UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 31, ~~2021~~2022


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-7928

(Exact name of registrant as specified in its charter)


Delaware						11-2139466
(State or other jurisdiction of incorporation /organization)						(I.R.S. Employer Identification Number)
68 South Service Road, Suite 230, Melville, NY						11747
(Address of principal executive offices)						(Zip Code)


(631)			962-7000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.10 per share

CMTL

~~NASDAQ~~Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

As of December ~~3, 2021,~~2, 2022, the number of outstanding shares of Common Stock, par value $0.10 per share, of the registrant was ~~26,347,292~~27,775,309 shares.

Index


COMTECH TELECOMMUNICATIONS CORP. INDEX
			Page
PART I. FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements	2

		Condensed Consolidated Balance Sheets - October 31, ~~2021~~2022 and July 31, ~~2021~~2022 (Unaudited)	2

		Condensed Consolidated Statements of Operations - Three Months Ended October 31, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	3

		Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity - Three Months Ended October 31, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	4

		Condensed Consolidated Statements of Cash Flows - Three Months Ended October 31, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	5

		Notes to Condensed Consolidated Financial Statements (Unaudited)	7

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3331

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5550

	Item 4.	Controls and Procedures	5551

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	5552

	Item 1A.	Risk Factors	5552

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5552

	Item 4.	Mine Safety Disclosures	5552

	Item 6.	Exhibits	5653

		Signature Page	5754

Index

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


Assets	Assets	October 31, 2021		July 31, 2021	Assets	October 31, 2022		July 31, 2022
Current assets:	Current assets:				Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	30,917,000	30,861,000	Cash and cash equivalents	$	21,528,000	21,654,000
Accounts receivable, net	Accounts receivable, net	136,822,000		158,110,000	Accounts receivable, net	128,787,000		123,711,000
Inventories, net	Inventories, net	87,696,000		80,358,000	Inventories, net	99,748,000		96,317,000
Prepaid expenses and other current assets	Prepaid expenses and other current assets	18,532,000		18,167,000	Prepaid expenses and other current assets	19,507,000		21,649,000
Total current assets	Total current assets	273,967,000		287,496,000	Total current assets	269,570,000		263,331,000
Property, plant and equipment, net	Property, plant and equipment, net	38,569,000		35,286,000	Property, plant and equipment, net	52,688,000		50,363,000
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	48,656,000		44,486,000	Operating lease right-of-use assets, net	49,658,000		49,767,000

Goodwill	Goodwill	347,692,000		347,698,000	Goodwill	347,692,000		347,692,000
Intangibles with finite lives, net	Intangibles with finite lives, net	263,350,000		268,699,000	Intangibles with finite lives, net	241,954,000		247,303,000
Deferred financing costs, net	Deferred financing costs, net	1,622,000		1,824,000	Deferred financing costs, net	811,000		1,014,000
Other assets, net	Other assets, net	9,133,000		7,622,000	Other assets, net	15,452,000		14,827,000
Total assets	Total assets	$	982,989,000	993,111,000	Total assets	$	977,825,000	974,297,000
Liabilities, Convertible Preferred Stock and Stockholders’ Equity	Liabilities, Convertible Preferred Stock and Stockholders’ Equity				Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current liabilities:	Current liabilities:				Current liabilities:
Accounts payable	Accounts payable	$	34,441,000	36,193,000	Accounts payable	$	42,319,000	44,591,000
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	87,989,000		89,601,000	Accrued expenses and other current liabilities	75,441,000		72,662,000
Operating lease liabilities, current	Operating lease liabilities, current	9,214,000		8,841,000	Operating lease liabilities, current	8,190,000		8,685,000
Dividends payable	Dividends payable	2,629,000		2,601,000	Dividends payable	2,774,000		2,746,000
Contract liabilities	Contract liabilities	62,607,000		66,130,000	Contract liabilities	59,809,000		64,601,000
Interest payable	Interest payable	128,000		195,000	Interest payable	250,000		172,000
Total current liabilities	Total current liabilities	197,008,000		203,561,000	Total current liabilities	188,783,000		193,457,000
Non-current portion of long-term debt	Non-current portion of long-term debt	108,000,000		201,000,000	Non-current portion of long-term debt	148,700,000		130,000,000
Operating lease liabilities, non-current	Operating lease liabilities, non-current	43,720,000		39,569,000	Operating lease liabilities, non-current	44,427,000		44,423,000
Income taxes payable	Income taxes payable	3,105,000		2,717,000	Income taxes payable	3,236,000		3,007,000
Deferred tax liability, net	Deferred tax liability, net	21,263,000		21,230,000	Deferred tax liability, net	14,304,000		15,355,000
Long-term contract liabilities	Long-term contract liabilities	9,828,000		9,808,000	Long-term contract liabilities	11,719,000		9,975,000
Other liabilities	Other liabilities	14,036,000		14,507,000	Other liabilities	5,381,000		6,291,000
Total liabilities	Total liabilities	396,960,000		492,392,000	Total liabilities	416,550,000		402,508,000
Commitments and contingencies (See Note 19)		0		0
Convertible preferred stock, par value $0.10 per share; authorized 125,000 shares; issued 100,000 at October 31, 2021 (includes accrued dividends of $235,000)		100,235,000		—
Commitments and contingencies (See Note 18)					Commitments and contingencies (See Note 18)
Convertible preferred stock, par value $0.10 per share; authorized 125,000 shares; issued 100,000 at October 31, 2022 and July 31, 2022 (includes accrued dividends of $576,000 and 566,000 at October 31, 2022 and July 31, 2022, respectively)					Convertible preferred stock, par value $0.10 per share; authorized 125,000 shares; issued 100,000 at October 31, 2022 and July 31, 2022 (includes accrued dividends of $576,000 and 566,000 at October 31, 2022 and July 31, 2022, respectively)	106,914,000		105,204,000
Stockholders’ equity:	Stockholders’ equity:				Stockholders’ equity:
Preferred stock, par value $0.10 per share; authorized and unissued 1,875,000 shares	Preferred stock, par value $0.10 per share; authorized and unissued 1,875,000 shares	—		—	Preferred stock, par value $0.10 per share; authorized and unissued 1,875,000 shares	—		—
Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 41,380,241 and 41,281,812 shares at October 31, 2021 and July 31, 2021, respectively		4,138,000		4,128,000
Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 42,810,846 and 42,672,827 shares at October 31, 2022 and July 31, 2022, respectively					Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 42,810,846 and 42,672,827 shares at October 31, 2022 and July 31, 2022, respectively	4,281,000		4,267,000
Additional paid-in capital	Additional paid-in capital	604,452,000		605,439,000	Additional paid-in capital	629,027,000		625,484,000
Retained earnings	Retained earnings	319,053,000		333,001,000	Retained earnings	262,902,000		278,683,000
		927,643,000		942,568,000		896,210,000		908,434,000
Less:	Less:				Less:
Treasury stock, at cost (15,033,317 shares at October 31, 2021 and July 31, 2021)		(441,849,000)		(441,849,000)
Treasury stock, at cost (15,033,317 shares at October 31, 2022 and July 31, 2022)					Treasury stock, at cost (15,033,317 shares at October 31, 2022 and July 31, 2022)	(441,849,000)		(441,849,000)
Total stockholders’ equity	Total stockholders’ equity	485,794,000		500,719,000	Total stockholders’ equity	454,361,000		466,585,000
Total liabilities, convertible preferred stock and stockholders’ equity	Total liabilities, convertible preferred stock and stockholders’ equity	$	982,989,000	993,111,000	Total liabilities, convertible preferred stock and stockholders’ equity	$	977,825,000	974,297,000

See accompanying notes to condensed consolidated financial statements.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		Three months ended October 31,
							Three months ended October 31,
			2021		2020			2022		2021
Net sales	Net sales		$	116,759,000	135,218,000	Net sales		$	131,139,000	116,759,000
Cost of sales	Cost of sales		75,024,000		85,010,000	Cost of sales		84,336,000		75,024,000
Gross profit	Gross profit		41,735,000		50,208,000	Gross profit		46,803,000		41,735,000

Expenses:	Expenses:					Expenses:
Selling, general and administrative	Selling, general and administrative		28,242,000		27,540,000	Selling, general and administrative		29,337,000		28,242,000
Research and development	Research and development		12,497,000		11,635,000	Research and development		12,751,000		12,497,000
Amortization of intangibles	Amortization of intangibles		5,349,000		5,566,000	Amortization of intangibles		5,349,000		5,349,000
CEO transition costs						CEO transition costs		9,090,000		—
Proxy solicitation costs	Proxy solicitation costs		2,162,000		—	Proxy solicitation costs		—		2,162,000
Acquisition plan expenses			—		91,183,000

			48,250,000		135,924,000			56,527,000		48,250,000

Operating loss	Operating loss		(6,515,000)		(85,716,000)	Operating loss		(9,724,000)		(6,515,000)

Other expenses (income):	Other expenses (income):					Other expenses (income):
Interest expense	Interest expense		1,607,000		2,297,000	Interest expense		2,235,000		1,607,000
Interest (income) and other	Interest (income) and other		219,000		66,000	Interest (income) and other		(255,000)		219,000
Change in fair value of convertible preferred stock purchase option liability	Change in fair value of convertible preferred stock purchase option liability		(304,000)		—	Change in fair value of convertible preferred stock purchase option liability		—		(304,000)

Loss before benefit from income taxes	Loss before benefit from income taxes		(8,037,000)		(88,079,000)	Loss before benefit from income taxes		(11,704,000)		(8,037,000)
Benefit from income taxes	Benefit from income taxes		(2,053,000)		(2,239,000)	Benefit from income taxes		(608,000)		(2,053,000)

Net loss	Net loss		$	(5,984,000)	(85,840,000)	Net loss		$	(11,096,000)	(5,984,000)

Adjustments to reflect redemption value of convertible preferred stock:	Adjustments to reflect redemption value of convertible preferred stock:					Adjustments to reflect redemption value of convertible preferred stock:
Dividend on convertible preferred stock						Dividend on convertible preferred stock		(1,710,000)		(235,000)
Convertible preferred stock issuance costs	Convertible preferred stock issuance costs		(4,007,000)		—	Convertible preferred stock issuance costs		—		(4,007,000)
Establishment of initial convertible preferred stock purchase option liability	Establishment of initial convertible preferred stock purchase option liability		(1,005,000)		—	Establishment of initial convertible preferred stock purchase option liability		—		(1,005,000)
Dividend on convertible preferred stock			(235,000)		—
Net loss attributable to common stockholders	Net loss attributable to common stockholders		$	(11,231,000)	(85,840,000)	Net loss attributable to common stockholders		$	(12,806,000)	(11,231,000)

Net loss per common share (See Note 6):
Net loss per common share (See Note 5):						Net loss per common share (See Note 5):
Basic	Basic		$	(0.43)	(3.39)	Basic		$	(0.46)	(0.43)
Diluted	Diluted		$	(0.43)	(3.39)	Diluted		$	(0.46)	(0.43)

Weighted average number of common shares outstanding – basic	Weighted average number of common shares outstanding – basic		26,426,000		25,305,000	Weighted average number of common shares outstanding – basic		27,830,000		26,426,000

Weighted average number of common and common equivalent shares outstanding – diluted	Weighted average number of common and common equivalent shares outstanding – diluted		26,426,000		25,305,000	Weighted average number of common and common equivalent shares outstanding – diluted		27,830,000		26,426,000

See accompanying notes to condensed consolidated financial statements.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

(Unaudited)


		Three months ended October 31, 2021 and 2020																										Three months ended October 31, 2022 and 2021
		Series A Convertible Preferred Stock			Common Stock			Additional Paid-in Capital				Retained Earnings				Treasury Stock						Stockholders' Equity						Series A Convertible Preferred Stock			Common Stock				Additional Paid-in Capital			Retained Earnings		Treasury Stock					Stockholders' Equity
		Shares	Amount		Shares	Amount								Shares			Amount									Shares		Amount	Shares		Amount	Additional Paid-in Capital		Retained Earnings			Shares			Amount		Stockholders' Equity
Balance as of July 31, 2020		—	$	—	39,924,439	$	3,992,000			$	569,891,000			$	417,265,000		15,033,317			$	(441,849,000)			$	549,299,000
Balance as of July 31, 2021																											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	Equity-classified stock award compensation	—	—		—	—		699,000				—				—		—				699,000					Equity-classified stock award compensation	—	—		—	—			921,000			—		—		—			921,000

Proceeds from issuance of employee stock purchase plan shares	Proceeds from issuance of employee stock purchase plan shares	—	—		15,265	1,000		181,000				—				—		—				182,000					Proceeds from issuance of employee stock purchase plan shares	—	—		10,540	1,000			228,000			—		—		—			229,000
Issuance of restricted stock		—	—		35,975	4,000		(4,000)				—				—		—				—
Issuance of restricted stock, net of forfeiture																											Issuance of restricted stock, net of forfeiture	—	—		13,428	1,000			(1,000)			—		—		—			—
Net settlement of stock-based awards	Net settlement of stock-based awards	—	—		68,074	7,000		(1,345,000)				—				—		—				(1,338,000)					Net settlement of stock-based awards	—	—		74,461	8,000			(2,135,000)			—		—		—			(2,127,000)

Cash dividends declared, net ($0.10 per share)		—	—		—	—		—				(2,493,000)				—		—				(2,493,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)		—	—		—	—		—				(142,000)				—		—				(142,000)
Adoption of current expected credit loss standard		—	—		—	—		—				(215,000)				—		—				(215,000)
Net loss		—	—		—	—		—				(85,840,000)				—		—				(85,840,000)
Balance as of October 31, 2020		—	$	—	40,043,753	$	4,004,000	$	569,422,000			$	328,575,000			15,033,317		$	(441,849,000)			$	460,152,000

Balance as of July 31, 2021		—	$	—	41,281,812	$	4,128,000	$	605,439,000			$	333,001,000			15,033,317		$	(441,849,000)			$	500,719,000
Equity-classified stock award compensation		—	—		—	—		921,000				—				—		—				921,000
Proceeds from issuance of employee stock purchase plan shares		—	—		10,540	1,000		228,000				—				—		—				229,000
Issuance of restricted stock		—	—		13,428	1,000		(1,000)				—				—		—				—
Net settlement of stock-based awards		—	—		74,461	8,000		(2,135,000)				—				—		—				(2,127,000)

Issuance of convertible preferred stock	Issuance of convertible preferred stock	100,000	100,000,000		—	—		—				—				—		—				—					Issuance of convertible preferred stock	100,000	100,000,000		—	—			—			—		—		—			—
Convertible preferred stock issuance costs	Convertible preferred stock issuance costs	—	(4,007,000)		—	—		—				—				—		—				—					Convertible preferred stock issuance costs	—	(4,007,000)		—	—			—			—		—		—			—
Establishment of initial convertible preferred stock purchase option liability	Establishment of initial convertible preferred stock purchase option liability	—	(1,005,000)		—																	—					Establishment of initial convertible preferred stock purchase option liability	—	(1,005,000)		—	—			—			—		—		—			—
Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)	Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)	—	5,247,000		—	—		—				(5,247,000)				—		—				(5,247,000)					Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)	—	5,247,000		—	—			—			(5,247,000)		—		—			(5,247,000)
Cash dividends declared, net ($0.10 per share)																											Cash dividends declared, net ($0.10 per share)	—	—		—	—			—			(2,629,000)		—		—			(2,629,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)																											Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—	—			—			(88,000)		—		—			(88,000)
Net loss																											Net loss	—	—		—	—			—			(5,984,000)		—		—			(5,984,000)
Balance as of October 31, 2021																											Balance as of October 31, 2021	100,000	$	100,235,000	41,380,241	$	4,138,000		$	604,452,000		$	319,053,000	15,033,317		$	(441,849,000)		$	485,794,000

Balance as of July 31, 2022																											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																											Equity-classified stock award compensation	—	—		—	—			904,000			—		—		—			904,000
CEO transition costs related to equity-classified stock-based awards (See Note 1)																											CEO transition costs related to equity-classified stock-based awards (See Note 1)	—	—		—	—			3,764,000			—		—		—			3,764,000
Proceeds from issuance of employee stock purchase plan shares																											Proceeds from issuance of employee stock purchase plan shares	—	—		15,017	2,000			117,000			—		—		—			119,000
Issuance of restricted stock, net of forfeiture																											Issuance of restricted stock, net of forfeiture	—	—		10,718	1,000			(1,000)			—		—		—			—
Net settlement of stock-based awards																											Net settlement of stock-based awards	—	—		112,284	11,000			(1,241,000)			—		—		—			(1,230,000)

Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)																											Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)	—	1,710,000		—	—			—			(1,710,000)		—		—			(1,710,000)

Cash dividends declared, net ($0.10 per share)	Cash dividends declared, net ($0.10 per share)	—	—		—	—		—				(2,629,000)				—		—				(2,629,000)					Cash dividends declared, net ($0.10 per share)	—	—		—	—			—			(2,774,000)		—		—			(2,774,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)	Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—	—		—				(88,000)				—		—				(88,000)					Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—	—			—			(201,000)		—		—			(201,000)

Net loss	Net loss	—	—		—	—		—				(5,984,000)				—		—				(5,984,000)					Net loss	—	—		—	—			—			(11,096,000)		—		—			(11,096,000)
Balance as of October 31, 2021		100,000	$	100,235,000	41,380,241	$	4,138,000	$	604,452,000			$	319,053,000			15,033,317		$	(441,849,000)			$	485,794,000
Balance as of October 31, 2022																											Balance as of October 31, 2022	100,000	$	106,914,000	42,810,846	$	4,281,000		$	629,027,000		$	262,902,000	15,033,317		$	(441,849,000)		$	454,361,000

See accompanying notes to condensed consolidated financial statements. ~~(Continued)~~

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Three months ended October 31,			Three months ended October 31,

		2021		2020	2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(5,984,000)	(85,840,000)		Net loss	$	(11,096,000)	(5,984,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:						Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization of property, plant and equipment	Depreciation and amortization of property, plant and equipment	2,241,000		2,552,000		Depreciation and amortization of property, plant and equipment	2,798,000		2,241,000
Amortization of intangible assets with finite lives	Amortization of intangible assets with finite lives	5,349,000		5,566,000		Amortization of intangible assets with finite lives	5,349,000		5,349,000
Amortization of stock-based compensation	Amortization of stock-based compensation	921,000		699,000		Amortization of stock-based compensation	904,000		921,000
Amortization of cost to fulfill assets						Amortization of cost to fulfill assets	240,000		—
CEO transition costs related to equity-classified stock-based awards						CEO transition costs related to equity-classified stock-based awards	3,764,000		—
Amortization of deferred financing costs	Amortization of deferred financing costs	203,000		184,000		Amortization of deferred financing costs	203,000		203,000
Change in fair value of convertible preferred stock purchase option liability	Change in fair value of convertible preferred stock purchase option liability	(304,000)		—		Change in fair value of convertible preferred stock purchase option liability	—		(304,000)

Changes in other liabilities	Changes in other liabilities	(1,033,000)		(1,033,000)		Changes in other liabilities	(1,033,000)		(1,033,000)
Loss on disposal of property, plant and equipment						Loss on disposal of property, plant and equipment	71,000		—
Provision for (benefit from) allowance for doubtful accounts						Provision for (benefit from) allowance for doubtful accounts	242,000		(156,000)
Provision for excess and obsolete inventory						Provision for excess and obsolete inventory	847,000		1,175,000
Deferred income tax (benefit) expense						Deferred income tax (benefit) expense	(1,217,000)		175,000

(Benefit from) provision for allowance for doubtful accounts		(156,000)		110,000
Provision for excess and obsolete inventory		1,175,000		1,003,000
Deferred income tax expense		175,000		816,000
Other		—		(225,000)
Changes in assets and liabilities, net of effects of business acquisitions:	Changes in assets and liabilities, net of effects of business acquisitions:					Changes in assets and liabilities, net of effects of business acquisitions:
Accounts receivable	Accounts receivable	21,450,000		(5,784,000)		Accounts receivable	(5,318,000)		21,450,000
Inventories	Inventories	(8,513,000)		(101,000)		Inventories	(4,278,000)		(8,513,000)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,507,000		(5,247,000)		Prepaid expenses and other current assets	1,581,000		1,507,000
Other assets	Other assets	(537,000)		45,000		Other assets	(714,000)		(537,000)
Accounts payable	Accounts payable	(6,353,000)		1,133,000		Accounts payable	(1,555,000)		(6,353,000)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	814,000		7,031,000		Accrued expenses and other current liabilities	5,256,000		814,000
Contract liabilities	Contract liabilities	(3,503,000)		4,274,000		Contract liabilities	(3,048,000)		(3,503,000)
Other liabilities, non-current	Other liabilities, non-current	(2,000)		2,358,000		Other liabilities, non-current	(61,000)		(2,000)
Interest payable	Interest payable	(66,000)		1,307,000		Interest payable	78,000		(66,000)
Income taxes payable	Income taxes payable	(2,605,000)		(3,077,000)		Income taxes payable	790,000		(2,605,000)
Net cash provided by (used in) operating activities		4,779,000		(74,229,000)
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(6,197,000)		4,779,000
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Purchases of property, plant and equipment	Purchases of property, plant and equipment	(3,638,000)		(890,000)		Purchases of property, plant and equipment	(7,221,000)		(3,638,000)
Net cash used in investing activities	Net cash used in investing activities	(3,638,000)		(890,000)		Net cash used in investing activities	(7,221,000)		(3,638,000)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock	Proceeds from issuance of convertible preferred stock	100,000,000		—		Proceeds from issuance of convertible preferred stock	—		100,000,000
Net (payments) borrowings of long-term debt under Credit Facility		(93,000,000)		67,500,000
Net borrowings (payments) of long-term debt under Credit Facility						Net borrowings (payments) of long-term debt under Credit Facility	18,700,000		(93,000,000)
Remittance of employees' statutory tax withholding for stock awards	Remittance of employees' statutory tax withholding for stock awards	(4,723,000)		(2,737,000)		Remittance of employees' statutory tax withholding for stock awards	(2,332,000)		(4,723,000)
Cash dividends paid on common stock	Cash dividends paid on common stock	(2,916,000)		(5,236,000)		Cash dividends paid on common stock	(3,092,000)		(2,916,000)
Payment of convertible preferred stock issuance costs	Payment of convertible preferred stock issuance costs	(530,000)		—		Payment of convertible preferred stock issuance costs	—		(530,000)
Payment of deferred financing costs	Payment of deferred financing costs	(140,000)		—		Payment of deferred financing costs	—		(140,000)
Repayment of principal amounts under finance lease liabilities	Repayment of principal amounts under finance lease liabilities	(5,000)		—		Repayment of principal amounts under finance lease liabilities	(2,000)		(5,000)
Payment of shelf registration costs						Payment of shelf registration costs	(101,000)		—
Proceeds from issuance of employee stock purchase plan shares	Proceeds from issuance of employee stock purchase plan shares	229,000		182,000		Proceeds from issuance of employee stock purchase plan shares	119,000		229,000

Net cash (used in) provided by financing activities		(1,085,000)		59,709,000
Net increase (decrease) in cash and cash equivalents		$	56,000	(15,410,000)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	13,292,000		(1,085,000)
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(126,000)		56,000
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	30,861,000		47,878,000		Cash and cash equivalents at beginning of period	21,654,000		30,861,000
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	30,917,000	32,468,000		Cash and cash equivalents at end of period	$	21,528,000	30,917,000

See accompanying notes to condensed consolidated financial statements. ~~(Continued)~~

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)


		Three months ended October 31,				Three months ended October 31,

		2021		2020		2022		2021
Supplemental cash flow disclosures:	Supplemental cash flow disclosures:				Supplemental cash flow disclosures:
Cash paid (received) during the period for:	Cash paid (received) during the period for:				Cash paid (received) during the period for:
Interest	Interest	$	1,345,000	786,000	Interest	$	1,947,000	1,345,000
Income taxes, net	Income taxes, net	$	387,000	22,000	Income taxes, net	$	(181,000)	387,000

Non-cash investing and financing activities:	Non-cash investing and financing activities:				Non-cash investing and financing activities:

Unpaid additions to property, plant and equipment		$	1,878,000	1,489,000
Accrued additions to property, plant and equipment					Accrued additions to property, plant and equipment	$	1,818,000	1,878,000

Cash dividends declared on common stock but unpaid (including accrual of dividend equivalents)	Cash dividends declared on common stock but unpaid (including accrual of dividend equivalents)	$	2,717,000	142,000	Cash dividends declared on common stock but unpaid (including accrual of dividend equivalents)	$	2,975,000	2,717,000

Unpaid convertible preferred stock issuance costs		$	3,477,000	—
Accrued convertible preferred stock issuance costs					Accrued convertible preferred stock issuance costs	$	—	3,477,000

Reclassification of finance lease right-of-use assets to property, plant and equipment					Reclassification of finance lease right-of-use assets to property, plant and equipment	$	12,000	—

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

Adjustment to reflect redemption value of convertible preferred stock	Adjustment to reflect redemption value of convertible preferred stock	$	5,247,000	—	Adjustment to reflect redemption value of convertible preferred stock	$	1,710,000	5,247,000

See accompanying notes to condensed consolidated financial statements.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) General

The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp. and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 are unaudited. In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods. Our results of operations for such periods are not necessarily indicative of the results of operations to be expected for the full fiscal year.

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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 condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reported period. Actual results may differ from those estimates.

Our condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements, filed with the Securities and Exchange Commission ("SEC"), for the fiscal year ended July 31, ~~2021~~2022 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC.

~~Impact of Coronavirus Disease 2019 Pandemic ("COVID-19") and Global Supply Chain Constraints on Our Business~~Reclassifications

~~Since March 2020, we~~Certain reclassifications have ~~conducted most of our non-production related operations using remote working arrangements, curtailed most business travel, and have established social distancing safeguards. Both COVID-19 and~~been made to previously reported condensed consolidated financial statements to conform to the related global supply chain constraints have impacted our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve. We have experienced order and production delays, supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs. Although the COVID-19 pandemic is by no means over and additional waves of COVID-19 could again alter the business landscape, we believe that the pandemic’s worst impact on our business is largely behind us. Our long-term fundamentals remain strong and we continue to believe our business is well-positioned for growth.fiscal 2023 presentation.

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(2)~~ ~~Acquisitions~~

~~UHP Networks Inc.~~CEO Transition Costs

On ~~March 2, 2021, we completed~~August 9, 2022, our ~~acquisition~~Board of ~~UHP Networks Inc.~~Directors appointed our Chairman of the Board, Ken Peterman, as President and Chief Executive Officer ("~~UHP"~~CEO")~~, a leading provider of innovative~~. Transition costs related to our former President and ~~disruptive satellite ground station technology solutions,~~CEO, Michael D. Porcelain, pursuant to ~~a stock purchase~~his separation agreement initially entered into in November 2019 and amended in June 2020 and on March 1, 2021, respectively. With end-markets for high-speed satellite-based networks anticipated to significantly grow, our acquisition allows us to enhance our Commercial Solutions segment's offerings with ~~low cost time division multiple access ("TDMA") satellite modems.~~

~~The acquisition has a preliminary purchase price for accounting purposes~~the Company, were $7,424,000, of ~~$37,470,000. Pursuant~~which $3,764,000 related to the acceleration of unamortized stock ~~purchase agreement, during fiscal 2021,~~based compensation, with the ~~initial upfront payment~~remaining $3,660,000 related to his severance payments and benefits upon termination of ~~approximately $23,979,000 was paid mostly in shares of our common stock, with $87,000 in cash. In August 2021, $3,991,000~~employment. The cash portion of the ~~$4,991,000 hold back amount previously placed into escrow at closing~~transition costs of $3,660,000 was paid to ~~the seller~~Mr. Porcelain in shares of our common stock, as the conditions pursuant to the stock purchase agreement were met. The stock purchase agreement also provides for a contingent earn-out payment of up to $9,000,000, also payable at our option in cash and or shares of our common stock, if specified sales milestones are reached during a defined period ending September 30,October 2022. ~~The preliminary estimated fair value of such contingent earn-out consideration at the acquisition date was $8,500,000.~~

~~Of the $23,979,000 paid at closing, $4,560,000 was placed into escrow to be released ratably over three years upon settlement of potential indemnification obligations of the seller.~~

We issued 1,026,567 shares of our common stock at closing, based on a volume weighted average stock price of approximately $28.14 per share, in satisfaction of initial payment and escrow arrangements under the terms of the stock purchase agreement. The terms of the stock purchase agreement provide an ability for us to substitute cash in lieu of the common stock that was initially placed into escrow.

We are accounting for the acquisition under the acquisition method of accounting in accordance with FASB ASC 805, "Business Combinations" ("ASC 805"). The purchase price was allocated to the assets acquired and liabilities assumed, based on their preliminary fair value as of March 2, 2021 pursuant to the business combination accounting rules. Acquisition plan expenses were not included as a component of consideration transferred and were expensed in the period incurred. Our condensed consolidated statements of operations for the three months ended October 31, 2021 include a nominal amount of revenue contribution from the acquisition. Pro forma financial information is not disclosed, as the acquisition is not material.

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed~~Also, in connection with Mr. Peterman entering into an employment agreement with the ~~acquisition:~~

Purchase
Price Allocation (1)
Measurement Period Adjustments
Purchase Price Allocation
(As adjusted)
Initial upfront payment $ 23,979,000 — $ 23,979,000
Hold-back amount 4,991,000 — 4,991,000
Contingent earn-out consideration 8,500,000 — 8,500,000
Preliminary purchase price at fair value $ 37,470,000 — $ 37,470,000
Preliminary allocation of aggregate purchase price:
Cash and cash equivalents $ 1,391,000 — $ 1,391,000
Current assets 1,358,000 9,000 1,367,000
Property, plant and equipment 10,000 — 10,000
Deferred tax assets 313,000 (3,000) 310,000
Contract liabilities (648,000) — (648,000)
Accrued warranty obligations (750,000) — (750,000)
Other current liabilities (1,175,000) — (1,175,000)
Non-current liabilities (160,000) — (160,000)
Net tangible assets at preliminary fair value $ 339,000 6,000 $ 345,000
Identifiable intangibles, deferred taxes and goodwill:
Estimated
Useful Lives
Technology $ 15,300,000 — $ 15,300,000 15 years
Customer relationships 15,500,000 — 15,500,000 15 years
Trade name 800,000 — 800,000 20 years
Deferred tax liabilities (8,374,000) — (8,374,000)
Goodwill 13,905,000 (6,000) 13,899,000 Indefinite
Preliminary allocation of aggregate purchase price $ 37,470,000 — $ 37,470,000

~~(1)As reported in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2021.~~

The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized over their estimated useful lives. The preliminary fair valueCompany, effective as of customer relationships was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future. The preliminary fair value of technology and trade name was based on the discounted capitalization of royalty expense saved because we now own the assets. The preliminary estimated fair value of contingent earn-out consideration represents the present value of the estimated amount payable, based on a probability-weighted amount of net sales, as defined, during the earn-out period, which reflects significant management estimates and assumptions using unobservable Level 3 inputs, including: (i) possible outcomes for targeted net sales during the earn-out period; (ii) timing of each possible outcome; (iii) probability of each possible outcome; and (vi) discount rate reflecting the credit risk of the Company. Among the factors contributing to the recognition of goodwill, as a component of the preliminary purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Commercial Solutions segment based on specific identification and is generally not deductible for income tax purposes.

The allocation of the preliminary purchase price shown in the above table was based upon a preliminary valuation and estimates and assumptions that are subject to change within the purchase price allocation period, generally one year from the acquisition date. The primary areas of the purchase price allocation not yet finalized include the purchase price (due to customary adjustments for potential indemnification obligations of the seller under the stock purchase agreement), a final assessment of assets acquired and liabilities assumed, accrued warranty obligations, income taxes and residual goodwill.

August 9,

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Acquisition Plan Expenses~~

~~During the three months ended October 31, 2020,~~ 2022, we incurred acquisition plan expenses of $91,183,000. Of this amount, $88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd. ("Gilat"), including $70,000,000 paid in cash to Gilat. The remaining costs primarily related to the April 2021 settlement of litigation associated with the 2019 acquisition of GD NG-911 as well as our acquisition of UHP, which closed in March 2021. Additionally, during the three months ended October 31, 2020, we recorded $1,178,000 of incremental interesta $1,000,000 expense related to a ~~now terminated financing commitment letter.~~cash sign-on bonus. CEO transition costs related to Mr. Porcelain and Mr. Peterman were expensed in our Unallocated segment during the first quarter of fiscal 2023.

~~(3)~~(2) Adoption of Accounting Standards and Updates

We are required to prepare our condensed 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 the three months ended~~ASUs issued, but not effective until after October 31, ~~2021, we adopted:~~

•~~FASB ASU No. 2019-12, which simplifies various aspects related~~2022, are not expected to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. Our adoption of this ASU on August 1, 2021 did not have a material impact on our condensed consolidated financial statements or disclosures.

•FASB ASU No. 2020-01, which clarifies the interactions between Topics 321, 323 and 815. This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815. Our adoption of this ASU on August 1, 2021 did not impact our condensed consolidated financial statements or disclosures.

•FASB ASU No. 2020-06, which simplifies the accounting for convertible instruments by removing certain separation models (including the cash conversion model and the beneficial conversion feature model) for convertible instruments. As a result, for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815 or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features are no longer separated from the host contract. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost as long as no other features require bifurcation and recognition as derivatives. On August 1, 2021, we early adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

•FASB ASU No. 2021-08, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally recognized contract assets and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. On August 1, 2021, we early adopted this ASU. Our early adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

107

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(4)~~(3) 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). 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 ~~Government Solutions~~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 ~~Commercial Solutions~~Terrestrial and Wireless Networks segment. For service-based contracts in our ~~public safety~~Terrestrial and ~~location technologies product line,~~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.

118

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Point in time accounting is principally applied to contracts in our satellite ground station technologies product line (which includes satellite modems, solid-state and traveling wave tube amplifiers) and certain contracts for our solid-state, high-power RF amplifiers. The contracts related to these 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.

129

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:


		Three months ended October 31,					Three months ended October 31,
			2021		2020				2022		2021
United States	United States							United States
U.S. government	U.S. government		30.1	%	32.5	%		U.S. government	32.1	%	30.1	%
Domestic	Domestic		48.5	%	41.9	%		Domestic	46.7	%	48.5	%
Total United States	Total United States		78.6	%	74.4	%		Total United States	78.8	%	78.6	%

International	International		21.4	%	25.6	%		International	21.2	%	21.4	%
Total	Total		100.0	%	100.0	%		Total	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. Included in domestic sales are sales to Verizon Communications Inc. ("Verizon"), which accounted for ~~11.7%~~12.5% and ~~12.5%~~11.7% of consolidated net sales for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, 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 the three months ended October 31, ~~2021~~2022 and ~~2020.~~2021.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our Chief Operating Decision Maker ("CODM") for the three months ended October 31, ~~2021~~2022 and ~~2020.~~2021. 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:


		Three months ended October 31, 2021						Three months ended October 31, 2022
			Commercial Solutions		Government Solutions	Total				Satellite and Space Communications		Terrestrial and Wireless Networks	Total
Geographical region and customer type	Geographical region and customer type								Geographical region and customer type
U.S. government	U.S. government		$	11,034,000	24,135,000	$	35,169,000		U.S. government	$	41,013,000	1,038,000	$	42,051,000
Domestic	Domestic		51,220,000		5,335,000	56,555,000			Domestic	15,244,000		46,011,000	61,255,000
Total United States	Total United States		62,254,000		29,470,000	91,724,000			Total United States	56,257,000		47,049,000	103,306,000

International	International		16,680,000		8,355,000	25,035,000			International	24,616,000		3,217,000	27,833,000
Total	Total		$	78,934,000	37,825,000	$	116,759,000		Total	$	80,873,000	50,266,000	$	131,139,000
Contract type	Contract type								Contract type
Firm fixed-price	Firm fixed-price		$	78,720,000	30,382,000	$	109,102,000		Firm fixed-price	$	69,875,000	50,266,000	$	120,141,000
Cost reimbursable	Cost reimbursable		214,000		7,443,000	7,657,000			Cost reimbursable	10,998,000		—	10,998,000
Total	Total		$	78,934,000	37,825,000	$	116,759,000		Total	$	80,873,000	50,266,000	$	131,139,000
Transfer of control	Transfer of control								Transfer of control
Point in time	Point in time		$	24,200,000	16,563,000	$	40,763,000		Point in time	$	55,000,000	84,000	$	55,084,000
Over time	Over time		54,734,000		21,262,000	75,996,000			Over time	25,873,000		50,182,000	76,055,000
Total	Total		$	78,934,000	37,825,000	$	116,759,000		Total	$	80,873,000	50,266,000	$	131,139,000

1310

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


		Three months ended October 31, 2020						Three months ended October 31, 2021
			Commercial Solutions		Government Solutions	Total				Satellite and Space Communications		Terrestrial and Wireless Networks	Total
Geographical region and customer type	Geographical region and customer type								Geographical region and customer type
U.S. government	U.S. government		$	9,458,000	34,432,000	$	43,890,000		U.S. government	$	33,897,000	1,272,000	$	35,169,000
Domestic	Domestic		49,300,000		7,414,000	56,714,000			Domestic	10,787,000		45,768,000	56,555,000
Total United States	Total United States		58,758,000		41,846,000	100,604,000			Total United States	44,684,000		47,040,000	91,724,000

International	International		23,044,000		11,570,000	34,614,000			International	19,876,000		5,159,000	25,035,000
Total	Total		$	81,802,000	53,416,000	$	135,218,000		Total	$	64,560,000	52,199,000	$	116,759,000
Contract type	Contract type								Contract type
Firm fixed-price	Firm fixed-price		$	80,988,000	32,656,000	$	113,644,000		Firm fixed-price	$	56,903,000	52,199,000	$	109,102,000
Cost reimbursable	Cost reimbursable		814,000		20,760,000	21,574,000			Cost reimbursable	7,657,000		—	7,657,000
Total	Total		$	81,802,000	53,416,000	$	135,218,000		Total	$	64,560,000	52,199,000	$	116,759,000
Transfer of control	Transfer of control								Transfer of control
Point in time	Point in time		$	29,671,000	23,031,000	$	52,702,000		Point in time	$	40,616,000	147,000	$	40,763,000
Over time	Over time		52,131,000		30,385,000	82,516,000			Over time	23,944,000		52,052,000	75,996,000
Total	Total		$	81,802,000	53,416,000	$	135,218,000		Total	$	64,560,000	52,199,000	$	116,759,000

The timing of revenue recognition, billings and collections results in receivables, unbilled receivables and contract liabilities on our Condensed Consolidated Balance Sheet. Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. For certain contracts with provisions that are intended to protect customers in the event we do not satisfy our performance obligations, billings occur subsequent to revenue recognition, resulting in unbilled receivables. Under ASC 606, unbilled receivables constitute contract assets. There were no material impairment losses recognized on contract assets during the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively. 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 contract liability balance at July 31, ~~2021~~2022 and July 31, ~~2020,~~2021, $21,628,000 and $24,973,000 ~~and $16,370,000~~ was recognized as revenue during the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

We recognize the incremental costs to obtain or fulfill a contract as an expense when incurred if the amortization period of the asset is one year or ~~less. Incremental~~less; otherwise, such costs are capitalized and amortized over the estimated life of the contract. During the three months ended October 31, 2022 and 2021, incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

As commissions payable to our internal sales and marketing employees or contractors are contingent upon multiple factors, such commissions are not considered direct costs to obtain or fulfill a contract with a customer and are expensed as incurred in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations. As for commissions payable to our third-party sales representatives related to long-term contracts, we do consider these types of commissions both direct and incremental costs to obtain and fulfill such contracts. Therefore, such types of commissions are included in total estimated costs at completion for such contracts and expensed over time through cost of sales on our Condensed Consolidated Statements of Operations.

1411

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 October 31, ~~2021,~~2022, the aggregate amount of the transaction price allocated to remaining performance obligations was ~~$628,498,000~~$668,159,000 (which represents the amount of our consolidated funded backlog). We estimate that a substantial portion of our remaining performance obligations at October 31, ~~2021~~2022 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter. During the three months ended October 31, ~~2021,~~2022, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

~~(5)~~(4) Fair Value Measurements and Financial Instruments

Using the fair value hierarchy described in FASB ASC 820 "Fair Value Measurements and Disclosures," we valued our cash and cash equivalents using Level 1 inputs that were based on quoted market prices. We believe that the carrying amounts of our other current financial assets (such as accounts receivable) and other current liabilities (including accounts payable and accrued expenses) approximate their fair values due to their short-term maturities.

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

The stock purchase agreement for the acquisition of UHP provides for a contingent earn-out payment of up to $9,000,000, if specified sales milestones are reached during a defined period ending September 30, 2022. The earn-out is accounted for as a contingent consideration liability to be recorded at its fair value. See Note ~~(2)~~(9) - "Credit Facility - Subsequent Event" ~~- "Acquisitions~~" for more ~~information regarding the estimated fair value of the earn-out.~~information.

As of October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.

~~(6)~~(5) Earnings Per Share

Our basic earnings per share ("EPS") is computed based on the weighted average number of common shares (including vested but unissued stock units, share units, performance shares and restricted stock units ("RSUs")) outstanding during each respective period. Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, settlement of escrow ~~and earn-out~~ arrangements related to our acquisition of UHP Networks Inc. ("UHP") and the assumed conversion of Convertible Preferred Stock, if dilutive, outstanding during each respective period. Pursuant to FASB ASC 260 "Earnings Per Share," shares whose issuance is contingent upon the satisfaction of certain conditions are included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period. 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 three months ended October 31, ~~2021~~2022 and ~~2020.~~2021. See Note ~~(18)~~(17) - "Stockholders’ Equity" for more information.

Weighted average stock options, RSUs and restricted stock outstanding of 1,169,000 and 1,525,000 ~~and 1,839,000~~shares for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive. Our EPS calculations exclude ~~239,000~~383,000 and ~~232,000~~239,000 weighted average performance shares outstanding for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, 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 324,000 and 340,000 related to our acquisition of UHP in March 2021 were not included in our diluted EPS calculation for the three months ended October 31, 2022 and 2021, respectively, because their effect would have been anti-dilutive.

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Weighted average common shares of 4,460,000 and 577,000 underlying the assumed conversion of Convertible Preferred Stock, on an if-converted basis, were not included in our diluted EPS calculation for the three months ended October 31, 2022 and 2021, respectively, because their effect would have been anti-dilutive. As a result, the numerator for our basic and diluted EPS calculation for the three months ended October 31, 2022 and 2021 is ~~our~~the respective net loss attributable to common stockholders.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


		Three months ended October 31,					Three months ended October 31,
			2021		2020			2022		2021
Numerator:	Numerator:					Numerator:
Net loss	Net loss		$	(5,984,000)	(85,840,000)	Net loss		$	(11,096,000)	(5,984,000)
Convertible preferred stock issuance costs	Convertible preferred stock issuance costs		(4,007,000)		—	Convertible preferred stock issuance costs		—		(4,007,000)
Establishment of initial convertible preferred stock purchase option liability	Establishment of initial convertible preferred stock purchase option liability		(1,005,000)		—	Establishment of initial convertible preferred stock purchase option liability		—		(1,005,000)
Dividend on convertible preferred stock	Dividend on convertible preferred stock		(235,000)		—	Dividend on convertible preferred stock		(1,710,000)		(235,000)
Net loss attributable to common stockholders	Net loss attributable to common stockholders		$	(11,231,000)	(85,840,000)	Net loss attributable to common stockholders		$	(12,806,000)	(11,231,000)

Denominator:	Denominator:					Denominator:

Denominator for basic and diluted calculation	Denominator for basic and diluted calculation		26,426,000		25,305,000	Denominator for basic and diluted calculation		27,830,000		26,426,000

As discussed further in Note ~~(17)~~(16) - "Convertible Preferred Stock," the Convertible Preferred Stock issued in October 2021 represents a "participating security" as defined in ASC 260. As a result, our EPS calculations for the three months ended October 31, 2022 and 2021 were based on the two-class method. Given the net loss attributable to common stockholders for the three months ended October 31, 2022 and 2021, there was no impact of applying the two-class method to our reported basic or diluted earnings per common share.

~~(7)~~(6) Accounts Receivable

Accounts receivable consist of the following at:


		October 31, 2021		July 31, 2021		October 31, 2022		July 31, 2022
Receivables from commercial and international customers	Receivables from commercial and international customers	$	72,311,000	86,890,000	Receivables from commercial and international customers	$	58,863,000	59,922,000
Unbilled receivables from commercial and international customers	Unbilled receivables from commercial and international customers	34,210,000		36,131,000	Unbilled receivables from commercial and international customers	45,109,000		39,826,000
Receivables from the U.S. government and its agencies	Receivables from the U.S. government and its agencies	28,758,000		33,381,000	Receivables from the U.S. government and its agencies	22,427,000		24,776,000
Unbilled receivables from the U.S. government and its agencies	Unbilled receivables from the U.S. government and its agencies	3,010,000		3,356,000	Unbilled receivables from the U.S. government and its agencies	4,948,000		1,524,000
Total accounts receivable	Total accounts receivable	138,289,000		159,758,000	Total accounts receivable	131,347,000		126,048,000
Less allowance for doubtful accounts	Less allowance for doubtful accounts	1,467,000		1,648,000	Less allowance for doubtful accounts	2,560,000		2,337,000
Accounts receivable, net	Accounts receivable, net	$	136,822,000	158,110,000	Accounts receivable, net	$	128,787,000	123,711,000

Unbilled receivables as of October 31, ~~2021~~2022 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date. Under ASC 606, unbilled receivables constitute contract assets. Management estimates that a substantial portion of the amounts not yet billed at October 31, ~~2021~~2022 will be billed and collected within one year.

As of October 31, ~~2021, 23.0%, 14.8% and 12.8% of total accounts receivable related to~~2022, except for the U.S. government (and its agencies), Verizon and AT&T, ~~Inc.~~which represented 20.8%, 18.3% and ~~Verizon, respectively.~~11.3%, of total accounts receivable, respectively, there were no other customers which accounted for greater than 10% of total accounts receivable.

As of July 31, ~~2021, 23.0%, 12.7%~~2022, except for the U.S. government (and its agencies) and ~~12.1%~~Verizon, which represented 20.9% and 13.4% of total accounts receivable, ~~related to the U.S. government and its agencies, AT&T, Inc. and Verizon, respectively.~~respectively, there were no other customers which accounted for greater than 10% of total accounts receivable.

1613

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(8)~~(7) Inventories

Inventories consist of the following at:


		October 31, 2021		July 31, 2021		October 31, 2022		July 31, 2022
Raw materials and components	Raw materials and components	$	67,151,000	62,249,000	Raw materials and components	$	81,288,000	78,478,000
Work-in-process and finished goods	Work-in-process and finished goods	41,606,000		38,338,000	Work-in-process and finished goods	42,363,000		40,960,000
Total inventories	Total inventories	108,757,000		100,587,000	Total inventories	123,651,000		119,438,000
Less reserve for excess and obsolete inventories	Less reserve for excess and obsolete inventories	21,061,000		20,229,000	Less reserve for excess and obsolete inventories	23,903,000		23,121,000
Inventories, net	Inventories, net	$	87,696,000	80,358,000	Inventories, net	$	99,748,000	96,317,000

As of October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was ~~$7,392,000~~$4,537,000 and ~~$7,028,000,~~$4,100,000, respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was ~~$1,632,000~~$2,039,000 and ~~$1,509,000,~~$1,866,000, respectively.

~~(9)~~(8) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:


		October 31, 2021		July 31, 2021		October 31, 2022		July 31, 2022
Accrued wages and benefits	Accrued wages and benefits	$	23,599,000	26,367,000	Accrued wages and benefits	$	26,282,000	25,675,000
Accrued warranty obligations	Accrued warranty obligations	16,889,000		17,600,000	Accrued warranty obligations	9,394,000		9,420,000
Accrued contract costs	Accrued contract costs	13,682,000		12,750,000	Accrued contract costs	17,149,000		15,921,000
Accrued acquisition-related costs		8,969,000		9,222,000

Accrued commissions and royalties	Accrued commissions and royalties	4,589,000		5,342,000	Accrued commissions and royalties	6,393,000		5,697,000
Accrued legal costs	Accrued legal costs	2,596,000		2,854,000	Accrued legal costs	2,724,000		2,514,000
Other	Other	17,665,000		15,466,000	Other	13,499,000		13,435,000
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	87,989,000	89,601,000	Accrued expenses and other current liabilities	$	75,441,000	72,662,000

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 acquisition-related costs as of October 31, 2021 and July 31, 2021 include $8,830,000 and $8,705,000, respectively, of contingent earn-out consideration related to our acquisition of UHP. See~~ ~~Note~~ (2~~) - “Acquisitions - UHP Networks Inc.” for further discussion.~~

Accrued warranty obligations as of October 31, ~~2021~~2022 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 three months ended October 31, 2022 and 2021 were as follows:


	Three months ended October 31,
	2022		2021
Balance at beginning of period	$	9,420,000	17,600,000
Provision for warranty obligations	409,000		271,000

Charges incurred	(435,000)		(982,000)


Balance at end of period	$	9,394,000	16,889,000

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Changes in our accrued warranty obligations during the three months ended October 31, 2021 and 2020 were as follows:~~

Three months ended October 31,
2021 2020
Balance at beginning of period $ 17,600,000 15,200,000
Provision for warranty obligations 271,000 1,845,000
Charges incurred (982,000) (849,000)
Balance at end of period $ 16,889,000 16,196,000

~~(10)~~(9) Credit Facility

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders. On November 30, 2022, we entered into the Second Amended and Restated Credit Agreement (the “Amended Credit Facility”) with the existing lenders. See “Subsequent Event” below for further information. Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility and Amended Credit Facility, which have been documented and filed with the SEC.

The Credit Facility ~~provides~~had a maturity date of October 31, 2023 and provided a senior secured loan facility of up to $550,000,000 consisting of: (i) a revolving loan facility ~~("Revolving Loan Facility")~~ with a borrowing limit of $300,000,000; (ii) an accordion feature allowing us to make a request to borrow up to an additional $250,000,000 subject to the satisfaction of specified conditions, including approval by our lenders; (iii) a $35,000,000 letter of credit sublimit; and (iv) a swingline loan credit sublimit of $25,000,000.

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

As of October 31, ~~2021,~~2022, the amount outstanding under our Credit Facility was ~~$108,000,000,~~$148,700,000, which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet. At October 31, ~~2021,~~2022, we had ~~$1,503,000~~$519,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit. During the three months ended October 31, ~~2021,~~2022, we had outstanding balances under the Credit Facility ranging from ~~$100,000,000~~$130,000,000 to ~~$212,000,000.~~$155,500,000.

As of October 31, ~~2021,~~2022, total net deferred financing costs related to the Credit Facility were ~~$1,622,000 and are being amortized over the term of our Credit Facility through October 31, 2023.~~$811,000.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended October 31, 2022 and 2021 was $2,240,000 and ~~2020 was~~ $1,493,000, ~~and $1,111,000,~~ respectively. Our blended interest rate approximated ~~2.94%~~5.85% and ~~2.70%~~2.94%, respectively, for the three months ended October 31, ~~2021~~2022 and ~~2020.~~2021.

~~Borrowings~~As of October 31, 2022, our Secured Leverage Ratio was 3.49x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as of October 31, 2022 was 8.79x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

Subsequent Event

On November 30, 2022, we entered into the Amended Credit Facility which provides a senior secured loan facility of up to $300,000,000 consisting of: (i) a revolving loan facility (“Revolving Loan Facility”) with a borrowing limit of $150,000,000, including a $20,000,000 letter of credit sublimit and a swingline loan credit sublimit of $15,000,000; (ii) a $50,000,000 term loan A (“Term Loan”); and (iii) an accordion feature allowing us to make a request to borrow up to an additional $100,000,000 subject to the satisfaction of specified conditions, including approval by our lenders. The Amended Credit Facility has a maturity date of October 31, 2024 (“Maturity Date”).

Under the Amended Credit Facility, if we issue new unsecured debt in excess of $5,000,000 with a maturity date that is less than 91 days from October 31, 2024, the Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

Under the Amended Credit Facility, borrowings under the ~~Credit~~Revolving Loan Facility ~~shall be~~and Term Loan are either: (i) Alternate Base Rate borrowings, which would bear interest from the applicable borrowing date at a rate per annum equal to (x) the ~~greatest~~highest of (a) the Prime Rate ~~(as defined)~~ in effect on such day, (b) the Federal Funds Effective Rate ~~(as defined)~~ in effect on such day plus ~~1/2 of 1.00% per annum~~0.50% and (c) the Adjusted ~~LIBO Rate (as defined)~~Term SOFR for a one-month tenor in effect on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00% ~~per annum,~~, plus (y) the Applicable Rate, ~~(as defined),~~ or (ii) ~~Eurodollar~~SOFR borrowings, which would bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted ~~LIBO Rate~~Term SOFR for such interest period plus (y) the Applicable Rate. Determination of the Applicable Rate is based on a pricing grid that is dependent upon our ~~Secured~~ Leverage Ratio ~~(as defined)~~ as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

1815

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Amended Credit Facility contains customary representations, warranties and affirmative covenants. The Amended Credit Facility also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements. The Amended Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business. In addition, under certain circumstances, we may be required to enter into amendments to the Amended Credit Facility in connection with any further syndication of the Amended Credit Facility.

The Amended Credit Facility provides for, among other things: (i) no scheduled payments of principal ~~until~~under the Term Loan totaling $2,500,000 in the first year after closing and $5,000,000 in the second year after closing, with the remaining balance of the Term Loan due upon maturity; (ii) a maximum ~~Secured~~ Leverage Ratio of ~~3.75x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and a Maximum Total Leverage Ratio of 4.50x~~4.25x TTM Adjusted EBITDA ~~each with no step downs;~~at the fiscal quarter ending January 31, 2023, stepping down to 4.00x at the fiscal quarter ending April 30, 2023, 3.75x at the fiscal quarter ending July 31, 2023, and 3.50x at the fiscal quarter ending January 31, 2024 and thereafter; (iii) a Minimum Interest ~~Expense~~ Coverage Ratio of 3.25x TTM Adjusted ~~EBITDA.~~

AsEBITDA; and (iv) Minimum Liquidity of October 31, 2021, our Secured Leverage Ratio was 1.57x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as of October 31, 2021 was 12.78x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA. Given our expected future business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future.$25,000,000.

The obligations under the Amended Credit Facility are guaranteed by certain of our domestic and foreign subsidiaries (the ~~"Guarantors"~~“Guarantors”). As collateral security under the Amended Credit Facility and the guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

On December 6, 2018, we entered into an amendment to the Credit Facility to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis. On January 14, 2021, we entered into a further amendment of the Credit Facility to update the LIBO Rate replacement mechanism language and other definitional items. On July 30, 2021, we entered into an amendment to incorporate certain foreign subsidiaries as loan parties and guarantors into the Credit Facility and added certain definitional items.

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

~~(11)~~(10) 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.

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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).

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 October 31, ~~2021,~~2022, 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:


		Three months ended October 31,					Three months ended October 31,
			2021		2020			2022		2021
Finance lease expense:	Finance lease expense:					Finance lease expense:
Amortization of ROU assets	Amortization of ROU assets		$	4,000	12,000	Amortization of ROU assets		$	3,000	4,000
Interest on lease liabilities	Interest on lease liabilities		—		1,000	Interest on lease liabilities		—		—
Operating lease expense	Operating lease expense		2,924,000		2,488,000	Operating lease expense		2,837,000		2,924,000
Short-term lease expense	Short-term lease expense		94,000		247,000	Short-term lease expense		101,000		94,000
Variable lease expense	Variable lease expense		1,176,000		964,000	Variable lease expense		1,087,000		1,176,000
Sublease income	Sublease income		(17,000)		(17,000)	Sublease income		(17,000)		(17,000)
Total lease expense	Total lease expense		$	4,181,000	3,695,000	Total lease expense		$	4,011,000	4,181,000

Additional information related to leases is as follows:


		Three months ended October 31,					Three months ended October 31,
		2021		2020			2022		2021

Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating leases - Operating cash outflows	Operating leases - Operating cash outflows	$	2,828,000	$	2,543,000	Operating leases - Operating cash outflows	$	2,906,000	$	2,828,000
Finance leases - Operating cash outflows		—		1,000

Finance leases - Financing cash outflows	Finance leases - Financing cash outflows	6,000		12,000		Finance leases - Financing cash outflows	3,000		6,000
ROU assets obtained in the exchange for lease liabilities (non-cash):	ROU assets obtained in the exchange for lease liabilities (non-cash):					ROU assets obtained in the exchange for lease liabilities (non-cash):
Operating leases	Operating leases	$	6,667,000	$	478,000	Operating leases	$	2,573,000	$	6,667,000

2017

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of October 31, ~~2021:~~2022:


		Operating		Finance	Total			Operating		Finance	Total
Remainder of fiscal 2022		$	8,336,000	12,000	$	8,348,000
Fiscal 2023		8,709,000		5,000	8,714,000
Remainder of fiscal 2023							Remainder of fiscal 2023	$	7,266,000	2,000	$	7,268,000
Fiscal 2024	Fiscal 2024	7,353,000		—	7,353,000		Fiscal 2024	9,162,000		—	9,162,000
Fiscal 2025	Fiscal 2025	6,832,000		—	6,832,000		Fiscal 2025	8,553,000		—	8,553,000
Fiscal 2026	Fiscal 2026	5,392,000		—	5,392,000		Fiscal 2026	7,144,000		—	7,144,000
Fiscal 2027							Fiscal 2027	5,107,000		—	5,107,000
Thereafter	Thereafter	24,929,000		—	24,929,000		Thereafter	25,811,000		—	25,811,000
Total future undiscounted cash flows	Total future undiscounted cash flows	61,551,000		17,000	61,568,000		Total future undiscounted cash flows	63,043,000		2,000	63,045,000
Less: Present value discount	Less: Present value discount	8,617,000		3,000	8,620,000		Less: Present value discount	10,426,000		—	10,426,000
Lease liabilities	Lease liabilities	$	52,934,000	14,000	$	52,948,000	Lease liabilities	$	52,617,000	2,000	$	52,619,000

Weighted-average remaining lease terms (in years)	Weighted-average remaining lease terms (in years)	8.95		1.12			Weighted-average remaining lease terms (in years)	8.59		0.38
Weighted-average discount rate	Weighted-average discount rate	3.45%		6.57%			Weighted-average discount rate	3.42%		6.27%

We lease our Melville, New York production facility from a partnership controlled by our ~~CEO and Chairman.~~former CEO. Lease payments made during the three months ended October 31, 2022 and 2021 were $171,000 and ~~2020 were~~ $166,000, ~~and $163,000,~~ respectively. The current lease provides for our use of the premises as they exist through December 2031. The annual rent of the facility for calendar year ~~2022~~2023 is ~~$665,000~~$685,000 and is subject to customary adjustments. We have a right of first refusal in the event of a sale of the facility.

As of October 31, ~~2021,~~2022, we do not have any material rental commitments that have not commenced.

~~(12)~~(11) Income Taxes

At October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, total unrecognized tax benefits were ~~$9,393,000~~$10,254,000 and ~~$9,172,000,~~$10,008,000, respectively, including interest of ~~$193,000~~$377,000 and ~~$163,000,~~$330,000, respectively. At October 31, ~~2021~~2022 and July 31, ~~2021, $3,105,000~~2022, $3,236,000 and ~~$2,717,000,~~$3,007,000, respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets. The remaining unrecognized tax benefits of ~~$6,288,000~~$7,018,000 and ~~$6,455,000~~$7,001,000 at October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets. Of the total unrecognized tax benefits, ~~$8,589,000~~$9,228,000 and ~~$8,408,000~~$9,034,000 at October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized. Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our condensed consolidated financial statements. ~~We do not expect that there will be any significant changes to our total~~The amount by which the gross unrecognized tax benefits ~~within~~could decrease by in the next twelve ~~months.~~months did not significantly change during the first quarter of fiscal 2023.

Our U.S. federal income tax returns for fiscal ~~2018~~2019 through ~~2020~~2021 are subject to potential future Internal Revenue Service ("IRS") audit. None of our state income tax returns prior to fiscal ~~2017~~2018 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

2118

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(13)~~(12) Stock-Based Compensation

Overview

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended and/or restated from time to time (the "Plan") and our 2001 Employee Stock Purchase Plan, as amended and/or restated from time to time (the "ESPP"), and recognize related stock-based compensation in our condensed consolidated financial statements. The 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, excluding Fred Kornberg our former CEO, are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

As of October 31, ~~2021,~~2022, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500. 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 October 31, ~~2021,~~2022, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of ~~9,481,727~~10,183,915 shares (net of ~~4,813,779~~5,466,293 expired and canceled awards), of which an aggregate of ~~7,400,421~~8,107,927 have been exercised or settled.

As of October 31, ~~2021,~~2022, the following stock-based awards, by award type, were outstanding:


			October 31, ~~2021~~2022
Stock options			~~1,015,965~~474,020
Performance shares			~~261,330~~665,586
RSUs, ~~and~~ restricted stock and share units			~~566,270~~936,382
~~Share units~~			~~237,741~~

Total			~~2,081,306~~2,075,988

Our ESPP provides for the issuance of up to 1,050,000 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 October 31, ~~2021,~~2022, we have cumulatively issued ~~905,311~~958,926 shares of our common stock to participating employees in connection with our ESPP.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


		Three months ended October 31,					Three months ended October 31,
			2021		2020			2022		2021
Cost of sales	Cost of sales		$	73,000	73,000	Cost of sales		$	158,000	73,000
Selling, general and administrative expenses	Selling, general and administrative expenses		772,000		542,000	Selling, general and administrative expenses		648,000		772,000
Research and development expenses	Research and development expenses		76,000		84,000	Research and development expenses		98,000		76,000
Stock-based compensation expense before income tax benefit			921,000		699,000
Stock-based compensation expense before CEO transition costs						Stock-based compensation expense before CEO transition costs		904,000		921,000
CEO transition costs related to equity-classified stock-based awards						CEO transition costs related to equity-classified stock-based awards		3,764,000		—
Total stock-based compensation expense before income tax benefit						Total stock-based compensation expense before income tax benefit		4,668,000		921,000
Estimated income tax benefit	Estimated income tax benefit		(193,000)		(144,000)	Estimated income tax benefit		(493,000)		(193,000)
Net stock-based compensation expense	Net stock-based compensation expense		$	728,000	555,000	Net stock-based compensation expense		$	4,175,000	728,000

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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 October 31, ~~2021,~~2022, unrecognized stock-based compensation of ~~$13,766,000,~~$11,988,000, net of estimated forfeitures of ~~$1,217,000,~~$812,000, is expected to be recognized over a weighted average period of ~~3.4~~2.8 years. Total stock-based compensation capitalized and included in ending inventory at both October 31, ~~2021~~2022 and July 31, ~~2021~~2022 was $48,000. There are no liability-classified stock-based awards outstanding as of October 31, ~~2021~~2022 or July 31, ~~2021.~~2022.

Stock-based compensation expense, ~~(benefit),~~ by award type, is summarized as follows:


		Three months ended October 31,					Three months ended October 31,
			2021		2020			2022		2021
Stock options	Stock options		$	78,000	120,000	Stock options		$	25,000	78,000
Performance shares	Performance shares		349,000		222,000	Performance shares		74,000		349,000
RSUs and restricted stock			856,000		922,000
RSUs, restricted stock and share units						RSUs, restricted stock and share units		774,000		439,000
ESPP	ESPP		55,000		51,000	ESPP		31,000		55,000
Share units			(417,000)		(616,000)
Stock-based compensation expense before income tax benefit			921,000		699,000

Stock-based compensation expense before CEO transition costs						Stock-based compensation expense before CEO transition costs		904,000		921,000
CEO transition costs related to equity-classified stock-based awards						CEO transition costs related to equity-classified stock-based awards		3,764,000		—
Total stock-based compensation expense before income tax benefit						Total stock-based compensation expense before income tax benefit		4,668,000		921,000
Estimated income tax benefit	Estimated income tax benefit		(193,000)		(144,000)	Estimated income tax benefit		(493,000)		(193,000)
Net stock-based compensation expense	Net stock-based compensation expense		$	728,000	555,000	Net stock-based compensation expense		$	4,175,000	728,000

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

~~During the three months ended October 31, 2021 and 2020, we recorded benefits of $417,000 and $616,000, respectively, which primarily represents the recoupment of certain share units.~~

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 Condensed Consolidated Balance Sheet as of October 31, ~~2021~~2022 and July 31, ~~2021.~~2022. 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.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Stock Options

The following table summarizes the ~~Plan's~~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 (56,250) 27.59
Exercised (1,220) 17.88
Outstanding at October 31, 2021 1,015,965 $ 25.66 4.19 $ 1,087,000
Exercisable at October 31, 2021 780,525 $ 28.01 2.87 $ 218,000
Vested and expected to vest at October 31, 2021 1,003,360 $ 25.76 4.13 $ 1,041,000


	Awards (in Shares)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2022	483,480	$	24.43

Expired/canceled	(9,460)	26.55








Outstanding at October 31, 2022	474,020	$	24.38	2.70	$	—

Exercisable at October 31, 2022	428,900	$	25.07	2.19	$	—

Vested and expected to vest at October 31, 2022	471,742	$	24.42	2.67	$	—

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Stock options outstanding as of October 31, ~~2021~~2022 have exercise prices ranging from $17.88 - $33.94, representing the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years. The total intrinsic value relating to stock options exercised during the three months ended October 31, 2021 was $7,000. There were no stock options exercised during the three months ended October 31, 2020.

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

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

Awards
(in Shares) Weighted Average
Grant Date
Fair Value
Aggregate
Intrinsic Value
Outstanding at July 31, 2021 1,068,370 $ 21.93
Granted 228,161 26.81
Settled (190,310) 23.97
Canceled/Forfeited (40,880) 23.15
Outstanding at October 31, 2021 1,065,341 $ 22.56 $ 22,979,000

Vested at October 31, 2021 353,816 $ 21.94 $ 7,632,000

Vested and expected to vest at October 31, 2021 1,015,655 $ 22.54 $ 21,908,000


	Awards (in Shares)	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at July 31, 2022	1,110,750	$	19.05
Granted	785,092	11.13
Settled	(256,069)	24.55
Canceled/Forfeited	(37,805)	16.44








Outstanding at October 31, 2022	1,601,968	$	14.35	$	17,702,000

Vested at October 31, 2022	532,533	$	15.68	$	5,884,000

Vested and expected to vest at October 31, 2022	1,547,797	$	14.33	$	17,103,000

The total intrinsic value relating to fully-vested awards settled during the three months ended October 31, 2022 and 2021 was $2,769,000 and ~~2020 was~~ $4,895,000, ~~and $2,896,000,~~ 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 October 31, ~~2021,~~2022, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

RSUs and restricted stock granted to non-employee directors prior to ~~July 31, 2019 have~~August 2022 had a vesting period of ~~three~~five years and are convertible into shares of our common stock generally at the time of termination, on a ~~1-for-one~~one-for-one basis for no cash consideration, or earlier under certain circumstances. ~~RSUs and restricted stock granted to non-employee directors after July 31, 2019~~Commencing in August 2022, such awards have a vesting period of ~~five years.~~ one year. Also, restricted stock granted to Fred Kornberg, pursuant to his Senior Technology Advisor consulting agreement, vests 1/12 on the date of grant and in eleven (11) equal monthly installments thereafter.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 ~~1-for-one~~one-for-one basis for no cash consideration. RSUs granted to employees commencing in August 2022 have a vesting period of three years.

Share units granted prior to July 31, 2017 were vested when issued and are convertible into shares of our common stock, generally at the time of termination, on a 1-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. ~~Cumulatively, through October 31, 2021, 956,576 share units granted have been settled.~~

The fair value of performance shares, RSUs, restricted stock and share units is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive and an applicable estimated discount for any post-vesting transfer restrictions. RSUs, performance shares and restricted stock ~~granted since fiscal 2013~~ are entitled to dividend equivalents unless forfeited before vesting occurs. Share units ~~granted since fiscal 2014~~ are entitled to dividend equivalents while the underlying shares are unissued.

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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 the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, we accrued ~~$88,000~~$201,000 and ~~$142,000,~~$88,000, respectively, of dividend equivalents (net of forfeitures) and paid out ~~$315,000~~$346,000 and ~~$275,000,~~$315,000, respectively. Accrued dividend equivalents were recorded as a reduction to retained earnings. As of October 31, ~~2021~~2022 and July 31, ~~2021,~~2022, accrued dividend equivalents were ~~$657,000~~$597,000 and ~~$884,000,~~$742,000, respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, we recorded an income tax expense of $363,000 and an income tax benefit of $53,000, respectively.

Subsequent Event

At our Fiscal 2022 Annual Meeting of Stockholders, scheduled to be held on December 15, 2022, our stockholders will be asked to approve an amendment to our Plan to increase the share reserve available under the Plan by 1,000,000 shares of common stock. Also, our stockholders will be asked to approve an amendment to our ESPP to increase the maximum number of shares of our common stock that are reserved for issuance under the ESPP by 250,000. See Proposal Nos. 4 and ~~an income tax expense of $199,000, respectively.~~5 included in our definitive proxy statement filed with the SEC on November 18, 2022.

~~(14)~~(13) 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 ~~current~~ Chief Executive Officer. ~~We currently manage our business through the following reportable operating segments:~~

~~Our Commercial Solutions~~In the fourth quarter of fiscal 2022, we revised our business segments to better align them with end-markets for our products and services and our CODM began managing our business in two new reportable segments: “Satellite and Space Communications” and “Terrestrial and Wireless Networks.” As a result, the segment information for the prior fiscal year has been recast to conform to the current year presentation.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Satellite and Space Communications is organized into four technology areas: satellite modem technologies and amplifier technologies, troposcatter and SATCOM solutions, space components and antennas, and high-power amplifiers and switches technologies. This segment offers customers: satellite ground station technologies, ~~(such as~~services and system integration that facilitate the transmission of voice, video and data over GEO, MEO and LEO satellite constellations, including solid-state and traveling wave tube power amplifiers, modems, VSAT platforms and ~~amplifiers)~~frequency converters; satellite communications and ~~public safety~~tracking antenna systems, including high precision full motion fixed and ~~location technologies (such as 911 call routing, 911 call handling~~mobile X/Y tracking antennas, RF feeds, reflectors and ~~mapping solutions)~~radomes; over-the-horizon microwave equipment that can transmit digitized voice, video, and data over distances up to ~~commercial customers~~200 miles using the troposphere and ~~smaller government customers, such as state~~diffraction, including the Comtech COMET™; solid-state, RF microwave high-power amplifiers and ~~local governments. This segment also serves certain large government customers (including the U.S. government) that have requirements~~control components designed for ~~off-the-shelf commercial equipment.~~radar, electronic warfare, data link, medical and aviation applications; and procurement and supply chain management of high reliability EEE parts for satellite, launch vehicle and manned space applications.

~~Our Government Solutions~~Terrestrial and Wireless Networks is organized into four service areas: next generation 911 and call delivery, Solacom call handling solutions, trusted location and messaging solutions, and cyber security training and services. This segment ~~provides tactical satellite-based networks~~offers customers: SMS text to 911 services, providing alternate paths for individuals who need to request assistance (via text messaging) a method to reach Public Safety Answering Points ("PSAPs"); next generation 911 solutions, providing emergency call routing, location validation, policy-based routing rules, logging and ~~ongoing~~security functionality; Emergency Services IP Network transport infrastructure for emergency services communications and support of next generation 911 services; call handling applications for ~~complicated communications networks~~PSAPs; wireless emergency alerts solutions for network operators; software and ~~troposcatter systems~~equipment for location-based and ~~solid-state, high-power amplifiers to large~~text messaging services for various applications, including for public safety, commercial and government ~~end-users (including those of foreign countries), large international customers~~services, and ~~domestic prime contractors.~~cybersecurity training, skills labs, and competency assessments for both technical and non-technical applications.

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 ~~Commercial Solutions~~Satellite and ~~Government Solutions~~Space Communications and Terrestrial and Wireless Networks segments do not consider any allocation of indirect expense, or any of the following: income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, amortization of cost to fulfill assets, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, CEO transition costs, proxy solicitation costs, strategic alternatives ~~analysis~~ 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 ~~Commercial Solutions~~Satellite and ~~Government Solutions~~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 (as such term is defined in our Credit Facility and Amended 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.

2523

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:

Three months ended October 31, 2021
Commercial Solutions Government Solutions Unallocated Total
Net sales $ 78,934,000 37,825,000 — $ 116,759,000
Operating income (loss) $ 2,203,000 (1,414,000) (7,304,000) $ (6,515,000)
Net income (loss) $ 2,055,000 (1,151,000) (6,888,000) $ (5,984,000)
     Provision for (benefit from) income taxes 173,000 (631,000) (1,595,000) (2,053,000)
     Interest (income) and other (25,000) 254,000 (10,000) 219,000
     Change in fair value of convertible preferred
       stock purchase option liability
— — (304,000) (304,000)
     Interest expense — 114,000 1,493,000 1,607,000
     Amortization of stock-based compensation — — 921,000 921,000
     Amortization of intangibles 4,260,000 1,089,000 — 5,349,000
     Depreciation 1,808,000 381,000 52,000 2,241,000
     Proxy solicitation costs — — 2,162,000 2,162,000
     Restructuring costs 813,000 (101,000) — 712,000
     COVID-19 related costs — 674,000 — 674,000
Adjusted EBITDA $ 9,084,000 629,000 (4,169,000) $ 5,544,000
Purchases of property, plant and equipment $ 2,696,000 942,000 — $ 3,638,000
Total assets at October 31, 2021 $ 721,897,000 235,048,000 26,044,000 $ 982,989,000


	Three months ended October 31, 2022
	Satellite and Space Communications		Terrestrial and Wireless Networks	Unallocated	Total
Net sales	$	80,873,000	50,266,000	—	$	131,139,000
Operating income (loss)	$	5,016,000	744,000	(15,484,000)	$	(9,724,000)

Net income (loss)	$	5,815,000	605,000	(17,516,000)	$	(11,096,000)
Benefit from income taxes	(222,000)		(165,000)	(221,000)	(608,000)
Interest (income) and other	(575,000)		304,000	16,000	(255,000)

Interest expense	(2,000)		—	2,237,000	2,235,000
Amortization of stock-based compensation	—		—	904,000	904,000
Amortization of intangibles	1,828,000		3,521,000	—	5,349,000
Depreciation	1,020,000		1,737,000	41,000	2,798,000
Amortization of cost to fulfill assets	240,000		—	—	240,000
CEO transition costs	—		—	9,090,000	9,090,000


Restructuring costs	1,056,000		—	269,000	1,325,000

Strategic emerging technology costs	746,000		—	—	746,000
Adjusted EBITDA	$	9,906,000	6,002,000	(5,180,000)	$	10,728,000

Purchases of property, plant and equipment	$	4,435,000	2,542,000	244,000	$	7,221,000

Total assets at October 31, 2022	$	486,636,000	467,594,000	23,595,000	$	977,825,000


		Three months ended October 31, 2020							Three months ended October 31, 2021
		Commercial Solutions		Government Solutions	Unallocated	Total			Satellite and Space Communications		Terrestrial and Wireless Networks	Unallocated	Total
Net sales	Net sales	$	81,802,000	53,416,000	—	$	135,218,000	Net sales	$	64,560,000	52,199,000		$	116,759,000
Operating income (loss)		$	8,750,000	2,585,000	(97,051,000)	$	(85,716,000)
Operating (loss) income								Operating (loss) income	$	(5,313,000)	6,102,000	(7,304,000)	$	(6,515,000)

Net income (loss)		$	8,315,000	2,691,000	(96,846,000)	$	(85,840,000)
Provision for (benefit from) income taxes		339,000		(126,000)	(2,452,000)	(2,239,000)
Net (loss) income								Net (loss) income	$	(5,074,000)	5,978,000	(6,888,000)	$	(5,984,000)
(Benefit from) provision for income taxes								(Benefit from) provision for income taxes	(599,000)		141,000	(1,595,000)	(2,053,000)
Interest (income) and other	Interest (income) and other	96,000		(40,000)	10,000	66,000		Interest (income) and other	247,000		(18,000)	(10,000)	219,000

Change in fair value of convertible preferred stock purchase option liability								Change in fair value of convertible preferred stock purchase option liability	—		—	(304,000)	(304,000)
Interest expense	Interest expense	—		60,000	2,237,000	2,297,000		Interest expense	114,000		—	1,493,000	1,607,000
Amortization of stock-based compensation	Amortization of stock-based compensation	—		—	699,000	699,000		Amortization of stock-based compensation	—		—	921,000	921,000
Amortization of intangibles	Amortization of intangibles	4,287,000		1,279,000	—	5,566,000		Amortization of intangibles	1,828,000		3,521,000	—	5,349,000
Depreciation	Depreciation	1,996,000		403,000	153,000	2,552,000		Depreciation	825,000		1,364,000	52,000	2,241,000

Acquisition plan expenses		(1,052,000)		—	92,235,000	91,183,000
Proxy solicitation costs								Proxy solicitation costs	—		—	2,162,000	2,162,000
Restructuring costs								Restructuring costs	712,000		—	—	712,000
COVID-19 related costs								COVID-19 related costs	674,000		—	—	674,000

Adjusted EBITDA	Adjusted EBITDA	$	13,981,000	4,267,000	(3,964,000)	$	14,284,000	Adjusted EBITDA	$	(1,273,000)	10,986,000	(4,169,000)	$	5,544,000

Purchases of property, plant and equipment	Purchases of property, plant and equipment	$	389,000	421,000	80,000	$	890,000	Purchases of property, plant and equipment	$	1,037,000	2,601,000	—	$	3,638,000

Total assets at October 31, 2020		$	646,264,000	238,172,000	34,075,000	$	918,511,000
Total assets at October 31, 2021								Total assets at October 31, 2021	$	485,087,000	471,858,000	26,044,000	$	982,989,000

~~Index~~

~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs and also includes all of our amortization of stock-based compensation. During the three months ended October 31, ~~2020,~~2022, we ~~recorded $91,183,000~~expensed $9,090,000 of ~~acquisition plan expenses, most of which were recorded in our unallocated expenses.~~CEO transition costs. See Note ~~(2)~~(1) - "~~Acquisitions~~General - CEO Transition Costs" for further information. There were no such charges recorded in the three months ended October 31, 2021. During the three months ended October 31, 2021, we incurred $2,162,000 of proxy solicitation costs (including legal and advisory fees) as a result of a proxy contest initiated by a shareholder during the most recently completed fiscal quarter. There were no similar costs in the comparable period of the prior year.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the three months ended October 31, 2022 and 2021, our ~~Commercial Solutions~~Satellite and Space Communications segment recorded ~~$813,000~~$1,056,000 and $712,000, respectively, of restructuring costs incurred to ~~shift production~~streamline our operations, including costs related to the ongoing relocation of certain of our ~~key~~ satellite ~~earth~~ground station ~~products~~production facilities to a new 146,000 square foot facility in Chandler, Arizona. In addition, during the three months ended October 31, 2021, our Government Solutions segment recorded $674,000 of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic. There were no such charges recorded in the three months ended October 31, 2020.

Interest expense in the tables above primarily relates to our Credit Facility, and includes the amortization of deferred financing costs. See Note ~~(10)~~(9) - "Credit Facility" for further discussion. ~~Interest expense for the three months ended October 31, 2020 includes $1,178,000 of incremental interest expense related to a now terminated financing commitment letter, as discussed in more detail in~~ ~~Note (2)~~ ~~- "Acquisitions~~."

Intersegment sales for the three months ended October 31, 2022 and 2021 between the Satellite and ~~2020 by~~Space Communications segment and the ~~Commercial Solutions segment to the Government Solutions~~Terrestrial and Wireless Networks segment were ~~$1,132,000 and $851,000, respectively. There were nominal sales by the Government Solutions segment to the Commercial Solutions segment for these periods.~~nominal. All intersegment sales are eliminated in consolidation and are excluded from the tables above.

Unallocated assets at October 31, ~~2021~~2022 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.

~~(15)~~(14) Goodwill

The following table represents goodwill by reportable operating segment ~~including the changes in the net carrying value~~as of ~~goodwill during the three months ended~~ October 31, ~~2021:~~2022 and July 31, 2022.

Commercial Solutions Government Solutions Total
Balance as of July 31, 2021 $ 270,389,000 77,309,000 $ 347,698,000
UHP acquisition (6,000) — (6,000)
Balance as of October 31, 2021 $ 270,383,000 77,309,000 $ 347,692,000


	Satellite and Space Communications		Terrestrial and Wireless Networks	Total


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

In accordance with FASB ASC 350, we perform a goodwill impairment analysis at least annually (in the first quarter of each fiscal year), unless indicators of impairment exist in interim periods. 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.

~~On August 1, 2021 (the first day~~As discussed in Note (13) - "Segment Information," as a result of our segment restructuring in the fourth quarter of fiscal ~~2022),~~2022 from the Commercial Solutions and Government Solutions segments to the Satellite and Space Communications and Terrestrial and Wireless Networks segments, we performed an interim quantitative assessment as of July 29, 2022 and estimated the fair value of each of our ~~annual~~reporting units, both before and after the change, using a combination of the income and market approaches.

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

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~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 ~~August 1, 2021~~ total public market capitalization and assessed implied control premiums based on our common stock price of ~~$24.97~~$11.62 as of ~~August 1, 2021.~~the date of testing.

~~Based~~Ultimately, based on our quantitative ~~evaluation,~~evaluations, we determined that our ~~Commercial Solutions~~Satellite and ~~Government Solutions~~Space Communications and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least ~~22.7%~~18.4% and ~~94.1%~~11.6%, respectively, and concluded that our goodwill was not impaired and that neither of our 2two reporting units was at risk of failing the quantitative assessment. Also, given its proximity to our next regularly scheduled annual goodwill impairment testing date, we utilized our July 29, 2022 interim quantitative assessment to conclude that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment as of August 1, 2022. Additionally, the carrying value of goodwill was reallocated to our new reporting units based on their respective estimated relative fair value.

It is possible that, during the remainder of fiscal ~~2022~~2023 or beyond, business conditions (both in the U.S. and internationally) could deteriorate from the current state, our current or prospective customers could materially postpone, reduce or even forgo purchases of our products and services to a greater extent than we currently anticipate, or our common stock price could fluctuate. ~~Such fluctuation could be caused by uncertainty about the severity and length of the COVID-19 pandemic, and its impact on global activity.~~

A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal ~~2022~~2023 or beyond. If assumed net sales and cash flow projections are not achieved in future periods or our common stock price significantly declines from current levels, our ~~Commercial Solutions~~Satellite and ~~Government Solutions~~Space Communications and Terrestrial and Wireless Networks reporting units could be at risk of failing the quantitative assessment and goodwill assigned to the respective reporting units could be impaired.

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, ~~2022~~2023 (the start of our fiscal ~~2023)~~2024). If our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record impairment charges when we perform these tests, or in other future periods. Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

2826

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(16)~~(15) Intangible Assets

Intangible assets with finite lives are as follows:


		October 31, 2021							October 31, 2022
		Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount			Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
Customer relationships	Customer relationships	20.2	$	302,058,000	96,786,000	$	205,272,000	Customer relationships	20.2	$	302,058,000	111,071,000	$	190,987,000
Technologies	Technologies	14.8	114,949,000		72,143,000	42,806,000		Technologies	14.8	114,949,000		77,017,000	37,932,000
Trademarks and other	Trademarks and other	16.7	32,926,000		17,654,000	15,272,000		Trademarks and other	16.7	32,926,000		19,891,000	13,035,000
Total	Total		$	449,933,000	186,583,000	$	263,350,000	Total		$	449,933,000	207,979,000	$	241,954,000


		July 31, 2021							July 31, 2022
		Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount			Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
Customer relationships	Customer relationships	20.2	$	302,058,000	93,215,000	$	208,843,000	Customer relationships	20.2	$	302,058,000	107,500,000	$	194,558,000
Technologies	Technologies	14.8	114,949,000		70,924,000	44,025,000		Technologies	14.8	114,949,000		75,798,000	39,151,000
Trademarks and other	Trademarks and other	16.7	32,926,000		17,095,000	15,831,000		Trademarks and other	16.7	32,926,000		19,332,000	13,594,000
Total	Total		$	449,933,000	181,234,000	$	268,699,000	Total		$	449,933,000	202,630,000	$	247,303,000

The weighted average amortization period in the above table excludes fully amortized intangible assets.

Amortization expense for the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 was $5,349,000, ~~and $5,566,000,~~ respectively.

The estimated amortization expense consists of the following for the fiscal years ending July 31:


2022		$	21,685,000
2023	2023	21,781,000		2023	$	21,556,000
2024	2024	21,154,000		2024	21,154,000
2025	2025	21,041,000		2025	21,039,000
2026	2026	19,888,000		2026	19,888,000
2027				2027	18,534,000

We review net intangible assets with finite lives for impairment when an event occurs indicating the potential for impairment. Based on our last assessment, we believe that the carrying values of our net intangible assets were recoverable as of October 31, ~~2021.~~2022. 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.

~~(17)~~(16) Convertible Preferred Stock

On October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the ~~Company’s~~Company's Series A Convertible Preferred Stock, par value $0.10 per share (the “Convertible Preferred Stock”), for an aggregate purchase price of up to $125,000,000, or $1,000 per share. On October 19, 2021 (the “Initial Closing Date”), pursuant to the terms of the Subscription Agreement, the Investors purchased an aggregate of 100,000 shares of Convertible Preferred Stock (the “Initial Issuance”) for an aggregate purchase price of $100,000,000. The Investors have a one-time option exercisable at any time on or prior to March 31, 2023 to purchase additional shares of Convertible Preferred Stock for an aggregate purchase price of $25,000,000. This purchase option is commonly referred to as a “Green Shoe” and together with the Initial Issuance, is collectively referred to as the ~~“Issuance”.~~“Issuance.”

2927

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The ~~initial~~adjusted conversion price for the shares issued in the Initial Issuance is ~~$24.50, subject to an increase in the conversion price to $26.00 upon the achievement of $76.0 million of Adjusted EBITDA (as defined in the Subscription Agreement) for our fiscal 2022 year,~~$23.97, and the ~~initial~~adjusted conversion price for the Green Shoe is ~~$32.00.~~$31.21 subject to certain adjustments set forth in the Certificate of Designations filed with the Secretary of State of the State of Delaware.

The Convertible Preferred Stock ranks senior to the shares of our common stock, with respect to the payment of dividends and the distribution of assets upon a liquidation, dissolution or winding up of the Company. The Convertible Preferred Stock initially had a liquidation preference of $1,000 per share with each share entitled to a cumulative dividend (the “Dividend”) at the rate of 6.5% per annum, compounding quarterly, paid-in-kind or paid in cash, at our election. For any quarter in which we elect not to pay the Dividend in cash with respect to a share of Convertible Preferred Stock, such Dividend becomes part of the liquidation preference of such share. In addition, no dividend or other distribution on our common stock in excess of our $0.10 per share per quarter will be declared or paid on the common stock unless, at the time of such declaration and payment, an equivalent dividend or distribution is declared and paid on the Convertible Preferred Stock (the “Participating Dividend”), provided that in the case of any such dividend in the form of cash, in lieu of a cash payment, such Participating Dividend will become part of the liquidation preference of the shares of the Convertible Preferred Stock. Such Participating Dividend results in the Convertible Preferred Stock meeting the definition of a "participating security" for purposes of our earnings per share calculations.

~~The~~Effective September 29, 2022, the Convertible Preferred Stock is convertible into shares of common stock at the option of the holders thereof at or following the earlier to occur of (a) the filing of our Annual Report on Form 10-K for the fiscal year ending July 31, 2022 but no later than October 19, 2022, or (b) immediately prior to (and conditioned upon) the consummation of a Change of Control.holders. At any time after October 19, 2024, we have the right to mandate the conversion of the Convertible Preferred Stock, subject to certain restrictions, based on the price of the common stock in the preceding thirty trading days.

Holders of the Convertible Preferred Stock are entitled to vote with the ~~holder's~~holders of the common stock on an as-converted basis, as well as are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Convertible Preferred Stock, authorizations or issuances of securities of the Company, the payment of dividends other than dividends on common stock in the ordinary course consistent with past practice on a quarterly basis in an amount not to exceed our current dividend rate of $0.10 per share per quarter, related party transactions, repurchases or redemptions of securities of the Company (other than the repurchase of up to $25,000,000 of shares of common stock), dispositions of businesses or assets, the incurrence of certain indebtedness and certain amendments or extensions of our existing Credit Facility.

Holders will have the right to require the Company to repurchase such holder's Convertible Preferred Stock on a date occurring either (a) on or after October 19, 2026 (the “Optional Repurchase Trigger Date”) at a price equal to the liquidation preference or (b) in connection with a conversion of Convertible Preferred Stock, pursuant to which the number of shares of common stock issuable upon such conversion would exceed 19.99% of the issued and outstanding shares of common stock as of October 18, 2021 (such excess shares, "Excess Conversion Shares"), at any time after the date that is 91 days after the maturity date of the Company's existing Credit Facility, at a price per share equal to the number of Excess Conversion Shares multiplied by the Last Reported Sales Price (as defined) of common stock on the applicable conversion date. In addition, each holder will have the right to cause the Company to repurchase its shares of Convertible Preferred Stock in connection with a Change of Control, at a price equal to the liquidation preference.

We determined that our obligation to issue the Green Shoe at any time on or prior to March 31, 2023 meets the definition of a freestanding financial instrument that should be accounted for as a liability. As such, we established an initial convertible preferred stock purchase option liability of $1,005,000 and reduced the proceeds from the Initial Issuance by such amount. The liability will be remeasured to its estimated fair value each reporting period until such instrument is exercised or expires. Changes in its estimated fair value are recognized as a non-cash charge or benefit and presented on the condensed consolidated statement of operations. As the estimated fair value of the convertible preferred stock purchase option liability was $701,000 as of October 31, 2021, we recorded a $304,000 benefit from the remeasurement in the three months ended October 31, 2021.

3028

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In accordance with ASC 480, "Distinguishing Liabilities from Equity," specifically ASC 480-10-S99-3A(2), SEC Staff Announcement: Classification and Measurement of Redeemable Securities, we have classified the Convertible Preferred Stock outside of permanent equity as temporary equity since the redemption of such shares is not solely within our control and we could be required by the holder to redeem the shares for cash or other assets, at their option. Upon the Initial Issuance, we recorded the Convertible Preferred Stock, net of issuance costs of $4,007,000 and net of the portion of such proceeds allocated to the convertible preferred stock purchase option liability described above, which resulted in an initial carrying value of the Convertible Preferred Stock less than its initial redemption value of $100,000,000. We have elected to adjust the carrying value of the Convertible Preferred Stock to its current redemption value of ~~$100,235,000,~~$106,914,000, which includes ~~$235,000~~$6,338,000 of cumulative dividends paid in kind and $576,000 of accumulated and unpaid dividends. As such, ana total adjustment of ~~$5,247,000~~$1,710,000 to increase the carrying value of the Convertible Preferred Stock was recorded against retained earnings induring the three months ended October 31, ~~2021.~~2022.

~~(18)~~(17) Stockholders’ Equity

~~Sale of Common Stock~~Shelf Registration

~~In December 2018,~~On July 13, 2022, we filed a ~~$400,000,000~~$200,000,000 shelf registration statement with the SEC for the sale of various types of securities, including debt. The shelf registration was declared effective by the SEC as of ~~December 14, 2018.~~July 25, 2022. To-date, we have not issued any securities pursuant to our ~~$400,000,000~~$200,000,000 shelf registration statement.

On March 3, 2021, in connection with our acquisition of UHP, we filed a shelf registration statement with the SEC for the sale by the selling stockholder of UHP of up to 1,381,567 shares of our common stock. See ~~Note (2)~~ ~~- "Acquisitions - UHP Networks Inc." for further information.~~

Common Stock Repurchase Program

On September 29, 2020, our Board of Directors authorized a new $100,000,000 stock repurchase program, which replaced our prior program. The new $100,000,000 stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws. There were no repurchases of our common stock during the three months ended October 31, ~~2021~~2022 or ~~2020.~~2021.

Common Stock Dividends

Since September 2010, we have paid quarterly dividends pursuant to an annual targeted dividend amount that was established by our Board of Directors. On ~~October 4, 2021,~~September 29, 2022, our Board of Directors declared a dividend of $0.10 per common share, which was paid on November ~~12, 2021.~~18, 2022. On December ~~9, 2021,~~8, 2022, our Board of Directors declared a dividend of $0.10 per common share, payable on February ~~18, 2022~~17, 2023 to stockholders of record at the close of business on January ~~19, 2022.~~18, 2023. Future dividends remain subject to compliance with financial covenants under our Amended Credit Facility, as well as Board ~~approval.~~approval and certain voting rights of holders of our Series A Convertible Preferred Stock.

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~~COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(19)~~(18) Legal Proceedings and Other Matters

~~Settled Litigation Related to the Convertible Preferred Stock Issuance~~

On October 25, 2021, Anthony Franchi (the “Plaintiff”) brought a putative class action in the Court of Chancery of the State of Delaware against the Company’s current directors, the Company (as nominal defendant), White Hat Capital Partners LP (“White Hat”) and Magnetar Capital LLC (“Magnetar”), which was amended on November 1, 2021. On November 10, 2021, the parties filed a Stipulation and Proposed Order in the Franchi matter, pursuant to which, among other things, the parties agreed, that: (a) Plaintiff’s claims that Comtech's preliminary proxy statement omitted material information regarding the White Hat and Magnetar investments would be dismissed with prejudice and claim that such investments included an implied voting agreement in connection with the 2021 Annual Meeting would be dismissed without prejudice; (b) Plaintiff withdrew his motion seeking expedited proceedings and an order directing the parties to negotiate a schedule leading to a preliminary injunction hearing; (c) Comtech agreed to make additional disclosures about the preferred stock transaction and Plaintiff’s lawsuit in its definitive proxy statement for the 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”); (d) Comtech agreed that the voting obligations imposed by the voting agreements with White Hat and Magnetar will not apply with respect to director elections during the terms of the voting agreements; (e) if White Hat and or Magnetar’s votes of the Convertible Preferred Stock are outcome-determinative in the director elections at the 2021 Annual Meeting and if Plaintiff thereafter brings an action containing a claim challenging the election of the directors at the 2021 Annual Meeting, the Defendants agreed to accept service of such a complaint and agreed to ask the court to schedule a final merits-based hearing within 60 days of the filing of the complaint; (f) Plaintiff reserved the right to pursue claims for money damages or other, non-expedited equitable remedies relating to the Convertible Preferred Stock transaction after the 2021 Annual Meeting; and (g) Comtech agreed to provide Plaintiff with certain agreed-upon document discovery. While we disputed all Plaintiff’s allegations and believed them to be without merit, we believed that entering into the aforementioned Stipulation and Proposed Order would avoid unnecessary litigation and is in the best interests of Comtech’s stockholders.

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 agree to indemnify could result in legal costs and damages that could have a material adverse effect on our consolidated results of operations and financial condition.

There are certain other pending and threatened legal actions which arise in the normal course of business. Although the ultimate outcome of litigation is difficult to accurately predict, we believe that the outcome of these other pending and threatened actions will not have a material adverse effect on our consolidated financial condition or results of operations.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Employment Change of Control and Indemnification Agreements

~~We have~~

On August 9, 2022, our Board of Directors appointed our Chairman of the Board, Ken Peterman, as President and CEO, and the Company entered an employment agreement ~~and change of control agreement~~ with ~~Fred Kornberg, our Chief Executive Officer ("CEO") and Chairman of the Board. The employment agreement~~Mr. Peterman generally ~~provides~~providing for an annual salary, bonus award, sign-on bonus, equity incentive awards and, ~~bonus award.~~ under certain termination of employment, severance payment.

We have also entered into change of control agreements with certain of our executive officers and certain key employees. All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of our Company or a termination of the employee.

In October 2021, we announced that our Board of Directors has appointed Michael D. Porcelain, our President and Chief Operating Officer, to be CEO by the end of calendar 2021, at which point Mr. Porcelain will also join our Board of Directors and continue as President. Mr. Kornberg will serve as non-executive Chairman and is expected to take on a technology advisory role. Costs associated with this leadership transition will be announced once they are finalized.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain information in this Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements ~~including but not limited~~can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "predict," "estimate," "expect," "strategy," "future," "potential," "likely," "may," "should," "could," "would," "will," "continue," "target," and similar references to ~~information relating to~~future periods. Examples of forward-looking statements include, among others, statements we make regarding our future performance and financial condition, plans and objectives of our management and our assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under our control which may cause our actual results, future performance and financial condition, and achievement of our plans and objectives of our management to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, among other things: the possibility that the expected synergies and benefits from recent acquisitions will not be fully realized, or will not be realized within the anticipated time periods; the risk that the acquired businesses will not be integrated with Comtech successfully; the possibility of disruption from recent acquisitions, making it more difficult to maintain business and operational relationships or retain key personnel; the risk that Comtech will be unsuccessful in implementing a tactical shift in its ~~Government Solutions~~Satellite and Space Communications segment away from bidding on large commodity service contracts and toward pursuing contracts for its niche products with higher margins; the nature and timing of our receipt of, and our performance on, new or existing orders that can cause significant fluctuations in net sales and operating results; the timing and funding of government contracts; adjustments to gross profits on long-term contracts; risks associated with international sales; rapid technological change; evolving industry standards; new product announcements and enhancements; changing customer demands and or procurement strategies; changes in prevailing economic and political ~~conditions;~~conditions, including as a result of Russia's military incursion into Ukraine; changes in the price of oil in global markets; changes in prevailing interest rates and foreign currency exchange rates; risks associated with Comtech's legal proceedings, customer claims for indemnification, and other similar matters; risks associated with our obligations under our Amended Credit Facility; risks associated with our large contracts; risks associated with the COVID-19 pandemic and related supply chain disruptions; and other factors described in this and our other filings with the Securities and Exchange Commission ("SEC").

OVERVIEW

We are a leading global provider of ~~next generation~~next-generation 911 emergency systems ("NG-911") and secure wireless and satellite communications ~~technologies~~technologies. This includes the critical communications infrastructure that people, businesses, and governments rely on when durable, trusted connectivity is required, no matter where they are – on land, at sea, or in the air – and no matter what the circumstances – from armed conflict to ~~commercial and government customers around the world.~~a natural disaster. Our solutions fulfill our ~~customers'~~customers’ needs for secure wireless communications in ~~some of~~ the most demanding environments, including those where traditional communications are unavailable or cost-prohibitive, and in mission-critical and other scenarios where performance is crucial. We anticipate future growth in our business due to increasing demand for global voice, video and data usage in recent years. We provide our solutions to both commercial and governmental customers.

In the fourth quarter of fiscal 2022, we revised our business segments to better align them with end-markets for our products and services. Our businesses have been re-organized into two new reportable segments: “Satellite and Space Communications” and “Terrestrial and Wireless Networks.” All current and prior periods reflected in this Form 10-Q have been presented according to these two segments, unless otherwise noted. For more information and for financial information about our business segments, including net sales, operating income, Adjusted EBITDA (a non-GAAP financial measure), total assets, and our operations outside the United States, refer to "Notes to Consolidated Financial Statements - Note (13) Segment Information" included in "Part I - Item 1 - Notes to Condensed Consolidated Financial Statements (Unaudited)."

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We manage our business through two reportable operating segments:

•~~Commercial Solutions~~Satellite and Space Communications - is organized into four technology areas: satellite modem technologies and amplifier technologies, troposcatter and SATCOM solutions, space components and antennas, and high-power amplifiers and switches technologies. This segment offers customers: satellite ground station technologies, ~~(such as Single Channel per Carrier ("SCPC")~~services and ~~time division multiple access ("TDMA")~~system integration that facilitate the transmission of voice, video and data over GEO, MEO and LEO satellite constellations, including solid-state and traveling wave tube power amplifiers, modems, VSAT platforms and ~~amplifiers),~~frequency converters; satellite communications and ~~public safety~~tracking antenna systems, including high precision full motion fixed and ~~location technologies (such as 911 call routing, 911 call handling~~mobile X/Y tracking antennas, RF feeds, reflectors and ~~mapping solutions)~~radomes; over-the-horizon microwave equipment that can transmit digitized voice, video, and data over distances up to ~~commercial customers~~200 miles using the troposphere and ~~smaller government customers, such as state~~diffraction, including the Comtech COMET™; solid-state, RF microwave high-power amplifiers and ~~local governments. This segment also serves certain large government customers (including the U.S. government) that have requirements~~control components designed for ~~off-the-shelf commercial equipment.~~radar, electronic warfare, data link, medical and aviation applications; and procurement and supply chain management of high reliability EEE parts for satellite, launch vehicle and manned space applications.

•~~Government Solutions~~Terrestrial and Wireless Networks - ~~provides tactical satellite-based networks~~is organized into four service areas: next generation 911 and ~~ongoing~~call delivery, Solacom call handling solutions, trusted location and messaging solutions, and cyber security training and services. This segment offers customers SMS text to 911 services, providing alternate paths for individuals who need to request assistance (via text messaging) a method to reach Public Safety Answering Points; 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 ~~complicated communications networks, troposcatter systems~~Public Safety Answering Points; wireless emergency alerts solutions for network operators; software and ~~solid-state, high-power amplifiers to large~~equipment for location-based and text messaging services for various applications, including for public safety, commercial and government ~~end-users (including those of foreign countries), large international customers~~services, and ~~domestic prime contractors.~~cybersecurity training, skills labs, and competency assessments for both technical and non-technical applications.

Our Quarterly Financial Information

Quarterly and period-to-period sales and operating results may be significantly affected by either short-term or long-term contracts with our customers. In addition, our gross profit is affected by a variety of factors, including the mix of products, systems and services sold, production efficiencies, estimates of warranty expense, price competition and general economic conditions. Our gross profit may also be affected by the impact of any cumulative adjustments to contracts that are accounted for over time.

~~Index~~

~~Our~~In particular, our contracts with the U.S. government can be terminated for convenience by it at any time and orders are subject to unpredictable funding, deployment and technology decisions by the U.S. government. Some of these contracts are indefinite delivery/indefinite quantity ("IDIQ") contracts and, as such, the U.S. government is not obligated to purchase any equipment or services under these contracts. We have, in the past, experienced and we continue to expect significant fluctuations in sales and operating results from quarter-to-quarter and ~~period-to-period.~~period-to-period due to these factors. As such, comparisons between periods and our current results may not be indicative of a trend or future performance.

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CRITICAL ACCOUNTING POLICIES

We consider certain accounting policies to be critical due to the estimation process involved in each.

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:

The cost-to-cost method is principally used to account for contracts in our ~~Government Solutions~~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 ~~Commercial Solutions~~Terrestrial and Wireless Networks segment. For service-based contracts in our public safety and location technologies product line, 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.

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The timing of revenue recognition, billings and collections results in receivables, unbilled receivables and contract liabilities on our Condensed Consolidated Balance Sheet. Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. For certain contracts with provisions that are intended to protect customers in the event we do not satisfy our performance obligations, billings occur subsequent to revenue recognition, resulting in unbilled receivables. Under ASC 606, unbilled receivables constitute contract assets. On large long term contracts, and for contracts with international customers that do not do business with us regularly, payment terms typically require advanced payments and deposits. Under ASC 606, payments received from customers in excess of revenue recognized to date results in a contract liability. These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract. Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract. Under the typical payment terms for our contracts accounted for at a point in time, costs are accumulated in inventory until the time of billing, which generally coincides with revenue recognition.

Impairment of Goodwill and Other Intangible Assets. As of October 31, ~~2021,~~2022, total goodwill recorded on our Condensed Consolidated Balance Sheet aggregated $347.7 million (of which ~~$270.4~~$173.6 million relates to our ~~Commercial Solutions~~Satellite and Space Communications segment and ~~$77.3~~$174.1 million relates to our ~~Government Solutions~~Terrestrial and Wireless Networks segment). Additionally, as of October 31, ~~2021,~~2022, net intangibles recorded on our Condensed Consolidated Balance Sheet aggregated ~~$263.4~~$242.0 million (of which ~~$218.4~~$70.6 million relates to our ~~Commercial Solutions~~Satellite and Space Communications segment and ~~$45.0~~$171.4 million relates to our ~~Government Solutions~~Terrestrial and Wireless Networks segment). Each of our two operating segments constitutes a reporting unit and we must make various assumptions in determining their estimated fair values.

For purposes of reviewing impairment and the recoverability of goodwill and other intangible assets, our Satellite and Space Communications and Terrestrial and Wireless Networks segments each constitute a reporting unit and we must make various assumptions in determining their estimated fair values. Reporting units are defined by how our Chief Executive Officer ("CEO") manages the business, which includes resource allocation decisions. We may, in the future, change our management approach which in turn may change the way we define our reporting units, as such term is defined by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other." A change to our management approach may require us to perform an interim goodwill impairment test and possibly record impairment charges in a future period.

~~On August 1, 2021 (the first day~~As a result of our segment restructuring in the fourth quarter of fiscal ~~2022),~~2022 from the Commercial Solutions and Government Solutions segments to the Satellite and Space Communications and Terrestrial and Wireless Networks segments, we performed an interim quantitative assessment as of July 29, 2022 and estimated the fair value of each of our ~~annual~~reporting units, both before and after the change, using a combination of the income and market approaches.

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~~Index~~

~~Based~~Ultimately, based on our quantitative ~~evaluation,~~assessments, we determined that our ~~Commercial Solutions~~Satellite and ~~Government Solutions~~Space Communications and Terrestrial and Wireless Networks reporting units had estimated fair values in excess of their carrying values of at least ~~22.7%~~ and ~~94.1%~~18.4% and 11.6%, respectively, and concluded that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment. Also, given its proximity to our next regularly scheduled annual goodwill impairment testing date, we utilized our July 29, 2022 interim quantitative assessment to conclude that our goodwill was not impaired and that neither of our two reporting units was at risk of failing the quantitative assessment as of August 1, 2022. Additionally, the carrying value of goodwill was reallocated to our new reporting units based on their respective estimated relative fair value.

A significant decline in our customers' spending that is greater than we anticipate or a shift in funding priorities may also have a negative effect on future orders, sales, income and cash flows and we might be required to perform a quantitative assessment during fiscal ~~2022~~2023 or beyond. If assumed net sales and cash flow projections are not achieved in future periods or our common stock price significantly declines from current levels, our ~~Commercial Solutions~~Satellite and ~~Government Solutions~~Space Communications and Terrestrial and Wireless Networks reporting units could be at risk of failing the quantitative assessment and goodwill and intangibles assigned to the respective reporting units could be impaired.

In any event, we are required to perform ~~the~~our next annual goodwill impairment analysis on August 1, ~~2022~~2023 (the start of our fiscal ~~2023)~~2024). If our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record impairment charges when we perform these tests, or in other future periods. In addition to our impairment analysis of goodwill, we also review net intangible assets with finite lives when an event occurs indicating the potential for impairment. We believe that the carrying values of our net intangible assets were recoverable as of October 31, ~~2021.~~2022. Any impairment charges that we may record in the future could be material to our results of operations and financial condition.

Provision for Warranty Obligations. We provide warranty coverage for most of our products, including products under long-term contracts, for a period of at least one year from the date of shipment. We record a liability for estimated warranty expense based on historical claims, product failure rates and other factors. Costs associated with some of our warranties that are provided under long-term contracts are incorporated into our estimates of total contract costs. There exist inherent risks and uncertainties in estimating warranty expenses, particularly on larger or longer-term contracts. If we do not accurately estimate our warranty costs, any changes to our original estimates could be material to our results of operations and financial condition.

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Accounting for Income Taxes. Our deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and applying enacted tax rates expected to be in effect for the year in which we expect the differences to reverse. Our provision for income taxes is based on domestic (including federal and state) and international statutory income tax rates in the tax jurisdictions where we operate, permanent differences between financial reporting and tax reporting and available credits and incentives. We recognize potential interest and penalties related to uncertain tax positions in income tax expense. The U.S. federal government is our most significant income tax jurisdiction.

~~Index~~

Significant judgment is required in determining income tax provisions and tax positions. We may be challenged upon review by the applicable taxing authority and positions taken by us may not be sustained. We recognize all or a portion of the benefit of income tax positions only when we have made a determination that it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position and other factors. For tax positions that are determined as ~~more~~"more likely than ~~not~~not" to be sustained upon examination, the tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The development of valuation allowances for deferred tax assets and reserves for income tax positions requires consideration of timing and judgments about future taxable income, tax issues and potential outcomes, and are subjective critical estimates. Valuation allowances are established, when necessary, to reduce net deferred tax assets to the amount "more likely than not" expected to be realized. A portion of our deferred tax assets consist of federal research and experimentation tax credit carryforwards, some of which was acquired in connection with ~~our acquisition of TCS.~~prior acquisitions. No valuation allowance has been established on these deferred tax assets based on our evaluation that our ability to realize such assets has met the criteria of "more likely than not." We continuously evaluate additional facts representing positive and negative evidence in determining our ability to realize these deferred tax assets. In certain circumstances, the ultimate outcome of exposures and risks involves significant uncertainties. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations and financial condition.

Research and Development Costs. We generally expense all research and development costs. Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other personnel-related expenses associated with product development. Research and development expenses also include third-party development and programming costs. Costs incurred internally in researching and developing software to be sold are charged to expense until technological feasibility has been established for the software. Judgment is required in determining when technological feasibility of a product is established. Technological feasibility for our advanced communication software solutions is generally reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to customers and when we are able to validate the marketability of such product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. To date, capitalized internally developed software costs were not material.

Provisions for Excess and Obsolete Inventory. We record a provision for excess and obsolete inventory based on historical and projected usage trends. Other factors may also influence our provision, including decisions to exit a product line, technological change and new product development. These factors could result in a change in the amount of excess and obsolete inventory on hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. In the future, if we determine that our inventory was overvalued, we would be required to recognize such costs in our financial statements at the time of such determination. Any such charge could be material to our results of operations and financial condition.

Allowance for Doubtful Accounts. We perform credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness, as determined by our review of our customers’ current credit information. Generally, we will require cash in advance or payment secured by irrevocable letters of credit before an order is accepted from an international customer that we do not do business with regularly. In addition, we seek to obtain insurance for certain domestic and international customers.

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We monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. In light of ongoing tight credit market conditions, we continue to see requests from our customers for higher credit limits and longer payment terms. Because of our strong cash position and the nominal amount of interest we are earning on our cash and cash equivalents, we have, on a limited basis, approved certain customer requests. We continue to monitor our accounts receivable credit portfolio. To-date, there has been no material changes in our credit portfolio as a result of the COVID-19 pandemic on worldwide business activities.

Although our overall credit losses have historically been within the allowances we established, we cannot accurately predict our future credit loss experience, given the current poor business environment. Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for changing business conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of specific customers. Future changes to the estimated allowance for doubtful accounts could be material to our results of operations and financial condition.

Fiscal 2023: First Quarter Highlights and Business Outlook

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~~Business Outlook for~~ Fiscal ~~2022~~

~~Despite the ongoing impact of COVID-19 and global supply chain constraints on~~2023 is off to a strong start, as we exceeded our ~~business, our first quarter~~consolidated net sales and Adjusted EBITDA ~~exceeded our expectations. We generated consolidated:~~expectations for the first quarter of fiscal 2023. Financial highlights for the first quarter include:

•~~Net~~Consolidated net sales were $131.1 million, up 3.3% sequentially from the fourth quarter of ~~$116.8 million;~~fiscal 2022 and up 12.2% from the first quarter of fiscal 2022;

•~~GAAP operating loss~~Gross margin was 35.7%, comparable with gross margins in both our first and fourth quarters of $6.5 million and a GAAP net loss per diluted common share of $0.43. These results reflect: (i) $5.2 million for adjustments to reflect the redemption value of convertible preferred stock; (ii) a $0.3 million benefit for the change in fair value of the convertible preferred stock purchase option liability; (iii) $2.2 million of proxy solicitation costs; (iv) $0.7 million of restructuring costs associated with the opening of Comtech’s new high volume technology manufacturing centers; and (v) $0.7 million of COVID-19 related costs. In addition, we recorded a $0.01 per diluted common share discrete tax benefit. Excluding such items, Non-GAAP operating loss was $3.0 million and Non-GAAP net loss per diluted common share was $0.15;fiscal 2022;

•GAAP net ~~cash provided by operating activities~~loss attributable to common stockholders was $12.8 million, and included $9.1 million of ~~$4.8 million;~~CEO transition costs, $1.3 million of restructuring costs and $0.7 million of strategic emerging technology costs for next-generation satellite technology;

•GAAP EPS loss of $0.46 and Non-GAAP EPS income of $0.16;

•Adjusted EBITDA (a Non-GAAP financial measure discussed below) of $10.7 million, or 8.2% of consolidated net sales, an increase from the $5.5 million, or 4.7% of consolidated net sales for the first quarter of fiscal 2022;

•New bookings (also referred to as orders) of $181.2 million, representing a 26.9% sequential quarterly increase and a quarterly book-to-bill ratio of 1.38x (a measure defined as bookings divided by net sales);

•Backlog of $668.2 million as of October 31, 2022, compared to $618.1 million as of July 31, 2022 and $628.5 million as of October 31, 2021;

•Revenue visibility of approximately $1.1 billion. We measure this revenue visibility as the sum of our $668.2 million of backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders; and

•Cash flows used in operating activities of $6.2 million. Excluding $3.8 million in aggregate payments related to our CEO transition, cash used in operating activities would have been $2.4 million.

Non-GAAP financial measures discussed above are reconciled to the most directly comparable GAAP financial measures in the table included in the below section "Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended October 31, ~~2021~~2022 and ~~2020.~~2021."

In ~~October 2021,~~August 2022, we announced that Ken Peterman was appointed President and CEO. Prior to such appointment, in May 2022, Mr. Peterman joined our Board of Directors ~~has appointed Michael D. Porcelain, our President~~as Chairman. With over forty years in the defense sector, Mr. Peterman’s significant experience in satellite technology and ~~Chief Operating Officer, to be Chief Executive Officer, taking over from Fred Kornberg. The change~~decades of ~~leadership~~experience with U.S. government contracting is expected to ~~occur by the end of calendar 2021, at which point Mr. Porcelain will also join~~enhance our ~~Board of Directors~~efforts to continually improve commercial success and continue as President. Mr. Kornberg will serve as non-executive Chairman of the Board and is expected to take on a technology advisory role. Costs associated with this leadership transition will be announced once they are finalized.

Shortly after this leadership change announcement, we secured a $100.0 million strategic growth investment from current stockholder White Hat Capital Partners, LP and Magnetar Capital LLC. This investment, which is in the form of Series A Convertible Preferred Stock, significantly enhances our financial flexibility and strengthens our ability to capitalize on recent large contract awards and growing customer demand by making crucial investments in our satellite technologies and next-generation 911 public safety solutions.

As of October 31, 2021, our cash and cash equivalents were $30.9 million, our total debt outstanding was $108.0 million and our Secured Leverage Ratio (as calculated under our existing Credit Facility) was 1.57x, and reflects a substantial reduction from 2.53x as of July 31, 2021 due to our receipt of a $100.0 million strategic growth investment.

New bookings for the first quarter of fiscal 2022 were $86.4 million, enabling us to achieve a quarterly book-to-bill ratio (a measure defined as bookings divided by net sales) of 0.74x. Based on expected new order flow, we expect to achieve a book-to-bill ratio in excess of 1.00x for fiscal 2022. Key contract awards and bookings received during the first quarter include: a $125.0 million contract from the U.S. government for our Joint Cyber Analysis Course ("JCAC") Training solutions (for which $4.9 million of orders is included in first quarter bookings); a $5.6 million contract renewal with a U.S. tier-one mobile network operator ("MNO"); $4.9 million of funding from the U.S. Army to continue its sustainment of the U.S. Army’s family of ground satellite terminals; $3.7 million of funding to support the State of Maryland’s Department of Human Services; a $2.2 million contract to provide next-generation 911 services to a U.S. military customer; and a $2.0 million order from a leading global maritime satellite communication antenna systems provider for C-Band and Ku-Band low power outdoor block up converters.

Backlog as of October 31, 2021 was $628.5 million, $23.0 million higher than the backlog that existed as of October 31, 2020. Additionally, the total value of multi-year contracts that we have received is substantially higher than our reported backlog. When adding our backlog and the total unfunded value of multi-year contracts that we have received and from which we expect future orders, our revenue visibility is over $1.2 billion. Notably, this amount excludes potential future orders for our next-generation satellite earth station technology which is under development. Our backlog (sometimes referred to herein as orders or bookings) is more fully defined in our most recent Annual Report on Form 10-K filed with the SEC.shareholder value.

3938

Index

~~With COVID-19 continuing~~To execute our new CEO’s initiatives to ~~impact global markets~~further strengthen and ~~supply chains, reliable forecasting remains challenging. Against that market backdrop,~~grow our businesses, we continue to ~~target fiscal 2022 net sales~~enhance our leadership team with the intent to beeffectively move our company forward and, at the same time, maximize our ability to compete and deliver across our global market segments. To that end we created the roles of Chief Strategy Officer – Defense and Chief Strategy Officer – Commercial to help realize our business objectives in ~~a range~~each of ~~$580.0 million~~these respective markets. Daniel Gizinski and Jay Whitehurst, respectively, were appointed to ~~$600.0 million~~these two new positions. Mr. Gizinski has been with Comtech for three years, most recently serving as President of Comtech Network Systems, Inc. Mr. Whitehurst has been with Comtech for eleven years, most recently serving as President of Comtech’s Trusted Location and ~~Adjusted EBITDA between $70.0 million and $76.0 million. These targets reflect~~Messaging Solutions business. Also, in connection with the ~~strength~~re-segmentation of our ~~backlog~~reportable operating segments, Tim Jenkins was appointed President of our Terrestrial and ~~a strong sales pipeline, offset by~~Wireless Networks segment and Justin Wexler was appointed President of our Satellite and Space Communications segment. Mr. Jenkins has been with Comtech for three years, most recently serving as President of our former Safety and Security Technologies product group. Mr. Wexler joined Comtech in November 2022 and most recently served as Chief Operating Officer of Clear Align and, prior to that, spent fifteen years with L3 Technologies in multiple leadership roles. Additionally, to elevate our position as an integrated services and solutions provider across both segments, Doug Houston was named Vice President of Global Support. Mr. Houston has been with Comtech for ten years, most recently serving as President of Comtech Systems, Inc. With these and other key positions filled, we believe we can further improve efficiencies and streamline our operations into “One Comtech.”

During the ~~lingering impacts~~first quarter of ~~COVID-19, timing considerations associated with global supply chain constraints~~fiscal 2023, we moved forward on our investments in capital equipment and ~~start-up costs associated~~building improvements in connection with the opening of ~~two~~a new ~~high-volume~~146,000 square-foot facility in Chandler, Arizona, and the establishment of a 56,000 square-foot facility in Basingstoke, United Kingdom. Although COVID-19 and supply chain issues have extended our original build-out schedules, particularly as it relates to our Chandler, Arizona facility, both manufacturing centers are expected to support production of next-generation broadband satellite technology ~~manufacturing centers.~~and should be fully operational in fiscal 2023 as we enter the final stages of the build-out.

~~Our incoming CEO is continuing~~We experienced strong order flow during the three months ended October 31, 2022. Key bookings include: a $50.0 million plus award of incremental funding on an existing contract to ~~develop new plans and initiatives including: (i) conducting a strategic and financial assessment~~provide next generation troposcatter systems in support of ~~all product lines; (ii) revisiting and reviewing all acquisition opportunities to establish strategic priorities to optimally deploy proceeds from its recent $100.0~~the U.S. military; enhanced 911 call routing services, valued in excess of $30.0 million, ~~strategic growth investment; (iii) increase company-wide collaboration to exploit emerging opportunities; (iv)~~for one of the ~~creation of a focused commercial satellite networking group based~~largest wireless carriers in the United ~~States that will cater~~States; and a large multi-million dollar Foreign Military Sales (“FMS”) contract for beyond line-of-sight communications terminals and upgrades to the ~~needs of certain U.S. government customers; (v) expanding the employee talent pool including adding a new COO~~Ukrainian government’s existing systems. While our business continues to face near-term challenges and dedicated investor relations professional; (vi) refreshing corporate branding including launching of a new company-wide web site and establishing a prominent social media presence; (vii) finishing an ongoing evaluation of new segment reporting and revisitingcontinued uncertainties, as further discussed below, we are pleased with our ~~Non-GAAP EPS calculations. Revenue enhancements or costs synergies associated with these new plans and initiatives are not included in our fiscal 2022 targets.~~

~~On a consolidated basis, financial~~strong bookings performance in the first ~~half~~quarter, as it represented our fourth consecutive quarter of ~~fiscal 2022 is expected~~sequential growth and restored our funded backlog to ~~be significantly lower than the comparative period of fiscal 2021, with our second half of fiscal 2022 expected to be significantly higher than the comparative period of fiscal~~a level not reported since July 2021. ~~Quarterly results are expected to build sequentially throughout the year, with the fourth quarter being the peak quarter by far.~~

~~Our~~As we enter the second quarter of fiscal 2023, business conditions continue to be challenging, and the operating environment is largely unpredictable, including factors such as inflation, interest rate hikes, the repercussions of the military conflict between Russia and Ukraine and a potential global recession. There also continues to be order and production delays, disruptions in component availability, increased pricing both for labor and parts, lower levels of factory utilization and higher logistics and operational costs. In light of these business conditions and resulting challenges, for our second quarter of fiscal 2023, we are targeting consolidated net sales ~~in fiscal 2022 are anticipated~~ to ~~reflect a higher percentage of total Commercial Solutions segment sales due to strong demand~~increase between 1.0% and 3.0%, sequentially, and for our ~~public safety and location technology solutions, including work on our recent contracts~~consolidated Adjusted EBITDA margin to design, deploy and operate NG-911 services for the states of South Carolina and Pennsylvania, and a higher level of annual sales in our satellite earth station product line as compared to fiscal 2021, including incremental contributions from our recently acquired TDMA modem technologies. Sales in our Government Solutions segment are expected to decline year-over-year and reflect the impact of the recently completed withdrawal of U.S. troops from Afghanistan and other U.S. government program changes. During the second half of fiscal 2022, we expect our Government Solutions segment to benefit from additional orders for the newly introduced Comtech COMET™, the world’s smallest deployable troposcatter terminal, and our next generation troposcatter system used by the U.S. Marine Corps.approximate 8.0%.

~~Our~~We do not provide forward-looking guidance for GAAP operating income in fiscal 2022 will be impacted by both start-up manufacturing expenses and restructuring costs associated with the opening of our two new high-volume technology manufacturing centers, as well as COVID-19 related costs. Global supply chain issues make the amount and timing of these expenses difficult to predict. In addition, GAAP operating income in fiscal 2022 will be impacted by greater than normal proxy solicitation costs, as well as leadership transition costs associated with the appointment of a new CEO. Because the amount and timing of these costs remains largely unpredictable, we are not providing GAAP operating income, GAAP net income or any GAAP EPS guidance or a reconciliation of our projected results ~~to the most comparable GAAP measure, as such a reconciliation cannot be prepared without unreasonable effort. For the same reasons,~~because we are unable to ~~address~~predict certain items contained in the ~~probable significance~~GAAP measure without unreasonable efforts. Please refer to the discussion below under "Adjusted EBITDA" for more information. Also, because our consolidated Adjusted EBITDA, as a percentage of consolidated net sales, depends on the ~~unavailable information, which could be material~~volume of sales, sales mix and related gross profit for each segment as well as unallocated spending, it is inherently difficult to ~~future results.~~forecast.

On December ~~9, 2021,~~8, 2022, our Board of Directors declared a cash dividend of $0.10 per common share, payable on February ~~18, 2022~~17, 2023 to stockholders of record at the close of business on January ~~19, 2022.~~18, 2023. Future common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board ~~approval.~~approval and certain voting rights of holders of our Series A Convertible Preferred Stock.

Additional information related to our Business Outlook for ~~Fiscal 2022~~fiscal 2023 and a definition and explanation of Adjusted EBITDA is included in the below section "Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Results of Operations for the Three Months Ended October 31, ~~2021~~2022 and ~~2020~~.2021."

Index

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, ~~2021~~2022 AND ~~2020~~2021

Net Sales. Consolidated net sales were $131.1 million and $116.8 million for the three months ended October 31, 2022 and ~~$135.2~~2021, respectively, representing an increase of $14.3 million, or 12.2%. The period-over-period increase in net sales primarily reflects higher net sales in our Satellite and Space Communications segment, as further discussed below.

Satellite and Space Communications

Net sales in our Satellite and Space Communications segment were $80.9 million for the three months ended October 31, 2022 as compared to $64.6 million for the three months ended October 31, 2021, ~~and 2020, respectively, representing a decrease~~an increase of ~~$18.4~~$16.3 million or ~~13.6%~~25.2%. ~~The period-over-period decrease in net sales reflects lower net sales in both of our segments, as further discussed below.~~

~~Index~~

~~Commercial Solutions~~

Net sales ~~in our Commercial Solutions segment were $78.9 million~~ for the three months ended October 31, ~~2021, as compared~~2022 primarily reflect sales related to ~~$81.8 million~~a recently awarded FMS contract for beyond line-of-sight communications terminals and upgrades to the ~~three months ended October 31, 2020,~~Ukrainian government’s existing systems and a ~~decrease~~period-over-period increase in sales of ~~$2.9 million, or 3.5%.~~our satellite ground station technologies, offset in part by lower sales of our high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components. Our ~~Commercial Solutions~~Satellite and Space Communications segment represented ~~67.6%~~61.7% of consolidated net sales for the three months ended October 31, ~~2021~~2022 as compared to ~~60.5%~~55.3% for the three months ended October 31, 2020. Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.77x. Period-to-period fluctuations in bookings are normal for this segment. As further discussed below, long-term demand for our Commercial Solutions segment's products and technologies appears strong and we believe fiscal 2022 net sales for this segment will be higher than the amount we achieved in fiscal 2021.

Net sales in the three months ended October 31, 2021 of our satellite ground station technologies were lower than the three months ended October 31, 2020. This product line continues to be impacted by the COVID-19 pandemic's effect on customer demand, particularly in international markets, which historically represents a large majority of end-users for this product line. Our results for the first quarter of fiscal 2022 also reflect nominal sales of TDMA satellite networking platforms that we now offer as a result of our March 2, 2021 acquisition of UHP Networks Inc. ("UHP").

Although COVID-19 spikes and global supply chain issues represent a significant performance headwind, we continue to expect sales of our satellite earth station products in fiscal 2022 to grow as compared to fiscal 2021 due to increased demand. During the three months ended October 31, 2021, we received (i) a $2.0 million order from a leading global maritime satellite communication antenna systems provider for 250 Watt C-Band and 125 Watt Ku-Band low power outdoor block up converters and (ii) $1.2 million follow-on order for Ka-band solid-state power amplifiers (“SSPAs”) that use state-of-the-art Gallium Nitride (“GaN”) technology for an in-flight connectivity (“IFC”) application. In addition, we expect this product line to benefit from the inclusion of a full twelve months of sales of our TDMA satellite network platform that we now offer as a result of the UHP acquisition. We continue to monitor our inventory needs and navigate supply chain constraints which are impacting the timing of new orders, deliveries and installations.

Net sales in the three months ended October 31, 2021 of our public safety and location technology solutions were higher than the three months ended October 31, 2020, reflecting increased sales of our NG-911 services and location-based technology solutions. Notable awards during the three months ended October 31, 2021 include: (i) a $5.6 million contract renewal with a U.S. tier-one MNO to continue providing messaging application support; (ii) a $2.2 million contract to provide next-generation 911 services to a U.S. military customer; (iii) a $1.7 million renewal agreement with a U.S. tier-one MNO for trusted location services; and (iv) a $1.3 million contract renewal with a U.S. tier-one MNO for precise location services.

To-date, the business impact of COVID-19 and global supply chain issues on our public safety and location technology solutions has been relatively muted. We have a number of large opportunities in our pipeline and long-term demand for our products and services appears strong. We are awaiting funding on a large NG-911 contract that we have already been awarded (and which is not in our backlog) and remain in negotiations with several other potential customers. Timing of these awards are difficult to predict. Although public safety and location technology solutions have long sales cycles and are subject to difficult-to-predict changes in the overall procurement strategies of wireless carrier customers, we believe that sales of our NG-911 solutions will be higher than the amount we achieved in fiscal 2021.

Overall, based on expected new order flow, we remain optimistic that fiscal 2022 net sales for this segment will be higher than the amount we achieved in fiscal 2021. Bookings, sales and profitability in our Commercial Solutions segment can fluctuate from period-to-period due to many factors, including changes in the general business environment. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance.

~~Government Solutions~~

Net sales in our Government Solutions segment were $37.8 million for the three months ended October 31, 2021 as compared to $53.4 million for the three months ended October 31, 2020, a decrease of $15.6 million or 29.2%. Our Government Solutions segment represented 32.4% of consolidated net sales for the three months ended October 31, 2021 as compared to 39.5% for the three months ended October 31, 2020. Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for the three months ended October 31, ~~2021~~2022 was ~~0.68x. Period-to-period fluctuations in bookings are normal for this segment.~~1.68x.

~~Index~~

Net sales for the first quarter of fiscal 2022 primarily reflect lower sales of global field support services, advanced VSAT products and other programs to the U.S. Army, offset in part by higher sales of our high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components and solid-state, high-power amplifiers. Sales during the three months ended October 31, 2020 included ongoing performance on our 10-year, $211.0 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of the U.S. Marine Corps. There were no corresponding sales in the first quarter of fiscal 2022, as we continue to expect the next round of funding on this IDIQ contract to occur during the second half of fiscal 2022.

Notable orders awarded to us during the three months ended October 31, 2021 include: (i) $4.9 million of orders related to a multi-year contract valued at up to $235.7 million to provide system refurbishment, sustainment services and baseband equipment to the U.S Army (such orders support the sustainment of the U.S. Army's AN/TSC-198 SNAP family of ground satellite terminals); (ii) a five-year single award IDIQ contract renewal with firm fixed price and time and materials delivery orders valued at approximately $125.0 million from the U.S. government for our JCAC training solutions (initial delivery orders on the IDIQ contract have been received and funded $4.9 million to-date); (iii) $3.7 million of funding to support the State of Maryland's Department of Human Services with technical operations support services; (iv) a $1.8 million contract for high power solid-state amplifiers from a major domestic prime contractor; and (v) $1.1 million of funding to continue to provide critical IT staffing and support to multiple agencies within the City of Baltimore, including, but not limited to the Baltimore City Information & Technology and the Baltimore City Police Department.

As result of the U.S. government’s decision to fully withdraw troops from Afghanistan and make certain program changes, we are expecting a decline in overall revenues in our Government Solutions segment in fiscal 2022, as compared to fiscal 2021. We continue to see strong interest for our Comtech COMET™ terminals and have conducted successful in-field demonstrations for a number of customers. Although still difficult to predict, we expect that revenues in this segment for the second and third quarters of fiscal 2022 will approximate the amount we achieved during the first quarter of fiscal 2022. Thereafter, this segment is expected to benefit from higher margin programs, including the receipt of new orders for the Comtech COMET™ and other troposcatter solutions.

Bookings, sales and profitability in our ~~Government Solutions~~Satellite and Space Communications segment can fluctuate ~~dramatically~~substantially from ~~period-to-period~~period-to-period due to many factors, including unpredictable funding, deployment and technology decisions by our U.S. and international government customers. Period-to-period fluctuations in bookings are normal for this segment. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance.

Terrestrial and Wireless Networks

Net sales in our Terrestrial and Wireless Networks segment were $50.3 million for the three months ended October 31, 2022, as compared to $52.2 million for the three months ended October 31, 2021, a decrease of $1.9 million, or 3.6%. Net sales in the three months ended October 31, 2022 reflect lower sales of our trusted location and messaging solutions and cyber security training services, offset in part by higher sales of our NG-911 solutions. Our Terrestrial and Wireless Networks segment represented 38.3% of consolidated net sales for the three months ended October 31, 2022 as compared to 44.7% for the three months ended October 31, 2021. Our book-to-bill ratio for this segment was 0.90x.

Bookings, sales and profitability in our Terrestrial and Wireless Networks segment can fluctuate from period-to-period due to many factors, including changes in the general business environment. Period-to-period fluctuations in bookings are normal for this segment. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance.

Geography and Customer Type

Sales by geography and customer type, as a percentage of related sales, for the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 are as follows:


		Three months ended October 31,													Three months ended October 31,
		2021		2020		2021		2020		2021		2020			2022		2021		2022		2021		2022		2021
		Commercial Solutions				Government Solutions				Consolidated					Satellite and Space Communications				Terrestrial and Wireless Networks				Consolidated
U.S. government	U.S. government	14.0	%	11.6	%	63.8	%	64.4	%	30.1	%	32.5	%	U.S. government	50.7	%	52.5	%	2.1	%	2.4	%	32.1	%	30.1	%
Domestic	Domestic	64.9	%	60.2	%	14.1	%	13.9	%	48.5	%	41.9	%	Domestic	18.9	%	16.7	%	91.5	%	87.7	%	46.7	%	48.5	%
Total U.S.	Total U.S.	78.9	%	71.8	%	77.9	%	78.3	%	78.6	%	74.4	%	Total U.S.	69.6	%	69.2	%	93.6	%	90.1	%	78.8	%	78.6	%

International	International	21.1	%	28.2	%	22.1	%	21.7	%	21.4	%	25.6	%	International	30.4	%	30.8	%	6.4	%	9.9	%	21.2	%	21.4	%
Total	Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Sales to U.S. government customers include sales to the ~~U.S. Department of Defense ("DoD"),~~DoD, intelligence and civilian agencies, as well as sales directly to or through prime contractors.

Domestic sales include sales to commercial customers, as well as to U.S. state and local governments. Included in domestic sales are sales to Verizon, which accounted for ~~11.7%~~12.5% and ~~12.5%~~11.7% of consolidated net sales for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

Index

International sales for the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 (which include sales to U.S. domestic companies for inclusion in products that are sold to international customers) were ~~$25.0~~$27.8 million and ~~$34.6~~$25.0 million, respectively. Except for the U.S., no individual country (including sales to U.S. domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for the three months ended October 31, ~~2021~~2022 and ~~2020.~~2021.

~~Index~~

Gross Profit.Gross profit was ~~$41.7~~$46.8 million and ~~$50.2~~$41.7 million for the three months ended October 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~a decrease~~an increase of ~~$8.5~~$5.1 million. Gross profit in each period, as a percentage of consolidated net sales, ~~for the three months ended October 31, 2021~~ was 35.7% ~~as compared to 37.1% for the three months ended October 31, 2020.~~. Our gross profit (both in dollars and as a percentage of consolidated net sales) reflects ~~the lower~~an increase in net sales ~~this quarter as compared to the comparable period of the prior year~~ and overall product mix changes, as discussed above. ~~In addition, our~~Our gross profit ~~for the most recent period~~in both periods also reflects start-up costs associated with the opening of our new high-volume technology manufacturing ~~centers.~~centers, as well as increased costs resulting from the ongoing impacts of the COVID-19 pandemic and inflationary pressures. Gross profit, as a percentage of related segment net sales, is further discussed below.

Our ~~Commercial Solutions~~Satellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for the three months ended October 31, ~~2021 decreased~~2022 increased in comparison to the three months ended October 31, ~~2020. The decrease primarily~~2021 and reflects ~~lower levels of factory utilization, higher logistics and operational costs resulting from global supply chain constraints, and~~ changes in products and services mix, ~~including an increase in sales related to a recently awarded statewide NG-911 deployment (which has lower margins than our 911 wireless call routing services).~~

~~Our Government Solutions segment's gross profit,~~ as a percentage of related segment net sales, for the three months ended October 31, 2021 decreased in comparison to the three months ended October 31, 2020. The decrease primarily reflects lower net sales and changes in products and services mix.discussed above. Also, during the three months ended October 31, 2021, we incurred $0.7 million of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic. ~~Although operations~~There were no such costs in the ~~United Kingdom have largely resumed, we continue~~three months ended October 31, 2022.

Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for the three months ended October 31, 2022 decreased in comparison to ~~experience lingering impacts from COVID-19~~the three months ended October 31, 2021. The gross profit percentage in the most recent three-month period primarily reflects changes in products and ~~the shut-down in fiscal 2021.~~services mix, as discussed above.

Included in consolidated cost of sales for the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 are provisions for excess and obsolete inventory of ~~$1.2~~$0.8 million and ~~$1.0~~$1.2 million, respectively. As discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Provisions for Excess and Obsolete Inventory," we regularly review our inventory and record a provision for excess and obsolete inventory based on historical and projected usage trends.

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

Selling, General and Administrative Expenses. Selling, general and administrative expenses were ~~$28.2~~$29.3 million and ~~$27.5~~$28.2 million for the three months ended October 31, 2022 and 2021, ~~and 2020, respectively, representing an increase of $0.7 million, or 2.5%.~~respectively. As a percentage of consolidated net sales, selling, general and administrative expenses were ~~24.1%~~22.3% and ~~20.3%~~24.1% for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

During the three months ended October 31, 2022 and 2021, we incurred $1.3 million and $0.7 million, respectively, of restructuring costs primarily to streamline our operations, including costs related to the ongoing relocation of certain of our satellite earth station production facilities to a new 146,000 square foot facility in Chandler, Arizona. ~~There were no such costs in the three months ended October 31, 2020.~~ Excluding restructuring costs, selling, general and administrative expenses for the three months ended October 31, 2022 and 2021 would have been $28.0 million or 21.4% and $27.5 million or 23.6%, respectively, of consolidated net sales. The ~~increase~~decrease in our selling, general and ~~administration~~administrative expenses, as a percentage of consolidated net sales, is primarily due to ~~lower~~higher consolidated net sales, as discussed above. Our selling, general and administrative expenses in the most recent period also reflect higher labor costs associated with a tight global labor market, increased investments in marketing, including new social media activities and other investments we are making to achieve our long term business goals. Such spending is expected to continue in fiscal 2023.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $0.6 million in the three months ended October 31, 2022 as compared to $0.8 million in the three months ended October 31, ~~2021 as compared to $0.5 million in the three months ended October 31, 2020.~~2021. Amortization of stock-based compensation is not allocated to our two reportable operating segments.

Research and Development Expenses. Research and development expenses were ~~$12.5~~$12.8 million and ~~$11.6~~$12.5 million for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively, representing an increase of ~~$0.9~~$0.3 million or ~~7.8%~~2.0%. As a percentage of consolidated net sales, research and development expenses were ~~10.7%~~9.8% and ~~8.6%~~10.7% for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

Index

For the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, research and development expenses of ~~$11.3~~$6.4 million and ~~$9.4~~$6.8 million, respectively, related to our ~~Commercial Solutions~~Satellite and Space Communications segment and ~~$1.1~~$6.3 million and ~~$2.1~~$5.6 million, respectively, related to our ~~Government Solutions~~Terrestrial and Wireless Networks segment. The remaining research and development expenses of $0.1 million infor both the three months ended October 31, ~~2021~~2022 and ~~2020~~2021, related to the amortization of stock-based compensation expense.

43During the three months ended October 31, 2022, we incurred $0.7 million of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations, all of which was incurred in our Satellite and Space Communications segment. We are evaluating this new market in relation to our long-term business strategies, and we may incur additional costs in the future. There were no similar costs in the comparable period of the prior year.

~~Index~~

Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, customers reimbursed us ~~$2.6~~$2.2 million and ~~$3.4~~$2.6 million, respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales.

Amortization of Intangibles. Amortization relating to intangible assets with finite lives ~~was $5.3 million (of which $4.2 million was~~ for ~~the Commercial Solutions segment and $1.1 million was for the Government Solutions segment) for~~both the three months ended October 31, 2022 and 2021 ~~and $5.6~~was $5.3 million (of which ~~$4.3~~$1.8 million was for the ~~Commercial Solutions~~Satellite and Space Communications segment and ~~$1.3~~$3.5 million was for the ~~Government Solutions~~Terrestrial and Wireless Networks segment) ~~for the three months ended October 31, 2020.~~.

Proxy Solicitation Costs. During the three months ended October 31, 2021, we incurred $2.2 million of proxy solicitation costs (including legal and advisory ~~fees)~~fees and costs associated with a related lawsuit) in our ~~unallocated~~Unallocated segment as a result of a now settled proxy contest initiated by a shareholder during the most recently completed fiscal quarter. There were no similar costs in the comparable period of the prior year. Due to the ongoing nature of the proxy contest, we anticipate incurring similar proxy solicitation and related costs inshareholder. During our ~~second~~first quarter of fiscal ~~2022.~~2022, we also entered into a Cooperation Agreement with such shareholder.

~~Acquisition Plan Expenses.~~CEO Transition Costs. ~~During~~On August 9, 2022, our Board of Directors appointed our Chairman of the ~~three months ended October 31, 2020, we incurred $91.2~~Board, Mr. Peterman, as President and CEO. Transition costs related to our former President and CEO, Mr. Porcelain, pursuant to his separation agreement with the Company, were $7.4 million, of ~~acquisition plan expenses, of~~ which ~~$88.3~~$3.8 million related to the ~~previously announced litigation and merger termination~~acceleration of unamortized stock-based compensation, with ~~Gilat, including $70.0~~the remaining $3.6 million ~~paid in cash to Gilat. The remaining costs primarily~~ related to his severance payments and benefits upon termination of employment. The cash portion of the ~~April 2021 settlement~~transition costs of ~~litigation associated~~$3.6 million was paid to Mr. Porcelain in October 2022. Also, in connection with ~~our 2019 acquisition~~Mr. Peterman entering into an employment agreement with the Company, effective as of ~~GD NG-911 as well as the March 2021 closing of our acquisition of UHP. These expenses are primarily recorded~~August 9, 2022, we incurred a $1.0 million expense related to a cash sign-on bonus. CEO transition costs related to Mr. Porcelain and Mr. Peterman were expensed in our Unallocated ~~segment. There were no similar costs incurred~~segment during the ~~three months ended October 31, 2021.~~first quarter of fiscal 2023.

Operating Loss. Operating loss for the three months ended October 31, 2022 and 2021 was $9.7 million and $6.5 million, ~~as compared to an operating loss of $85.7 million for the three months ended October 31, 2020.~~respectively. Operating income (loss) by reportable segment is shown in the table below:


		Three months ended October 31,														Three months ended October 31,
		2021			2020		2021	2020		2021	2020	2021		2020		2022			2021	2022		2021		2022	2021	2022		2021
($ in millions)	($ in millions)	Commercial Solutions					Government Solutions			Unallocated		Consolidated			($ in millions)	Satellite and Space Communications				Terrestrial and Wireless Networks				Unallocated		Consolidated
Operating income (loss)	Operating income (loss)	$	2.2		8.8		(1.4)	2.6		(7.3)	(97.1)	$	(6.5)	(85.7)	Operating income (loss)	$	5.0		(5.3)	0.7		6.1		(15.5)	(7.3)	$	(9.7)	(6.5)
Percentage of related net sales	Percentage of related net sales	2.8		%	10.8	%	NA	4.9	%	NA	NA	NA		NA	Percentage of related net sales	6.2		%	NA	1.5	%	11.7	%	NA	NA	NA		NA

Our GAAP operating loss of $9.7 million for the three months ended October 31, 2022 reflects: (i) $9.1 million of CEO transition costs; (ii) $5.3 million of amortization of intangibles; (iii) $1.3 million of restructuring costs; (iv) $0.9 million of amortization of stock-based compensation; (v) $0.7 million of strategic emerging technology costs; and (vi) $0.2 million of amortization of cost to fulfill assets, as discussed above. Excluding such items, our consolidated operating income for the three months ended October 31, 2022 would have been $7.9 million, or 6.0% of consolidated net sales. Our GAAP operating loss of $6.5 million for the three months ended October 31, 2021 reflects: (i) $5.3 million of amortization of intangibles; (ii) $2.2 million of proxy solicitation costs; ~~(ii)~~(iii) $0.9 million of amortization of stock-based compensation; (iv) $0.7 million of restructuring costs; and ~~(iii)~~(v) $0.7 million of incremental operating costs due to the impact of COVID-19, as discussed above. Excluding such costs, our consolidated operating loss would have been $3.0 million. Our GAAP operating loss of $85.7 million for the three months ended October 31, 2020 reflects $91.2 million of acquisition plan expenses, as discussed above. Excluding such costs,items, our consolidated operating income for the three months ended October 31, ~~2020~~2021 would have been ~~$5.5~~$3.3 million, or ~~4.0%~~2.8% of consolidated net sales. The ~~decrease~~increase in operating income ~~from $5.5 million~~for the three months ended October 31, 2022, excluding such items in each respective period, was primarily due to ~~an operating loss of $3.0 million in the most recent quarter was due primarily to lower~~higher consolidated net sales, ~~and a lower gross profit percentage,~~ as discussed above. Operating income (loss) by reportable segment is further discussed below.

Index

The increase in our Satellite and Space Communications segment operating income for the three months ended October 31, 2022 was driven primarily by an increase in related segment net sales and gross profit percentage, as discussed above.

The decrease in our ~~Commercial Solutions~~Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for the three months ended October 31, ~~2021 was primarily due to lower net sales and gross profit percentage, higher research and development expenses and $0.8 million of restructuring costs, as discussed above.~~

~~The decrease in our Government Solutions segment operating income for the three months ended October 31, 2021~~2022 was driven primarily by ~~lower~~a decrease in related segment net sales and gross profit percentage, as discussed above.

The ~~decrease~~increase in unallocated expenses for the three months ended October 31, ~~2021~~2022 as compared to the three months ended October 31, ~~2020~~2021 was ~~due~~driven primarily ~~to no acquisition plan expenses~~by CEO transition costs incurred during the most ~~recently completed fiscal~~recent quarter, as discussed above. Amortization of stock-based compensation was $0.9 million, for both the three months ended October 31, 2022 and ~~$0.7~~2021. Excluding the impact of CEO transition costs and proxy solicitation costs in their respective periods, unallocated expenses would have been $6.4 million and $5.1 million, respectively, for the three months ended October 31, ~~2021~~2022 and 2020. Excluding the impact of proxy solicitation costs of $2.2 million and acquisition plan expenses of $92.2 million in their respective periods, unallocated expenses were $5.1 million and $4.9 million, respectively, for the three months ended October 31, 2021 and 2020.

~~Index~~

It is difficult to predict GAAP operating income in fiscal 2022 as it will be impacted by both start-up expenses and restructuring costs associated with the opening of Comtech’s new high-volume technology manufacturing centers, COVID-19 related costs, proxy solicitation costs and expenses associated with the CEO transition that was announced in October 2021.

Interest Expense and Other. Interest expense was ~~$1.6~~$2.2 million and ~~$2.3~~$1.6 million for the three months ended October 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~Interest expense for the three months ended October 31, 2020 includes $1.2 million of incremental interest expense related to a now terminated financing commitment letter.~~ Our effective interest rate (including amortization of deferred financing costs) in the three months ended October 31, ~~2021~~2022 was approximately ~~2.9%~~5.9%. Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Amended Credit Facility approximates ~~2.1%~~7.9%.

Interest (Income) and Other. Interest (income) and other for both the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 was nominal. All of our available cash and cash equivalents are currently invested in bank deposits and money market deposit accounts which, at this time, are currently yielding an immaterial interest rate.

Change in Fair Value of Convertible Preferred Stock Purchase Option Liability. During the three months ended October 31, 2021, we recorded a $0.3 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability. There was no similar adjustment during the three months ended October 31, 2022. See "Notes to Condensed Consolidated Financial Statements - Note ~~(17)~~(16) - Convertible Preferred Stock" for more information.

Benefit from Income Taxes. For the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, we recorded a tax benefit of ~~$2.1~~$0.6 million and ~~$2.2~~$2.1 million, respectively. Our effective tax rate (excluding discrete tax items) for the three months ended October 31, 2022 and 2021 was 19.0% and ~~2020 was 21.00% and 13.75%~~21.0%, respectively. The ~~increase~~decrease in the rate is primarily due to expected product and geographical mix changes reflected in our ~~Business Outlook for Fiscal 2022.~~fiscal 2023 business outlook.

For purposes of determining our 19.0% estimated annual effective tax rate for fiscal 2023, CEO transition costs are considered significant, unusual or infrequently occurring discrete tax items and are excluded from the computation of our effective tax rate.

During the three months ended October 31, 2022, we recorded a net discrete tax benefit of $0.1 million primarily related to the deductible portion of CEO transition costs, partially offset by the settlement of stock-based awards. During the three months ended October 31, 2021, we recorded a net discrete tax benefit of $0.4 million, primarily related to the remeasurement of certain deferred tax items as a result of restructuring activities taken during the quarter. ~~During the three months ended October 31, 2020, we recorded a net discrete tax expense of $0.2 million, primarily related to stock-based awards that were settled during the quarter.~~

Our U.S. federal income tax returns for fiscal ~~2018~~2019 through ~~2020~~2021 are subject to potential future IRS audit. None of our state income tax returns prior to fiscal ~~2017~~2018 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Net Loss Attributable to Common Stockholders. During the three months ended October 31, ~~2021~~2022 and ~~2020, the~~2021, consolidated net loss attributable to common stockholders was ~~$11.2~~$12.8 million and ~~$85.8~~$11.2 million, respectively.

4543

Index

Adjusted EBITDA. Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 are shown in the table below (numbers in the table may not foot due to rounding):


		Three months ended October 31,																	Three months ended October 31,
		2021			2020		2021		2020		2021	2020	2021			2020			2022			2021	2022		2021		2022	2021	2022			2021
($ in millions)	($ in millions)	Commercial Solutions					Government Solutions				Unallocated		Consolidated					($ in millions)	Satellite and Space Communications				Terrestrial and Wireless Networks				Unallocated		Consolidated
Net income (loss)	Net income (loss)	$	2.1		8.3		(1.2)		2.7		(6.9)	(96.8)	$	(6.0)		(85.8)		Net income (loss)	$	5.8		(5.1)	0.6		6.0		(17.5)	(6.9)	$	(11.1)		(6.0)
Provision for (benefit from) income taxes		0.2			0.3		(0.6)		(0.1)		(1.6)	(2.5)	(2.1)			(2.2)
(Benefit from) provision for income taxes																		(Benefit from) provision for income taxes	(0.2)			(0.6)	(0.2)		0.1		(0.2)	(1.6)	(0.6)			(2.1)
Interest expense																		Interest expense	—			0.1	—		—		2.2	1.5	2.2			1.6
Interest (income) and other	Interest (income) and other	—			0.1		0.3		—		—	—	0.2			0.1		Interest (income) and other	(0.6)			0.2	0.3		—		—	—	(0.3)			0.2
Change in fair value of convertible preferred stock purchase option liability	Change in fair value of convertible preferred stock purchase option liability	—			—		—		—		(0.3)	—	(0.3)			—		Change in fair value of convertible preferred stock purchase option liability	—			—	—		—		—	(0.3)	—			(0.3)
Interest expense		—			—		0.1		0.1		1.5	2.2	1.6			2.3
Amortization of stock-based compensation	Amortization of stock-based compensation	—			—		—		—		0.9	0.7	0.9			0.7		Amortization of stock-based compensation	—			—	—		—		0.9	0.9	0.9			0.9
Depreciation																		Depreciation	1.0			0.8	1.7		1.4		—	0.1	2.8			2.2
Amortization of intangibles	Amortization of intangibles	4.3			4.3		1.1		1.3		—	—	5.3			5.6		Amortization of intangibles	1.8			1.8	3.5		3.5		—	—	5.3			5.3
Depreciation		1.8			2.0		0.4		0.4		0.1	0.2	2.2			2.6

Proxy solicitation costs		—			—		—		—		2.2	—	2.2			—
Acquisition plan expenses		—			(1.1)		—		—		—	92.2	—			91.2
Amortization of cost to fulfill assets																		Amortization of cost to fulfill assets	0.2			—	—		—		—	—	0.2			—
Restructuring costs	Restructuring costs	0.8			—		(0.1)		—		—	—	0.7			—		Restructuring costs	1.1			0.7	—		—		0.3	—	1.3			0.7
COVID-19 related costs	COVID-19 related costs	—			—		0.7		—		—	—	0.7			—		COVID-19 related costs	—			0.7	—		—		—	—	—			0.7
Strategic emerging technology costs																		Strategic emerging technology costs	0.7			—	—		—		—	—	0.7			—
CEO transition costs																		CEO transition costs	—			—	—		—		9.1	—	9.1			—
Proxy solicitation costs																		Proxy solicitation costs	—			—	—		—		—	2.2	—			2.2

Adjusted EBITDA	Adjusted EBITDA	$	9.1		14.0		0.6		4.3		(4.2)	(4.0)	$	5.5		14.3		Adjusted EBITDA	$	9.9		(1.3)	6.0		11.0		(5.2)	(4.2)	$	10.7		5.5
Percentage of related net sales	Percentage of related net sales	11.5		%	17.1	%	1.6	%	8.1	%	NA	NA	4.7		%	10.6	%	Percentage of related net sales	12.2		%	NA	11.9	%	21.1	%	NA	NA	8.2		%	4.7	%

The ~~decrease~~increase in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for the three months ended October 31, ~~2021~~2022 as compared to the three months ended October 31, ~~2020~~2021 is primarily attributable to ~~lower~~higher consolidated net sales, ~~and gross profit percentage, and higher research and development expenses,~~ as discussed above.

The ~~decrease~~increase in our ~~Commercial Solutions~~Satellite and Space Communications segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, ~~for the three months ended October 31, 2021 as compared to the three months ended October 31, 2020~~ is primarily due to ~~lower segment~~an increase in that segment's net sales and gross profit percentage, ~~as well as higher research and development expenses,~~ as discussed above.

The decrease in our ~~Government Solutions~~Terrestrial and Wireless Networks segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, ~~for the three months ended October 31, 2021 as compared~~is primarily due to ~~the three months ended October 31, 2020 is driven primarily by lower segment~~a decrease in that segment’s net sales and gross profit percentage, as discussed above.

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

4644

Index

A reconciliation of our fiscal ~~2021~~2022 GAAP ~~Net Loss~~net loss to Adjusted EBITDA is shown in the table below (numbers in the table may not foot due to rounding):


($ in millions)	Fiscal Year ~~2021~~2022
Reconciliation of GAAP Net Loss to Adjusted EBITDA:
Net loss	$	~~(73.5)~~(33.1)
Benefit from income taxes	~~(1.5)~~(4.0)
Interest (income) and other	~~(0.1)~~(0.7)
Change in fair value of convertible preferred stock purchase option liability	(1.0)
Interest expense	~~6.8~~5.0
Amortization of stock-based compensation	~~10.0~~7.8
Amortization of intangibles	~~21.0~~21.4
Depreciation	~~9.4~~10.3
~~Acquisition plan expenses~~Amortization of cost to fulfill assets	~~100.3~~0.5
CEO transition costs	13.6
Proxy solicitation costs	11.2
Restructuring costs	~~2.8~~6.0
COVID-19 related costs	~~1.0~~1.1
Strategic emerging technology costs	~~0.3~~1.2
Adjusted EBITDA	$	~~76.5~~39.3

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, amortization of cost to fulfill assets, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, CEO transition costs, proxy solicitation costs, strategic alternatives analysis expenses and other. Our definition of Adjusted EBITDA may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and therefore may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is also a measure frequently requested by our investors and analysts. We believe that investors and analysts may use Adjusted EBITDA, along with other information contained in our SEC filings, including GAAP measures, in assessing our performance and comparability of our results with other companies. Our Non-GAAP measures ~~for consolidated operating income (loss), net income (loss) attributable to common stockholders and net income (loss) per diluted common share~~ reflect the GAAP measures as reported, adjusted for certain items as described ~~above.~~ herein and also excludes the effects of our outstanding convertible preferred stock. During the first quarter of fiscal 2023, we changed the computation of our Non-GAAP measures of operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share to adjust for amortization of intangibles (including cost to fulfill assets) and stock-based compensation. This change was made to improve the comparability of our results with our peers. Prior period Non-GAAP results have been restated in the tables below to reflect this change.

These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct our business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP. These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP measures in the tables ~~above,~~presented herein, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP. Investors are advised to carefully review the GAAP financial results that are disclosed in our SEC filings. We have not quantitatively reconciled our second quarter fiscal ~~2022~~2023 Adjusted EBITDA target to the most directly comparable GAAP measure because items such as stock-based compensation, adjustments to the provision for income taxes, amortization of intangibles and interest expense, which are specific items that impact these measures, have not yet occurred, are out of our control, or cannot be predicted. For example, quantification of stock-based compensation expense requires inputs such as the number of shares granted and market price that are not currently ascertainable. Accordingly, reconciliations to the Non-GAAP forward looking metrics are not available without unreasonable effort and such unavailable reconciling items could significantly impact our financial results.

4745

Index

Reconciliations of our GAAP consolidated operating (loss) income, net (loss) income attributable to common stockholders and net (loss) income per diluted common share for the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 to the corresponding ~~non-GAAP~~Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding). Non-GAAP net (loss) income attributable to common stockholders and ~~EPS~~net (loss) income per diluted common share reflect ~~non-GAAP~~Non-GAAP provisions for income taxes based on year-to-date results, as adjusted for the ~~non-GAAP~~Non-GAAP reconciling items included in the tables below. We evaluate our ~~non-GAAP~~Non-GAAP effective income tax rate on an ongoing basis, and it can change from time to time. Our ~~non-GAAP~~Non-GAAP effective income tax rate can differ materially from our GAAP effective income tax rate. In addition, due to the GAAP net loss for the period, ~~non-GAAP~~Non-GAAP EPS ~~adjustments~~ for the three months ended October 31, ~~2020 were~~2022 and 2021 was computed using ~~25,315,000~~ weighted average diluted shares outstanding of 28,271,000 and 26,875,000 during the respective period.

Three months ended October 31, 2021
($ in millions, except for per share amount) Operating Loss Net Loss Attributable to Common Stockholders Net Loss per Diluted Common Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported $ (6.5) $ (11.2) $ (0.43)
    Adjustments to reflect redemption value of convertible preferred stock — 5.2 0.20
    Proxy solicitation costs 2.2 1.6 0.06
    Restructuring costs 0.7 0.5 0.02
    COVID-19 related costs 0.7 0.5 0.02
    Change in fair value of convertible preferred stock purchase option liability — (0.3) (0.01)
    Net discrete tax benefit — (0.4) (0.01)
Non-GAAP measures $ (3.0) $ (4.0) $ (0.15)
Three months ended October 31, 2020
($ in millions, except for per share amount) Operating (Loss) Income Net (Loss) Income Net (Loss) Income per Diluted Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported $ (85.7) $ (85.8) $ (3.39)
    Acquisition plan expenses 91.2 88.3 3.49
    Interest expense — 1.0 0.04
    Net discrete tax expense — 0.2 0.01
Non-GAAP measures $ 5.5 $ 3.7 $ 0.15


	Three months ended October 31, 2022
($ in millions, except for per share amount)	Operating (Loss) Income		Net (Loss) Income Attributable to Common Stockholders		Net (Loss) Income per Diluted Common Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported	$	(9.7)	$	(12.8)	$	(0.46)
Adjustments to reflect redemption value of convertible preferred stock		—		1.7		0.06
CEO transition costs		9.1		8.6		0.31
Amortization of intangibles		5.3		4.1		0.15
Restructuring costs		1.3		1.0		0.04
Amortization of stock-based compensation		0.9		0.7		0.03

Strategic emerging technology costs		0.7		0.6		0.02
Amortization of cost to fulfill assets		0.2		0.2		0.01


Net discrete tax expense		—		0.4		0.01
Non-GAAP measures	$	7.9	$	4.6	$	0.16

	Three months ended October 31, 2021
($ in millions, except for per share amount)	Operating (Loss) Income		Net (Loss) Income Attributable to Common Stockholders		Net (Loss) Income per Diluted Common Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported	$	(6.5)	$	(11.2)	$	(0.43)
Adjustment to reflect redemption value of convertible preferred stock		—		5.2		0.20
Amortization of intangibles		5.3		4.1		0.15
Proxy solicitation costs		2.2		1.6		0.06
Amortization of stock-based compensation		0.9		0.7		0.03
Restructuring costs		0.7		0.5		0.02
COVID-19 related costs		0.7		0.5		0.02
Change in fair value of convertible preferred stock purchase option liability		—		(0.3)		(0.01)
Net discrete tax benefit		—		(0.4)		(0.01)
Non-GAAP measures	$	3.3	$	0.9	$	0.03

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Index

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents were ~~$30.9~~$21.5 million and $21.7 million at ~~both~~ October 31, ~~2021~~2022 and July 31, ~~2021 and~~2022, respectively. For the three months ended October 31, 2022, our cash flows reflect the following:

•Net cash used in operating activities was $6.2 million for the three months ended October 31, 2022 as compared to net cash provided by operating activities ~~was~~of $4.8 million for the three months ended October 31, ~~2021 as compared to net cash used in operating activities of $74.2 million for the three months ended October 31, 2020.~~2021. During the three months ended October 31, ~~2020,~~2022, we paid $3.8 million in ~~connection with an agreement to terminate our acquisition of Gilat, we made a $70.0 million payment to Gilat.~~total CEO transition costs. Excluding such ~~payment,~~payments, net cash used in operating activities would have been ~~$4.2~~$2.4 million. The period-over-period ~~increase~~decrease in cash flow from operating activities ~~(excluding~~(which excludes the ~~$70.0 million payment to Gilat)~~payments of CEO transition costs) reflects overall changes in net working capital requirements, principally the timing of shipments, billings and payments.

•Net cash used in investing activities for the three months ended October 31, 2022 and 2021 ~~and 2020~~ was ~~$3.6~~$7.2 million and ~~$0.9~~$3.6 million, respectively. Net cash used in investing activities for the three months ended October 31, ~~2021~~2022 primarily reflects capital expenditures to build-out cloud-based computer networks to support our recent NG-911 contract wins and capital investments and ~~tenant~~building improvements in connection with the opening of our new high-volume technology manufacturing centers. Net cash used in both periods also relates to expenditures for property, plant and equipment upgrades and enhancements.

•Net cash ~~used in~~provided by (used in) financing activities was $13.3 million and $1.1 million for the three months ended October 31, 2022 and 2021, ~~as compared to net cash provided by financing activities of $59.7 million for the three months ended October 31, 2020.~~respectively. During the three months ended October 31, 2021, we received an aggregate of $100.0 million in proceeds related to the issuance of a new series of Convertible Preferred Stock to certain investors. During the three months ended October 31, ~~2021,~~2022, we ~~also made~~had net borrowings under our Credit Facility of $18.7 million as compared to net payments under our Credit Facility of $93.0 million ~~as compared to net borrowings under our Credit Facility of $67.5 million~~ during the three months ended October 31, ~~2020, primarily related to the $70.0 million payment we made to Gilat.~~2021. During the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, we paid ~~$2.9~~$3.1 million and ~~$5.2~~$2.9 million, respectively, in cash dividends to our common stockholders. We also made ~~$4.7~~$2.3 million and ~~$2.7~~$4.7 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

The Credit Facility is discussed below and in "Notes to Condensed Consolidated Financial Statements – Note ~~(10)~~(9) – Credit Facility."

The Convertible Preferred Stock is discussed below and in "Notes to Condensed Consolidated Financial Statements – Note ~~(17)~~(16) – Convertible Preferred Stock."

Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss while at the same time maximize the income we receive without significantly increasing risk. To minimize risk, we generally invest our cash and cash equivalents in money market mutual funds (both government and commercial), certificates of deposit, bank deposits, and U.S. Treasury securities. Many of our money market mutual funds invest in direct obligations of the U.S. government, bank securities guaranteed by the Federal Deposit Insurance Corporation, certificates of deposit and commercial paper and other securities issued by other companies. While we cannot predict future market conditions or market liquidity, we believe our investment policies are appropriate in the current environment. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.

As of October 31, 2021, our material short-term cash requirements primarily consist of: (i) capital investments and tenant improvements in connection with the opening of our two new high-volume technology manufacturing centers; (ii) interest payments under our Credit Facility; (iii) payments related to lease commitments; (iv) our ongoing working capital needs, including income tax payments; (v) payment of accrued quarterly dividends on shares of our common stock; and (vi) a cumulative 6.5% annual dividend on our Convertible Preferred Stock, which is payable in kind or in cash at our election.

In addition to making capital investments for our ~~two~~ new high-volume manufacturing centers, we ~~continue to make~~have been making significant capital expenditures ~~to build-out~~and building out cloud-based computer networks to support our previously announced NG-911 contract wins for the states of Pennsylvania, South Carolina and Arizona. ~~Aggregate~~We expect capital investments for these and other initiatives to continue in fiscal ~~2022 are expected~~2023 as we look to ~~approximate $30.0 million.~~

~~Index~~

~~As discussed in "Notes to Condensed Consolidated Financial Statements~~ - ~~Note (2)~~ - ~~Acquisitions - UHP Networks Inc~~.," we completed our acquisition of UHP on March 2, 2021. Pursuant to the stock purchase agreement, during fiscal 2021, the initial up-front payment of approximately $24.0 million was paid mostly in shares of our common stock, with a nominal amount paid in cash. In August 2021, approximately $4.0 million of the $5.0 million hold back amount previously placed in escrow at closing was paid to the seller in shares of our common stock, as the conditions pursuant to the stock purchase agreement were met. The stock purchase agreement also provides for a contingent earn-out payment of up to $9.0 million, also payable at our option in cash and or shares of our common stock, if specified sales milestones are reached during a defined period ending September 30, 2022.complete such projects.

On ~~March 3, 2021,~~July 13, 2022, we filed a shelf registration statement with the SEC for the sale of 1,381,567 shares of our common stock by the selling shareholder of UHP. The shelf registration statement was declared effective by the SEC as of March 15, 2021. To-date, we have issued 1,026,567 shares of our common stock pursuant to this shelf registration statement to satisfy initial payment and escrow arrangements under the terms of the stock purchase agreement. The terms of the stock purchase agreement provide an ability for us to substitute cash in lieu of the common stock that was initially placed into escrow.

~~In December 2018, we filed a $400.0~~$200.0 million shelf registration statement with the SEC for the sale of various types of securities, including debt. ~~The~~This new shelf registration statement was declared effective by the SEC as of ~~December 14, 2018.~~July 25, 2022.

On September 29, 2020, our Board of Directors authorized a new $100.0 million stock repurchase program, which replaced our prior program. The new $100.0 million stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws. There were no repurchases of our common stock during the three months ended October 31, ~~2021~~2022 and ~~2020.~~2021.

Index

On ~~October 4, 2021,~~September 29, 2022, our Board of Directors declared a dividend of $0.10 per common share, which was paid on November ~~12, 2021.~~18, 2022. On December ~~9, 2021,~~8, 2022, our Board of Directors declared a dividend of $0.10 per common share, payable on February ~~18, 2022~~17, 2023 to stockholders of record at the close of business on January ~~19, 2022.~~18, 2023. Future common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board ~~approval.~~approval and certain voting rights of holders of our Series A Convertible Preferred Stock.

Our material ~~long-term~~ cash requirements ~~primarily consist of mandatory interest~~are for working capital, capital expenditures, income tax payments, ~~pursuant~~debt service, facilities lease payments and dividends related to our ~~Credit Facility, a cumulative 6.5% annual dividend~~common stock and dividends related to our Convertible Preferred Stock, which isare payable in kind or in cash at our ~~election, and lease commitments.~~election.

We have historically met ~~both~~ our ~~short-term and long-term~~ cash requirements with funds provided by a combination of cash and cash equivalent balances, cash generated from operating activities and cash generated from equity and debt financing transactions. In our first quarter of fiscal 2022, we secured a $100.0 million strategic growth investment to enhance our financial flexibility and strengthen our ability to capitalize on recent large contract awards and growing customer demand by making crucial investments in our satellite and space communications and terrestrial and wireless networks solutions. Based on our ~~anticipated level of future sales and operating income,~~current revenue visibility, we believe that our existing cash and cash equivalent balances, our cash generated from operating activities and amounts potentially available under our Amended Credit Facility will be sufficient to meet ~~both~~ our currently anticipated ~~short-term~~cash requirements in the next twelve months and ~~long-term operating cash requirements.~~beyond.

Our material cash requirements could increase beyond our current expectations due to factors such as general economic conditions, a change in government spending priorities, or larger than usual customer orders. Also, in light of our new CEO's initiatives to grow the Company, we continue to review and evaluate our capital allocation plans. Furthermore, we may choose to raise additional funds through equity and debt financing transactions to provide additional flexibility or to pursue acquisitions. Although it is difficult in the current economic and credit environment to predict the terms and conditions of financing that may be available in the future, ~~should our short-term or long-term cash requirements increase beyond our current expectations,~~ we believe that we would have sufficient access to credit from financial institutions and/or financing from public and private debt and equity markets.

Credit Facility

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders. On November 30, 2022, we entered into the Second Amended and Restated Credit Facility (the “Amended Credit Facility”) with the existing lenders. See “Subsequent Event - Amended Credit Facility” below for further information. Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility and Amended Credit Facility, which have been documented and filed with the SEC.

The Credit Facility provides a senior secured loan facility of up to $550.0 million consisting of: (i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $300.0 million; (ii) an accordion feature allowing us to make a request to borrow up to an additional $250.0 million subject to satisfaction of specified conditions, including approval by our lenders; (iii) a $35.0 million letter of credit sublimit; and (iv) a swingline loan credit sublimit of $25.0 million.

The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date"). If we issue new unsecured debt in excess of $5.0 million with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

~~Index~~

As of October 31, ~~2021,~~2022, the amount outstanding under our Credit Facility was ~~$108.0~~$148.7 million, which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet. At October 31, ~~2021,~~2022, we had ~~$1.5~~$0.5 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit. During the three months ended October 31, ~~2021,~~2022, we had outstanding balances under the Credit Facility ranging from ~~$100.0~~$130.0 million to ~~$212.0~~$155.5 million.

~~Borrowings under the Credit Facility shall be either: (i) Alternate Base Rate borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the greatest~~As of (a) the Prime Rate (as defined) in effect on such day, (b) the Federal Funds Effective Rate (as defined) in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate (as defined) on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00% per annum, plus (y) the Applicable Rate (as defined), or (ii) Eurodollar borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted LIBO Rate for such interest period plus (y) the Applicable Rate. Determination of the Applicable Rate is based on a pricing grid that is dependent uponOctober 31, 2022, our Secured Leverage Ratio ~~(as defined) as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.~~

The Credit Facility contains customary representations, warranties and affirmative covenants. The Credit Facility also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements. The Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business. In addition, under certain circumstances, we may be required to enter into amendments to the Credit Facility in connection with any further syndication of the Credit Facility.

~~The Credit Facility provides for, among other things: (i) no scheduled payments of principal until maturity; (ii) a maximum Secured Leverage Ratio of 3.75x~~was 3.49x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") ~~and a Maximum Total Leverage Ratio of 4.50x TTM Adjusted EBITDA, each with no step downs; and (iii) a Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.~~

~~As of October 31, 2021, our Secured Leverage Ratio was 1.57x TTM Adjusted EBITDA~~ compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as of October 31, ~~2021~~2022 was ~~12.78x~~8.79x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

Subsequent Event - Amended Credit Facility

On November 30, 2022, we entered into the Amended Credit Facility which provides a senior secured loan facility of up to $300.0 million consisting of: (i) a revolving loan facility (“Revolving Loan Facility”) with a borrowing limit of $150.0 million, including a $20.0 million letter of credit sublimit and a swingline loan credit sublimit of $15.0 million; (ii) a $50.0 million term loan A (“Term Loan”); and (iii) an accordion feature allowing us to make a request to borrow up to an additional $100.0 million subject to the satisfaction of specified conditions, including approval by our lenders. The ~~obligations~~Amended Credit Facility has a maturity date of October 31, 2024 (“Maturity Date”). In addition, under the Amended Credit Facility, ~~are guaranteed by certain~~if we issue new unsecured debt in excess of ~~our domestic and foreign subsidiaries (the "Guarantors"). As collateral security under~~$5,000,000 with a maturity date that is less than 91 days from October 31, 2024, the ~~Credit Facility and~~Maturity Date would automatically accelerate so that it would be 91 days earlier than the ~~guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit~~maturity date of the ~~lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.~~new unsecured debt.

~~Capitalized terms used but not defined herein have~~

Index

The Amended Credit Facility provides for, among other things: (i) scheduled payments of principal under the ~~meanings set forth for such terms~~Term Loan totaling $2.5 million in the first year after closing and $5.0 million in the second year after closing, with the remaining balance of the Term Loan due upon maturity; (ii) a maximum Leverage Ratio of 4.25x TTM Adjusted EBITDA at the fiscal quarter ending January 31, 2023, stepping down to 4.00x at the fiscal quarter ending April 30, 2023, 3.75x at the fiscal quarter ending July 31, 2023, and 3.50x at the fiscal quarter ending January 31, 2024 and thereafter; (iii) a Minimum Interest Coverage Ratio of 3.25x TTM Adjusted EBITDA; and (iv) Minimum Liquidity of $25.0 million.

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

Convertible Preferred Stock

OnAs discussed further in "Notes to Condensed Consolidated Financial Statements - Note (16) - Convertible Preferred Stock," on October 18, 2021, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain affiliates and related funds of White Hat Capital Partners LP and Magnetar Capital LLC (collectively, the “Investors”), relating to the issuance and sale of up to 125,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value $0.10 per share (the "Convertible Preferred Stock"), for an aggregate purchase price of up to $125.0 million, or $1,000 per share. On October 19, 2021 (the “Initial Closing Date”), pursuant to the terms of the Subscription Agreement, the Investors purchased an aggregate of 100,000 shares of Convertible Preferred Stock (the “Initial Issuance”) for an aggregate purchase price of $100.0 million. The Investors have a one-time option exercisable at any time on or prior to March 31, 2023 to purchase additional shares of Convertible Preferred Stock for an aggregate purchase price of $25.0 million. This purchase option is commonly referred to as a “Green Shoe” and together with the Initial Issuance, is collectively referred to as the “Issuance”.

The initial conversion price for the shares issued in the Initial Issuance is $24.50, subject to an increase in the conversion price to $26.00 upon the achievement of $76.0 million of Adjusted EBITDA (as defined in the Subscription Agreement) for our fiscal 2022 year, and the initial conversion price for the Green Shoe is $32.00.

~~Index~~

The Convertible Preferred Stock ranks senior to the shares of our common stock, with respect to the payment of dividends and the distribution of assets upon a liquidation, dissolution or winding up of the Company. The Convertible Preferred Stock initially had a liquidation preference of $1,000 per share with each share entitled to a cumulative dividend (the “Dividend”) at the rate of 6.5% per annum, compounding quarterly, paid-in-kind or paid in cash, at our election. For any quarter in which we elect not to pay the Dividend in cash with respect to a share of Convertible Preferred Stock, such Dividend becomes part of the liquidation preference of such share. In addition, no dividend or other distribution on our common stock in excess of $0.10 per share per quarter will be declared or paid on the common stock unless, at the time of such declaration and payment, an equivalent dividend or distribution is declared and paid on the Convertible Preferred Stock (the “Participating Dividend”), provided that in the case of any such dividend in the form of cash, in lieu of a cash payment, such Participating Dividend will become part of the liquidation preference of the shares of the Convertible Preferred Stock. Such Participating Dividend results in the Convertible Preferred Stock meeting the definition of a "participating security" for purposes of our earnings per share calculations.

The Convertible Preferred Stock is convertible into shares of common stock at the option of the holders thereof at or following the earlier to occur of (a) the filing of our Annual Report on Form 10-K for the fiscal year ending July 31, 2022, but no later than October 19, 2022 and (b) immediately prior to (and conditioned upon) the consummation of a Change of Control. At any time after October 19, 2024, we have the right to mandate the conversion of the Convertible Preferred Stock, subject to certain restrictions, based on the price of the common stock in the preceding thirty trading days.

Holders of the Convertible Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis, as well as are entitled to a separate class vote with respect to, among other things, amendments to our organizational documents that have an adverse effect on the Convertible Preferred Stock, authorizations or issuances of securities of the Company, the payment of dividends other than dividends on common stock in the ordinary course consistent with past practice on a quarterly basis in an amount not to exceed our current dividend rate of $0.10 per share per quarter, related party transactions, repurchases or redemptions of securities of the Company (other than the repurchase of up to $25,000,000 of shares of common stock), dispositions of businesses or assets, the incurrence of indebtedness and certain amendments or extensions of our existing Credit Facility.

Holders have the right to require the Company to repurchase such holder's Convertible Preferred Stock on a date occurring either (a) on or after October 19, 2026 (the “Optional Repurchase Trigger Date”) at a price equal to the liquidation preference or (b) in connection with a conversion of Convertible Preferred Stock, pursuant to which the number of shares of common stock issuable upon such conversion would exceed 19.99% of the issued and outstanding shares of common stock as of October 18, 2021 (such excess shares, "Excess Conversion Shares"), at any time after the date that is 91 days after the maturity date of the Company's existing Credit Facility, at a price per share equal to the number of Excess Conversion Shares multiplied by the Last Reported Sales Price (as defined) of common stock on the applicable conversion date. In addition, each holder will have the right to cause the Company to repurchase its shares of Convertible Preferred Stock in connection with a Change of Control, at a price equal to the liquidation preference.

~~Off-Balance Sheet Arrangements~~

~~As of October 31, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.~~

Commitments

In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment. We do not expect that these commitments, as of October 31, ~~2021,~~2022, will materially adversely affect our liquidity.

~~Index~~

At October 31, ~~2021,~~2022, cash payments due under ~~long-term~~contractual obligations (including estimated interest expense on our Credit Facility), excluding purchase orders that we entered into in our normal course of business, are as follows:


		Obligations Due by Fiscal Years or Maturity Date (in thousands)
		Total		Remainder of 2022	2023 and 2024	2025 and 2026	After 2026		Total		Due Within 1 Year
Credit Facility - principal payments	Credit Facility - principal payments	$	108,000	—	108,000	—	—	Credit Facility - principal payments	$	148,700	—
Credit Facility - interest payments	Credit Facility - interest payments	6,309		2,378	3,931	—	—	Credit Facility - interest payments	8,428		8,428
Operating and finance lease obligations	Operating and finance lease obligations	61,568		8,348	16,067	12,224	24,929	Operating and finance lease obligations	63,045		9,513
Dividends payable								Dividends payable	2,774		2,774
Contractual cash obligations	Contractual cash obligations	$	175,877	10,726	127,998	12,224	24,929	Contractual cash obligations	$	222,947	20,715

~~As discussed in "Notes to Condensed Consolidated Financial Statements~~ - ~~Note (2)~~ - ~~Acquisitions - UHP Networks Inc~~.," we completed our acquisition of UHP on March 2, 2021. Pursuant to the stock purchase agreement, during fiscal 2021, the initial up-front payment of approximately $24.0 million was paid mostly in shares of our common stock, with a nominal amount paid in cash. In August 2021, approximately $4.0 million of the $5.0 million hold back amount previously placed into escrow at closing was paid to the seller in shares of our common stock, as the conditions pursuant to the stock purchase agreement were met. The stock purchase agreement also provides for a contingent earn-out payment of up to $9.0 million, also payable at our option in cash and or shares of our common stock, if specified sales milestones are reached during a defined period ending September 30, 2022.

~~As discussed further in "Notes to Condensed Consolidated Financial Statements - Note (10) - Credit Facility~~," our Credit Facility provides a senior secured loan facility of up to $550.0 million consisting of: (i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $300.0 million; (ii) an accordion feature allowing us to make a request to borrow up to an additional $250.0 million subject to satisfaction of specified conditions including approval by our lenders; (iii) a $35.0 million letter of credit sublimit; and (iv) a swingline loan credit sublimit of $25.0 million. The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date"). In addition, if we issue new unsecured debt in excess of $5.0 million with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt. At October 31, 2021, we have approximately $1.5 million of standby letters of credit outstandingcommitments under our Credit Facility ~~related to our guarantees of future performance on certain customer contracts. Such amounts~~and Amended Credit Facility are ~~not included~~described in ~~the above table.~~details above.

As discussed in "Notes to Condensed Consolidated Financial Statements - Note ~~(17)~~(16) - Convertible Preferred Stock," the holders of the Convertible Preferred Stock have the option to redeem such shares for cash commencing in October 2026. As the Convertible Preferred Stock are not mandatorily redeemable for cash, the redemption value of such shares are not presented in the table above.

As discussed further in "Notes to Condensed Consolidated Financial Statements - Note ~~(18)~~(17) - Stockholders’ Equity," on December ~~9, 2021,~~8, 2022, our Board of Directors declared a dividend of $0.10 per common share, payable on February ~~18, 2022~~17, 2023 to stockholders of record at the close of business on January ~~19, 2022.~~18, 2023. Future common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board ~~approval.~~approval and certain voting rights of holders of our Series A Convertible Preferred Stock.

In the ordinary course of business, we include indemnification provisions in certain of our customer contracts. Pursuant to these agreements, we have agreed to indemnify, hold harmless and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party, including but not limited to losses related to third-party intellectual property claims. It is not possible to determine the maximum potential amount under these agreements due to a history of nominal claims and the unique facts and circumstances involved in each particular agreement.

Index

As discussed further in "Notes to Condensed Consolidated Financial Statements - Note ~~(19)~~(18) - Legal Proceedings and Other Matters," we are subject to a number of indemnification demands and we are incurring ongoing legal expenses in connection with these matters. Our insurance policies may not cover the cost of defending indemnification claims or providing indemnification. As a result, pending or future claims asserted against us by a party that we may agree or have agreed to indemnify could result in legal costs and damages that could have a material adverse effect on our consolidated results of operations and financial condition.

~~Index~~

We have an employment agreement and change of control agreement with Fred Kornberg, our Chief Executive Officer and Chairman of the Board. The employment agreement generally provides for an annual salary and bonus award. We have also entered into change of control agreements with certain of our executive officers and certain key employees. All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of our Company or a termination of the employee.

Our Condensed Consolidated Balance Sheet at October 31, ~~2021~~2022 includes total liabilities of ~~$9.4~~$10.3 million for uncertain tax positions, including interest, any or all of which may result in a cash payment. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of any potential cash settlement with the taxing authorities.

RECENT ACCOUNTING PRONOUNCEMENTS

We are required to prepare our condensed 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 is commonly referred to as "GAAP." The FASB ASC is subject to updates by the FASB, which are known as Accounting Standards Updates ("ASUs").

As further discussed in "Notes to Condensed Consolidated Financial Statements – Note ~~(3)~~(2) - Adoption of Accounting Standards and Updates," ~~during the three months ended~~ASUs issued, but not effective until after October 31, ~~2021, we adopted:~~

•~~FASB ASU No. 2019-12, which simplifies various aspects related~~2022, are not expected to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. Our adoption of this ASU on August 1, 2021 did not have a material ~~impact on our consolidated financial statements or disclosures.~~

•FASB ASU No. 2020-06, which simplifies the accounting for convertible instruments by removing certain separation models (including the cash conversion model and the beneficial conversion feature model) for convertible instruments. As a result, for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815 or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features are no longer are separated from the host contract. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost as long as no other features require bifurcation and recognition as derivatives. On August 1, 2021, we early adopted this ASU. Our early adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

•FASB ASU No. 2021-08, which requires that an acquirer recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally recognized contract assets and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. On August 1, 2021, we early adopted this ASU. Our early adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

~~Index~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from borrowings under our Credit Facility. Based on the amount of outstanding debt under our Credit Facility, a hypothetical change in interest rates by 10% would change interest expense by approximately ~~$0.2~~$0.9 million over a one-year period. Although we do not currently use interest rate derivative instruments to manage exposure to interest rate changes, we may choose to do so in the future in connection with our Credit Facility.

Our earnings and cash flows are also subject to fluctuations due to changes in interest rates on our investment of available cash balances. As of October 31, ~~2021,~~2022, we had cash and cash equivalents of ~~$30.9~~$21.5 million, which consisted of cash and highly-liquid money market deposit accounts. Many of these investments are subject to fluctuations in interest rates, which could impact our results. Based on our investment portfolio balance as of October 31, ~~2021,~~2022, a hypothetical change in interest rates of 10% would have a nominal impact on interest income over a one-year period. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.

Index

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934), was carried out by us under the supervision and with the participation of our management, including our President and Chief Executive Officer ~~and Chairman~~ and Chief Financial Officer. Based on that evaluation, our President and Chief Executive Officer ~~and Chairman~~ and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by the report to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure. 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.

There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The certifications of our President and Chief Executive Officer ~~and Chairman~~ and Chief Financial Officer, that are Exhibits 31.1 and 31.2, respectively, should be read in conjunction with the foregoing information for a more complete understanding of the references in those Exhibits to disclosure controls and procedures and internal control over financial reporting.

Index

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

See "Notes to Condensed Consolidated Financial Statements – Note ~~(19)~~(18) – Legal Proceedings and Other Matters" of this Form 10-Q for information regarding legal proceedings and other matters.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in our Form 10-K for the fiscal year ended July 31, ~~2021.~~2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~See~~ ~~"Notes to Condensed Consolidated Financial Statements - Note (17) - Convertible Preferred Stock"~~ ~~of this Form 10-Q for information regarding unregistered sales of equity securities and use of proceeds.~~Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

5552

Index

Item 6. Exhibits

~~Exhibit 3.1~~3 .1 -Amended and Restated Certificate of Designations, ~~designating the Series A Convertible Preferred Stock~~dated November 30, 2022. (incorporated by reference to Exhibit 3.1 to the ~~Company’s Current Report on~~Registrant’s Form 8-K, filed ~~on October 22, 2021)~~December 1 , 2022)

Exhibit 3.2 - Certificate of Correction of Certificate of Designations of Series A Convertible Preferred Stock, dated November 9, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 9, 2021)

~~Exhibit~~ 10.1 - ~~Subscription~~Second Amended and Restated Credit Agreement, dated as of ~~October 18, 2021, by and~~November 30, 2022, among Comtech Telecommunications Corp., the lenders party thereto and ~~the Investors named therein~~Citibank N.A., as administrative agent, issuing bank and swingline lender. (incorporated by reference to Exhibit 10.1 to the ~~Company’s Current Report on~~Registrant’s Form 8-K, filed ~~on October 22, 2021)~~December 2 , 2022)

~~Exhibit~~ 10.2 - ~~Registration Rights~~CEO Employment Agreement, dated ~~as of October 19, 2021, by and among Comtech Telecommunications Corp. and the Investors named therein~~September 12, 2022 (incorporated by reference to Exhibit ~~99.2~~10.1 to the ~~Company’s Current Report on~~Registrant’s Form 8-K, filed ~~on October 22, 2021)~~September 13, 2022)

~~Exhibit~~ 10.3 ~~Form of Amended and Restated Voting~~- Restricted Stock Unit Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp. 2000 Stock Incentive Plan (incorporated by reference to Exhibit ~~99.1~~10.2 to the ~~Company’s Current Report on~~Registrant’s Form 8-K, filed ~~on November~~September 13, 2022)

10.4 - Long-Term Performance Share Award Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp. 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K, filed September 13, 2022)

10.5 - Long-Term Performance Share Award (VWAP) Agreement with Ken Peterman Pursuant to the Comtech Telecommunications Corp. 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K, filed September 13, 2022)

10.6 - Separation Agreement with Michael Porcelain dated August 9, ~~2021)~~2022 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed August 10, 2022)

Exhibit 31.1 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101.INS - The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, ~~2021,~~2022, formatted in inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity, (iv) Condensed Consolidated Statement of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements

Exhibit 101.SCH - Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL - Inline XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.LAB - Inline XBRL Taxonomy Extension Labels Linkbase Document

Exhibit 101.PRE - Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 101.DEF - Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 104 - Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

5653

Index

SIGNATURES

Pursuant to the requirements of the Securities 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.

(Registrant)



Date:	December ~~9, 2021~~8, 2022	By: /s/ ~~Fred Kornberg~~Ken Peterman
	(Date)	~~Fred Kornberg~~Ken Peterman
		Chairman of the Board ~~and~~
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	December ~~9, 2021~~8, 2022	By: /s/ Michael A. Bondi
	(Date)	Michael A. Bondi
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

5754


	Purchase Price Allocation (1)		Measurement Period Adjustments	Purchase Price Allocation (As adjusted)
Initial upfront payment	$	23,979,000	—	$	23,979,000
Hold-back amount	4,991,000		—	4,991,000
Contingent earn-out consideration	8,500,000		—	8,500,000
Preliminary purchase price at fair value	$	37,470,000	—	$	37,470,000
Preliminary allocation of aggregate purchase price:
Cash and cash equivalents	$	1,391,000	—	$	1,391,000
Current assets	1,358,000		9,000	1,367,000
Property, plant and equipment	10,000		—	10,000
Deferred tax assets	313,000		(3,000)	310,000
Contract liabilities	(648,000)		—	(648,000)
Accrued warranty obligations	(750,000)		—	(750,000)
Other current liabilities	(1,175,000)		—	(1,175,000)
Non-current liabilities	(160,000)		—	(160,000)
Net tangible assets at preliminary fair value	$	339,000	6,000	$	345,000
Identifiable intangibles, deferred taxes and goodwill:						Estimated Useful Lives
Technology	$	15,300,000	—	$	15,300,000	15 years
Customer relationships	15,500,000		—	15,500,000		15 years
Trade name	800,000		—	800,000		20 years
Deferred tax liabilities	(8,374,000)		—	(8,374,000)
Goodwill	13,905,000		(6,000)	13,899,000		Indefinite
Preliminary allocation of aggregate purchase price	$	37,470,000	—	$	37,470,000