COMTECH TELECOMMUNICATIONS CORP /DE/

We have established leading technology positions in our fields through internal and customer-funded research and development activities.

Internal research and development expenses are reported as research and development expenses for financial reporting purposes and were $17.4 million, $24.1 million and $48.6 million in fiscal 2025, 2024 and 2023, respectively, representing 3.5%, 4.5% and 8.8% of total consolidated net sales, respectively, for these periods. Customer-funded research and development activities relate to the adaptation of our basic technology to specialized customer requirements which is recoverable under contracts and is reflected in net sales with the related costs included in cost of sales. Certain of our government customers also contract with us from time to time to conduct research on telecommunications software, equipment and systems. During fiscal 2025, 2024 and 2023, we were reimbursed by customers for such activities in the amounts of $22.8 million, $23.0 million and $14.0 million, respectively.

In addition to the recent increases in customer-funded research and development activities, in fiscal 2025 and 2024, we also experienced an increase in engineering efforts related to cost to fulfill contract assets and internal use software. In both fiscal 2025 and 2024, we capitalized $2.9 million for cost to fulfill contract assets. In fiscal 2025 and 2024, we capitalized $3.9 million and $3.8 million, respectively, for internal use software. As a result of these trends and the impact of reductions in force actioned in fiscal 2025 and 2024, our research and development expenses for financial reporting purposes significantly decreased as compared to historical periods.

During fiscal 2025, 2024 and 2023, we incurred $0.3 million, $4.1 million and $3.8 million, respectively, of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations. A significant portion of these costs related to our steerable antenna operations in Basingstoke, United Kingdom, which we wound down in fiscal 2025. Future costs, if any, will be reported as part of our ongoing research and development activities and not added back to our Adjusted EBITDA.