COMTECH TELECOMMUNICATIONS CORP DE

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

•Consolidated net sales of $540.4 million, compared to $550.0 million in fiscal 2023. The prior year included a full year of operations related to our solid state, high power amplifier product line divested in November 2023 (the "PST Divestiture"). Adjusted for the PST Divestiture and despite very challenging business conditions in fiscal 2024, our consolidated net sales grew slightly from fiscal 2023;

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

•GAAP net loss attributable to common stockholders was $135.4 million and included: a $64.5 million impairment charge in our Satellite and Space Communications segment related to long-lived assets, including goodwill; $12.5 million of restructuring costs; $4.1 million of strategic emerging technology costs for next-generation satellite technology; $2.9 million of CEO transition costs; and a $1.2 million loss associated with the PST Divestiture due to the acquirer not achieving certain post-divestiture earn-out criteria;

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

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

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

•Backlog of $798.9 million as of July 31, 2024, compared to $662.2 million as of July 31, 2023 and $653.4 million as of April 30, 2024. Backlog as of July 31, 2024 represents a new record for Comtech;

•Revenue visibility of approximately $1.8 billion as of July 31, 2024, an increase from the $1.1 billion as of July 31, 2023. We measure this revenue visibility as the sum of our $798.9 million of funded backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders; and

•Cash flows used in operating activities of $54.5 million, due primarily to a significant increase in the overall level of contract assets (i.e., unbilled receivables) in fiscal 2024 related to our progress on large, long-term "over-time" contracts awarded to us by certain U.S. government and international end customers, as well as the timing of payments to our suppliers as we execute on our backlog. As experienced in the latter part of fiscal 2024, we expect the level of our unbilled receivables to continue to decline throughout fiscal 2025, as we invoice our customers upon physical delivery of products or the achievement of specified contractual milestones. Additionally, cash flows used in operating activities includes $16.0 million in aggregate payments for restructuring costs, including severance, CEO transition costs and strategic emerging technology costs for next-generation satellite technology.

Non-GAAP financial measures discussed above are reconciled to the most directly comparable GAAP financial measures in the table included in the below section "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2024 and 2023."

We operated most of fiscal 2024 under extremely difficult business conditions stemming from: a marked increase in working capital requirements related to certain troposcatter related contracts; an unexpected change in our CEO more than halfway through the fiscal year; the year-long protest by the incumbent of the large, multi-year Global Field Service Representative ("GFSR") contract awarded to us by the U.S. Army; supply chain and operational challenges that strained our liquidity at various points in the fiscal year; a prolonged refinancing of our debt capital; and a shift during our fourth quarter in the timing of our receipt and performance on a large COMET order anticipated for a certain international end country.

However, despite these challenges, the existing management team was successful in achieving many positive accomplishments along the way, such as: attracting strong talent throughout our organization; winning new strategic business opportunities, as well as competitive renewals; relocating our headquarters to be within close proximity to several key customers and suppliers; restructuring operations that had been underperforming under legacy management; reducing the level of unbilled receivables; and, importantly, emerging from fiscal 2024 with a clear vision for our company that we believe will contribute greatly toward unlocking meaningful shareholder value.

Key Business Developments

Satellite and Space Communications

In September 2023, we were awarded a large, multi-year GFSR contract by the U.S. Army with a total potential value of $544.0 million. Through this program, we would provide ongoing communications and IT infrastructure support for the U.S. Army, Air Force, Navy, Marine Corps and NATO, enabling U.S. and coalition forces to maintain robust, resilient and secure connectivity for global all-domain operations. The incumbent protested (and lost) the award of the contract to Comtech several times. Currently, the contract remains under protest and a stop work order. If we are successful in ultimately winning the protest, we would expect the GFSR contract to contribute significantly to our net sales in future periods.

In September 2023, we won a highly competitive $48.6 million contract to deliver next-generation Enterprise Digital Intermediate Frequency Multi-Carrier (“EDIM”) modems for the U.S. Army's satellite communications ("SATCOM") digitization and modernization programs. The advanced, software defined EDIM modem is intended to: support multiple satellite providers; become one of the primary modems used for U.S. military SATCOM, eventually replacing the Enhanced Bandwidth Efficient Modem ("EBEM"); and provide the U.S. Army, Navy and Air Force with a digitized, hybrid satellite network architecture. The EDIM modem would allow SATCOM users to easily roam across orbital regimes, blend capabilities from traditionally disparate networks and maintain assured, resilient connectivity in the most demanding of environments. We are progressing with our efforts on this contract and pleased to have recently secured incremental funding from the customer for additional work.

In November 2023, following a careful review of our business and product lines at that time, we saw an opportunity to divest our solid state, high power amplifier product line. The PST Divestiture generated $33.3 million of net cash proceeds prior to the repayment of debt and provided timely liquidity as we progressed with our efforts to refinance our debt capital structure.

In July 2024, we made the decision to exit our subsidiary operations in Basingstoke, United Kingdom. The U.K. operations were established in connection with the legacy management team’s 2020 acquisition of CGC Technology Limited, which primarily served customers in Europe. Following the acquisition, we continued to invest in the Basingstoke facility to advance LEO constellation-based antenna technologies in anticipation of significant production orders. Taking into consideration the significant ongoing investment as well as unfavorable contract terms on prospective antenna sales, we concluded the U.K. business would not generate an attractive return on invested capital and made the decision to exit these operations in order to curtail our future expenses and cash outlays, after anticipated restructuring charges associated with such exit.

Shifting to our troposcatter product line, throughout most of fiscal 2024, we experienced elevated levels of unbilled receivables due to the timing of our performance and billings related to certain large U.S. government and international customer contracts. As we progressed through the fourth quarter of fiscal 2024, we were successful in ramping up deliveries of next-generation troposcatter terminals related to our U.S. Marine Corps and Army contracts, contributing to a meaningful reduction of our consolidated unbilled receivables from $141.3 million at April 30, 2024 to $123.7 million as of July 31, 2024. Based on our anticipated performance over the next several months, we expect further material reductions in our unbilled receivables related to these contracts, contributing significantly to our cash flows and liquidity in fiscal 2025.

Terrestrial and Wireless Networks

In October 2023, we extended enhanced 911 call routing services, valued in excess of $30.0 million, for one of the largest wireless carriers in the U.S. Subsequent to year end, our new management team in this segment, led by Jeff Robertson, former CEO for Intrado's Life and Safety business, secured another renewal of these critical services in October 2024.

During our second fiscal quarter of 2024, we amended and extended critical Next Generation 911 (“NG-911”) services for the State of Washington. This extension is valued at $48.0 million over the next five years, with the option to extend further through 2034. Also, we extended critical call handling services provided to PSAPs across Australia through our partnership with Telstra. These services, valued at approximately $6.0 million over the next several years, support Australia's "000" (911 equivalent) emergency communications. Additionally, we were awarded several multi-year NG-911 call handling services contracts, aggregating $6.5 million, for PSAPs located in Canada and the U.S. We believe Comtech's position as a trusted leader in 911, NG-911 and public safety applications positions us increasingly well when it comes to delivering similarly sophisticated solutions for other types of emergencies.

In May 2024, we were awarded a large multi-year NG-911 contract by the Commonwealth of Massachusetts, valued at over $250.0 million. The new contract has an initial five-year term from August 1, 2024 through July 31, 2029, and includes one option to renew for a five-year period through July 31, 2034. While a continuation of existing services within the state, the procurement itself was competitive and Comtech was successful in securing the win, demonstrating the trust of our public safety partners as well as our leadership in NG-911 systems and services.

In June 2024, we announced the North Central Texas Emergency Communications District (“NCT911”) awarded us a contract to deliver NG-911 services that will further modernize NCT911’s infrastructure. The NCT911 contract includes a five-year base award, as well as three additional two-year option periods, with a not to exceed value of approximately $30.0 million.

At the start of fiscal 2024, we helped Strathcona County in Alberta become Canada’s first PSAP to transition to NG-911 services. In July 2024, we announced completing the full migration and deployment of an NG-911 system in Saskatchewan, Canada. With the Saskatchewan NG-911 deployment, we are now the first company, in partnership with leading ESInet provider SaskTel, to deploy a province-wide NG-911 system in Canada.

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

Strategic Transformation

On October 17, 2024, we announced that we are executing a strategy to transform Comtech into a pure-play satellite and space communications company. Ongoing and future actions supporting our transformation strategy include: an exploration of strategic alternatives for our Terrestrial and Wireless Networks segment, which is well underway; the pursuit of further portfolio-shaping opportunities to enhance profitability, efficiency and focus; and the implementation of additional operational initiatives to both achieve profitable results from operations as well as to align our go-forward cost structure with a pure-play focus on satellite and space communications. In connection with this transformation strategy, we have also undertaken a detailed evaluation of our Satellite and Space Communications segment's product portfolio to identify opportunities to divest, separate and/or rationalize businesses or facilities that are not core to our go-forward focus. In addition to assessing our Basingstoke, UK operations, as discussed above, over the past several months, we have also conducted an intensive review of our product portfolio to focus future investment on our most strategic, high-margin revenue opportunities within the Satellite and Space Communications segment. There can be no assurance that the exploration of strategic alternatives will result in a transaction or other strategic changes or outcomes. While anticipated to improve our profitability in future periods, such actions may result in near-term restructuring charges.

Amended Credit Agreement and New Subordinated Term Loan Facility

In June 2024, we entered into a $222.0 million credit facility with a new syndicate of lenders (the “Credit Facility”), which replaced our prior credit facility. On October 17, 2024, we amended the Credit Facility, which waived certain defaults or events of default, including in connection with our Net Leverage Ratio and Fixed Charge Coverage Ratio covenants as of July 31, 2024. The amendment also provides for, among other things: (i) an increase to the interest rate margins applicable to the loans; (ii) a modification of certain financial and collateral reporting requirements; (iii) a lender and agent consent right with respect to $27.5 million of Revolver borrowings above $32.5 million; (iv) our ability to incur $25.0 million of senior unsecured subordinated debt; (v) a maturity date based on the earlier of (x) July 31, 2028 or (y) 90 days prior to the earliest date that the debt under the Subordinated Credit Agreement (as defined below) becomes due and payable; and (vi) a suspension of financial covenant testing through the end of our fiscal quarter ending January 31, 2025. On October 17, 2024, we also entered into a Subordinated Credit Agreement with the existing holders of our Convertible Preferred Stock (the “Subordinated Credit Agreement”), which provides a subordinated unsecured term loan facility in the aggregate principal amount of $25.0 million (the “Subordinated Credit Facility”). The proceeds of the Subordinated Credit Facility: (i) cured our default on certain financial covenants under the Credit Facility, as discussed above; (ii) provides additional liquidity to us; and (iii) funds our general working capital needs, including support of our transformation initiatives. See"Notes to Consolidated Financial Statements" included in"Part II - Item 8. Financial Statements and Supplementary Data" included in this Form 10-K, for further information.

CEO

Effective October 28, 2024, the Board of Directors appointed John Ratigan as our President and CEO and a member of the Board. Mr. Ratigan had been serving as our interim CEO since March 2024.

Business Outlook

As we enter fiscal 2025, business conditions continue to be challenging, and the operating environment is largely unpredictable, due to many factors including, but not limited to: uncertainties related to our recently announced transformation strategy and associated actions we may take; uncertainties related to our ability to operate as going concern, fluctuations in interest rates; inflation; continuing resolutions associated with the U.S. Federal budget; repercussions of military conflicts in Russia, Ukraine and the Middle East; and a potential global recession. Order and production delays, contract protests, delayed cash collections from customers, disruptions in component availability, increased pricing both for labor and parts, lower levels of factory utilization and higher logistics and operational costs resulting from such conditions have or could impact our business as well. In light of these business conditions and resulting challenges, we anticipate variability from time to time as we move through our transformation strategy.

We do not provide forward-looking guidance on a GAAP basis because we are unable to predict certain items contained in the GAAP measure without unreasonable efforts. 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. Please refer to the discussion below under "Adjusted EBITDA" for more information. Additional information related to our Business Outlook for Fiscal 2025 and a definition and explanation of Adjusted EBITDA is included in the below section"Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2024 and 2023."