based awards 5,477,000 8,926,000 5,912,000 ESPP 79,000 121,000 200,000 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 awards — 3,764,000 7,388,000 Total stock-based compensation expense before income tax benefit 6,096,000 13,871,000 15,155,000 Estimated income tax benefit ( 1,298,000 ) ( 2,552,000 ) ( 2,260,000 ) 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. F - 37 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. Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Consolidated Balance Sheet as of July 31, 2024 and 2023. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting. Stock Options The following table summarizes the Plan's activity: Awards (in Shares) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding at July 31, 2021 1,073,435 $ 25.76 Expired/canceled ( 588,735 ) 26.86 Exercised ( 1,220 ) 17.88 Outstanding at July 31, 2022 483,480 24.43 Expired/canceled ( 242,970 ) 24.89 Outstanding at July 31, 2023 240,510 23.96 Expired/canceled ( 99,320 ) 28.72 Outstanding at July 31, 2024 141,190 $ 20.61 4.51 $ — Exercisable at July 31, 2024 129,840 $ 20.84 4.39 $ — Vested and expected to vest at July 31, 2024 139,975 $ 20.63 4.50 $ — Stock options outstanding as of July 31, 2024 have exercise prices ranging from $ 17.88 - $ 28.35 , representing the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years . The total intrinsic value relating to stock options exercised during the fiscal year ended July 31 2022 was $ 7,000 . There were no stock options exercised during the fiscal years ended July 31, 2024 and 2023. During fiscal 2022, at the election of certain holders of vested stock options, 1,220 stock options were net settled upon exercise. As a result, 220 shares of our common stock were issued during the fiscal year ended July 31, 2022, net of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements. There were no stock options granted during fiscal years ended July 31, 2024, 2023 or 2022. F - 38 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Performance Shares, RSUs, Restricted Stock, Share Unit Awards and Other Stock-based Awards The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock, share units and other stock-based awards: Awards (in Shares) Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Outstanding at July 31, 2021 1,068,370 $ 21.93 Granted 797,771 18.77 Settled ( 641,747 ) 22.83 Canceled/Forfeited ( 113,644 ) 22.78 Outstanding at July 31, 2022 1,110,750 19.05 Granted 1,550,951 10.79 Settled ( 632,267 ) 16.69 Canceled/Forfeited ( 153,204 ) 16.67 Outstanding at July 31, 2023 1,876,230 13.21 Granted 1,731,760 6.71 Settled ( 1,042,860 ) 9.77 Canceled/Forfeited ( 764,842 ) 9.28 Outstanding at July 31, 2024 1,800,288 $ 10.61 $ 5,833,000 Vested at July 31, 2024 583,209 $ 12.30 $ 1,890,000 Vested and expected to vest at July 31, 2024 1,739,662 $ 10.61 $ 5,637,000 The total intrinsic value relating to fully-vested awards settled during the fiscal years ended July 31, 2024, 2023 and 2022 was $ 7,844,000 , $ 6,782,000 and $ 12,560,000 , respectively. 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, 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 . 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. F - 39 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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, 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. RSUs, performance shares and restricted stock are entitled to dividend equivalents, as applicable, unless forfeited before vesting occurs. Share units and other stock-based awards would be entitled to dividend equivalents while the underlying shares are unissued. Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of settlement of the underlying award. 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. Accrued dividend equivalents were recorded as a reduction to retained earnings. As of July 31, 2024 and 2023, accrued dividend equivalents were $ 316,000 and $ 691,000 , respectively. 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. Subsequent Events In the first quarter of fiscal 2025, our Board of Directors authorized the issuance of stock-based awards with a total unrecognized compensation expense, net of estimated forfeitures, of approximately $ 6,700,000 . (12) Segment Information Reportable operating segments are determined based on Comtech’s management approach. The management approach, as defined by FASB ASC 280 "Segment Reporting" is based on the way that the CODM organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. Our CODM, for purposes of FASB ASC 280, is our Chief Executive Officer. 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 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. Terrestrial and Wireless Networks is organized into three service areas: next generation 911 and call delivery, Solacom call handling solutions, and trusted location and messaging solutions. This segment offers customers: 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; Emergency Services IP Network transport infrastructure for emergency services communications and support of next generation 911 services; call handling applications for PSAPs; wireless emergency alerts solutions for network operators; and software and equipment for location-based and text messaging services for various applications, including for public safety, commercial and government services. F - 40 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 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. Any amounts shown in the Adjusted EBITDA calculation for our Satellite and Space Communications and Terrestrial and Wireless Networks segments are directly attributable to those segments. 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 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 Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total Net sales $ 324,069,000 216,334,000 — $ 540,403,000 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 Amortization of intangibles 6,685,000 14,469,000 — 21,154,000 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 Loss on business divestiture — — 1,199,000 1,199,000 Adjusted EBITDA $ 29,767,000 44,671,000 ( 28,739,000 ) $ 45,699,000 Purchases of property, plant and equipment $ 2,890,000 8,569,000 1,624,000 $ 13,083,000 Total assets at July 31, 2024 $ 421,780,000 456,425,000 34,229,000 $ 912,434,000 F - 41 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Fiscal Year Ended July 31, 2023 Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total Net sales $ 337,756,000 212,238,000 — $ 549,994,000 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 Amortization of stock-based compensation — — 10,107,000 10,107,000 Amortization of intangibles 7,312,000 14,084,000 — 21,396,000 Depreciation 4,121,000 7,637,000 164,000 11,922,000 Amortization of cost to fulfill assets 959,000 — — 959,000 Restructuring costs 5,725,000 1,220,000 3,907,000 10,852,000 Strategic emerging technology costs 3,833,000 — — 3,833,000 CEO transition costs — — 9,090,000 9,090,000 Adjusted EBITDA $ 36,991,000 35,264,000 ( 18,756,000 ) $ 53,499,000 Purchases of property, plant and equipment $ 7,244,000 10,075,000 992,000 $ 18,311,000 Total assets at July 31, 2023 $ 515,449,000 460,034,000 20,754,000 $ 996,237,000 Fiscal Year Ended July 31, 2022 Satellite and Space Communications Terrestrial and Wireless Networks Unallocated Total Net sales $ 279,678,000 206,561,000 — $ 486,239,000 Operating (loss) income $ ( 5,671,000 ) 18,925,000 ( 47,006,000 ) $ ( 33,752,000 ) Net (loss) income $ ( 3,852,000 ) 18,796,000 ( 47,996,000 ) $ ( 33,052,000 ) (Benefit from) provision for income taxes ( 1,120,000 ) 19,000 ( 2,922,000 ) ( 4,023,000 ) Interest expense 98,000 — 4,933,000 5,031,000 Interest (income) and other ( 797,000 ) 110,000 ( 16,000 ) ( 703,000 ) Change in fair value of convertible preferred stock purchase option liability — — ( 1,005,000 ) ( 1,005,000 ) Amortization of stock-based compensation — — 7,767,000 7,767,000 Amortization of intangibles 7,312,000 14,084,000 — 21,396,000 Depreciation 4,049,000 6,069,000 196,000 10,314,000 Amortization of cost to fulfill assets 469,000 — — 469,000 Restructuring costs 5,666,000 — 299,000 5,965,000 COVID-19 related costs 1,105,000 — — $ 1,105,000 Strategic emerging technology costs 1,197,000 — — $ 1,197,000 CEO transition costs — — 13,554,000 13,554,000 Proxy solicitation costs — — 11,248,000 11,248,000 Adjusted EBITDA $ 14,127,000 39,078,000 ( 13,942,000 ) $ 39,263,000 Purchases of property, plant and equipment $ 8,915,000 10,704,000 — $ 19,619,000 Total assets at July 31, 2022 $ 487,235,000 461,443,000 25,619,000 $ 974,297,000 F - 42 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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 " 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 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, 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. Intersegment sales in fiscal 2024, 2023 and 2022 between the Satellite and Space Communications segment and the Terrestrial and Wireless Networks segment were nominal. All intersegment sales are eliminated in consolidation and are excluded from the tables above. Unallocated assets at July 31, 2024 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs. The large majority of our long-lived assets are located in the U.S. (13) Commitments and Contingencies (a) Legal Proceedings and Other Matters Other Matters In the ordinary course of business, we include indemnification provisions in certain of our customer contracts to indemnify, hold harmless and reimburse such customers for certain losses, including but not limited to losses related to third-party claims of intellectual property infringement arising from the customer’s use of our products or services. We may also, from time to time, receive indemnification requests from customers related to third-party claims that 911 calls were improperly routed during an emergency. We evaluate such claims as and when they arise. We do not always agree with customers that they are entitled to indemnification and in such cases reject their claims. Despite maintaining that we have properly carried out our duties, we may seek coverage under our various insurance policies; 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 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. F - 43 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (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. The employment agreement generally provided for an annual salary and bonus award. On August 10, 2022, we announced the mutually agreed separation between the Company and Mr. Porcelain as President and CEO and member of the Board of Directors. The Company entered into a separation agreement with Mr. Porcelain. Fiscal 2024 transition costs of $ 2,916,000 primarily consisted of legal expenses associated with the termination of Mr. Peterman. 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. The cash portion of the transition costs of $ 3,660,000 was paid to Mr. Porcelain in October 2022. 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. CEO transition costs related to Mr. Porcelain and Mr. 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 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. If we fail the quantitative assessment of goodwill impairment ("quantitative assessment"), we would be required to recognize an impairment loss equal to the amount that a reporting unit's carrying value exceeded its fair value; however, any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. F - 44 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES 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. 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. In performing the quantitative assessment, we estimated the fair value of each of our reporting units using a combination of the income and market approaches. The income approach, also known as the discounted cash flow ("DCF") method, utilizes the present value of cash flows to estimate fair value. The future cash flows for our reporting units were projected based on our estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures). For purposes of conducting our impairment analysis, we assumed revenue growth rates and cash flow projections that are below our actual long-term expectations. The discount rates used in our DCF method were based on a weighted-average cost of capital ("WACC") determined from relevant market comparisons, adjusted upward for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows). A terminal value growth rate was applied to the final year of the projected period, which reflects our estimate of stable, perpetual growth. We then calculated a present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the income approach. Under the market approach, we estimated a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium. Finally, we compared our estimates of fair values to our total public market capitalization and assessed implied control premiums based on our common stock price of $ 3.17 as of the date of testing. 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. F - 45 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES 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). 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. (15) Intangible Assets Intangible assets with finite lives as of July 31, 2024 and 2023 are as follows: July 31, 2024 Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 20.2 $ 302,058,000 141,601,000 $ 160,457,000 Technologies 14.8 113,149,000 87,809,000 25,340,000 Trademarks and other 16.7 32,926,000 23,895,000 9,031,000 Total $ 448,133,000 253,305,000 $ 194,828,000 July 31, 2023 Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 20.2 $ 302,058,000 121,786,000 $ 180,272,000 Technologies 14.8 114,949,000 80,672,000 34,277,000 Trademarks and other 16.7 32,926,000 21,568,000 11,358,000 Total $ 449,933,000 224,026,000 $ 225,907,000 The weighted average amortization period in the above table excludes fully amortized intangible assets. Amortization expense for the fiscal years ended July 31, 2024, 2023 and 2022 was $ 21,154,000 , $ 21,396,000 and $ 21,396,000 , respectively. The estimated amortization expense consists of the following for the fiscal years ending July 31: 2025 $ 21,722,000 2026 19,128,000 2027 17,774,000 2028 17,774,000 2029 16,353,000 F - 46 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 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. Any impairment charges that we may record in the future could be material to our results of operations and financial condition. (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 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 F - 47 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. The F - 48 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES 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 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 Shelf Registration On July 13, 2022, we filed a $ 200,000,000 shelf registration statement with the SEC for the sale of various types of securities, including debt securities. This shelf registration statement was declared effective by the SEC as of July 25, 2022 and expires on July 25, 2025. To-date, we have not issued any securities pursuant to our $ 200,000,000 shelf registration statement. F - 49 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Common Stock Repurchase Program On September 29, 2020, our Board of Directors authorized a $ 100,000,000 stock repurchase program, which replaced our prior program. The $ 100,000,000 stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws. There were no repurchases made during the fiscal years ended July 31, 2024 or 2023. (18) Cost Reduction Activities In fiscal 2023, we transformed and integrated our individual businesses into two segments to improve operational performance. This transformation has provided insight into opportunities to manage costs, streamline operations, improve efficiency, and accelerate decision-making by eliminating management layers and other redundancies. In doing so, during fiscal 2023, we recorded $ 3,872,000 of severance costs in selling, general and administrative expenses in our Consolidated Statements of Operations, of which $ 1,989,000 , $ 1,220,000 and $ 663,000 related to our Satellite and Space Communications, Terrestrial and Wireless Networks and Unallocated segments, respectively. We paid $ 2,320,000 of severance costs during fiscal 2023 and our severance liability as of July 31, 2023 was $ 1,552,000 . 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: (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 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. F - 50 Schedule II COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Fiscal Years Ended July 31, 2024, 2023 and 2022 Column A Column B Column C Additions Column D Column E Description Balance at beginning of period Charged to cost and expenses Transfers (deductions) - describe Balance at end of period Allowance for doubtful accounts receivable: Year ended July 31, 2024 $ 2,089,000 1,422,000 (A) ( 1,579,000 ) (B) $ 1,932,000 2023 2,337,000 261,000 (A) ( 509,000 ) (B) 2,089,000 2022 1,648,000 838,000 (A) ( 149,000 ) (B) 2,337,000 Inventory reserves: Year ended July 31, 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, 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 and allowance for doubtful account receivables relating to the PST Divestiture. (C) Provision for excess and obsolete inventory. (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. S - 1