COMTECH TELECOMMUNICATIONS CORP /DE/

Net Sales. Consolidated net sales were $249.6 million for fiscal 2026, as compared to $300.9 million for fiscal 2025, a decrease of $51.3 million, or 17.0%. Fiscal 2026 and fiscal 2025 include net sales of $0.3 million and $48.5 million, respectively, and gross profit of $0.1 million and $1.7 million, respectively, related to the legacy U.S. Army Very Small Aperture Terminal (“VSAT”) Satellite Systems and Services and Global Field Service Representative (“GFSR”) contracts. These contracts wound down as a result of our decision to phase out and eliminate certain low margin and capital intensive revenues, are not part of the Disposal Group being acquired by Gilat and, therefore, are not part of discontinued operations. Excluding these now inactive VSAT and GFSR contracts, net sales in the more recent period are comparable to fiscal 2025, but reflect timing considerations as call handling solutions transition to recurring maintenance revenue. Our book-to-bill ratio for fiscal 2026 was 1.06x and includes a multi-year contract extension received earlier in the year, valued in excess of $130.0 million, by Allerium’s largest customer, a leading domestic top-tier telecommunications company.

Bookings, sales and profitability can fluctuate from period-to-period due to many factors, including unpredictable funding, deployment and technology decisions by our customers and changes in the general business environment. Period-to-period fluctuations are normal for Allerium, as the timing and amount of our bookings depend significantly on when our customers announce their award decisions related to large, multi-year contracts. 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 fiscal years ended July 31, 2026 and 2025 are as follows:

Domestic sales include sales to commercial customers, as well as to U.S. state and local governments. Sales to U.S. government customers include sales to the U.S. DoW, intelligence and civilian agencies, as well as sales directly to or through prime contractors. International sales for fiscal 2026 and 2025 (which include sales to U.S. domestic companies for inclusion in products that are sold to international customers) were $21.6 million and $22.4 million, respectively.

For fiscal 2026, a domestic top tier mobile network operator and a Northeastern state accounted for 17.0% and 12.6%, respectively, of net sales. For fiscal 2025, the U.S. government and a domestic top tier mobile network operator accounted for 23.3% and 15.3%, respectively, of net sales. 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 fiscal 2026 and 2025.

Gross Profit. Gross profit was $97.2 million and $95.2 million for fiscal 2026 and 2025, respectively, an increase of $2.0 million. Gross profit, as a percentage of consolidated net sales, for fiscal 2026 was 38.9%, as compared to 31.6% for fiscal 2025. Excluding the VSAT and GFSR contracts discussed above, the improvement in the gross profit percentage in the more recent period reflects the continued adoption of our solutions by customers, as well as the migration of PSAPs onto our NG9-1-1 core services and call handling platforms, as we progress through initial deployments of our solutions to monthly recurring revenue streams.

Our consolidated gross profit, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and timing and amount of depreciation expense related to capitalized internal use software costs, and therefore is inherently difficult to forecast. Our consolidated gross profit, as a percentage of consolidated net sales, may also be impacted by the timing and outcome of actions we may take related to our transformation strategy.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $87.9 million and $88.1 million for fiscal 2026 and 2025, respectively. As a percentage of consolidated net sales, selling, general and administrative expenses were 35.2% and 29.3% for fiscal 2026 and 2025, respectively.

During both fiscal 2026 and 2025, we incurred $10.0 million of restructuring costs within selling, general and administrative expenses, primarily related to legal and professional fees associated with our pursuit of strategic alternatives and costs to streamline our operations and improve efficiency (including optimization initiatives and severance).

Excluding such restructuring costs, selling, general and administrative expenses for fiscal 2026 and 2025 would have been $77.9 million or 31.2% and $78.1 million or 26.0%, respectively, of net sales, reflecting reduced corporate overhead, offset by reinvestment into Allerium's operations and higher amortization of stock-based compensation, as discussed below. The increase in our selling, general and administrative expenses, as a percentage of net sales, excluding such items, is primarily due to lower net sales, as discussed above.

Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $3.0 million in fiscal 2026, as compared to $1.9 million in fiscal 2025. During both respective periods, we reversed a portion of our stock-based compensation expense related to performance shares due to lower actual or projected achievement of goals related to certain performance shares granted in prior fiscal years. Stock-based compensation expense for the prior year period also reflects the forfeiture of awards related to our former Chief Operating Officer and former Chief Executive Officer, whose employment were both terminated during the prior year period.

Research and Development Expenses. Research and development expenses were $11.6 million and $11.7 million for fiscal 2026 and 2025, respectively, representing a decrease of $0.1 million, or 0.9%. As a percentage of net sales, research and development expenses were 4.6% and 3.9% for fiscal 2026 and 2025, respectively. Research and development expenses in both periods include nominal amounts of stock-based compensation expense. During fiscal 2026 and 2025, we also separately incurred engineering efforts related to internal use software, for which we capitalized $6.3 million and $3.9 million, respectively.

Amortization of Intangibles. Amortization relating to intangible assets with finite lives was $14.8 million and $15.2 million, respectively, for fiscal 2026 and 2025. The decrease during the more recent period reflects certain intangible assets reaching the end of their estimated useful lives.

Impairment of Long-Lived Assets, including Goodwill. During fiscal 2025, we recognized a $5.3 million non-cash goodwill impairment charge, which represents the portion of the S&S reporting unit's goodwill impairment charge in fiscal 2025 allocated to the retained businesses of the S&S segment included in continuing operations.

CEO Transition Costs. During fiscal 2026 and 2025, we recorded a net expense of $1.2 million and $2.1 million, respectively, related to CEO transition costs. Such activities in both fiscal years consisted primarily of net legal expenses related to a former CEO and expense related to a sign-on bonus for our current CEO, and severance costs and third party CEO search firm expenses related to a former CEO in fiscal 2025.

Proxy Solicitation Costs. During fiscal 2025, we incurred $2.7 million of proxy solicitation costs (including legal and advisory fees) as a result of a now-settled proxy contest.

Operating Loss from Continuing Operations. Operating loss from continuing operations for fiscal 2026 and 2025 was $18.2 million and $29.9 million, respectively.

Our GAAP operating loss from continuing operations of $18.2 million for fiscal 2026 reflects: (i) $14.8 million of amortization of intangibles; (ii) $10.0 million of restructuring costs; (iii) $3.1 million of amortization of stock-based compensation; and (iv) $1.2 million of CEO transition costs, as discussed above. Excluding such items, our consolidated operating income for fiscal 2026 would have been $10.8 million, or 4.3% of net sales.

Our GAAP operating loss from continuing operations of $29.9 million for fiscal 2025 reflects: (i) $15.2 million of amortization of intangibles; (ii) $10.0 million of restructuring costs; (iii) a non-cash goodwill impairment charge of $5.3 million; (iv) $2.7 million of proxy solicitation costs; (v) $2.2 million of amortization of stock-based compensation; and (vi) $2.1 million of CEO transition costs, as discussed above. Excluding such items, our consolidated operating income for fiscal 2025 would have been $7.6 million, or 2.5% of net sales.

The improvement, excluding the above items, from $7.6 million of operating income to $10.8 million of operating income for the more recent period primarily reflects higher gross profit (both in dollars and as a percentage of consolidated net sales) and lower selling, general and administrative expenses, as discussed above.

Interest Expense and Other. Total consolidated interest expense was $48.3 million and $45.6 million for fiscal 2026 and 2025, respectively. Interest expense allocated to continuing operations was $21.3 million and $19.0 million for fiscal 2026 and 2025, respectively. Interest expense allocated to discontinued operations was $27.0 million and $26.6 million for fiscal 2026 and 2025, respectively. The more recent period reflects a shift from cash interest associated with our Credit Facility to accretion of make-whole adjustments and paid in kind interest associated with our Subordinated Credit Facility, in addition to higher amortization of the make-whole adjustments, deferred financing costs and debt discounts due to the assumed repayment of a significant portion of debt upon consummation of the Strategic Transaction expected to occur in calendar 2026, as discussed further in Notes to Consolidated Financial Statements - Note (8) - Credit Facility and Note (9) - Subordinated Credit Facility included in Part II - Item 8. Financial Statements and Supplementary Data. Our total effective interest rate in fiscal 2026 was approximately 19.7% as compared to 20.1% in fiscal 2025. Our current cash borrowing rate under our Credit Facility is approximately 14.4%, as compared to 13.9% in the corresponding prior year period.

Interest (Income) and Other. Interest (income) and other for both fiscal 2026 and 2025 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.

Write-off of Deferred Financing Costs and Debt Discounts. During fiscal 2025, in connection with amendments to the Credit Facility and Subordinated Credit Facility in fiscal 2025 and, in particular, the prepayments of Term Loan principal and reduced commitments under the Credit Facility, we expensed $9.0 million of deferred financing fees and debt discounts.

Change in Fair Value of Warrants and Derivatives. During fiscal 2026 and 2025, we recorded a $22.1 million and $38.5 million non-cash benefit, respectively, due to the remeasurement of warrants and derivatives related to our Credit Facility, Subordinated Credit Facility and Convertible Preferred Stock. See Notes to Consolidated Financial Statements - Note (1)(j) - Summary of Significant Accounting and Reporting Policies - Fair Value Measurements and Financial Instruments, Note (8) - Credit Facility, Note (9) - Subordinated Credit Facilityand Note (17) - Convertible Preferred Stock included in Part II - Item 8. Financial Statements and Supplementary Data for more information.

Provision for (Benefit from) Income Taxes. For fiscal 2026, we recorded a tax expense of $0.8 million as compared to a tax benefit of $0.3 million for fiscal 2025. Our effective tax rate (excluding discrete tax items) for fiscal 2026 was (0.4)%, as compared to (0.8)% for fiscal 2025. Our effective tax rate for both periods reflects a full valuation allowance on net deferred tax assets related to our material tax jurisdictions. See Note (11) - Income Taxes included in Part II - Item 8. Financial Statements and Supplementary Data for more information.

During fiscal 2026, we recorded a net discrete tax expense of $0.7 million primarily related to the establishment of a valuation allowance on certain net deferred tax assets associated with our Canadian operations, offset in part by the reversal of tax contingencies no longer required due to the expiration of applicable statute of limitations. During fiscal 2025, we recorded a net discrete tax benefit of $0.7 million, primarily related to the reversal of tax contingencies no longer required due to the expiration of applicable statute of limitations.

Our U.S. Federal income tax returns for fiscal 2023 through 2026 are subject to Internal Revenue Service ("IRS") audit. Our fiscal 2023 income tax return is currently under examination by the IRS. None of our state and foreign income tax returns prior to fiscal 2022 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

Discontinued Operations. On June 14, 2026, we entered into the Strategic Transaction to sell the Disposal Group to Gilat. As the Strategic Transaction represents a material strategic shift in our business, the results and net assets of the Disposal Group are presented in our Annual Report on Form 10-K for fiscal 2026 as "discontinued operations" and comparable prior periods have been recast to reflect this change. The net loss from discontinued operations for fiscal 2026 and 2025 was $17.9 million and $136.3 million, respectively. See Notes to Consolidated Financial Statements - Note (2) - Business Divestiture included in Part II - Item 8. Financial Statements and Supplementary Data for more information.

Net Loss Attributable to Common Stockholders. Fiscal 2026 and 2025 net loss attributable to common stockholders was $68.9 million and $204.3 million, respectively. In addition to those items discussed above: (i) fiscal 2026 includes $32.8 million of net dividends related to our Convertible Preferred Stock; and (ii) fiscal 2025 includes $100.1 million of net dividends related to our Convertible Preferred Stock, offset in part by a $51.2 million gain related to the actual exchange of our Series B-1 Convertible Preferred Stock for Series B-2 Convertible Preferred Stock on October 17, 2024.

Adjusted EBITDA. Adjusted EBITDA (both in dollars and as a percentage of related net sales) for fiscal 2026 and 2025 are shown in the table below (numbers in the table may not foot due to rounding):

The increase in Adjusted EBITDA, both in dollars and as a percentage of net sales, for fiscal 2026 as compared to fiscal 2025 primarily reflects higher gross profit (both in dollars and as percentage of net sales) and lower selling, general and administrative expenses, as discussed above.

Reconciliations of our GAAP results to the corresponding 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 results reflect Non-GAAP provisions for (benefits from) income taxes based on year-to-date results, as adjusted for the Non-GAAP reconciling items included in the tables below. We evaluate our Non-GAAP effective income tax rate on an ongoing basis, and it can change from time to time. Our Non-GAAP effective income tax rate can differ materially from our GAAP effective income tax rate.

Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before interest, income taxes, depreciation, amortization of intangibles, amortization of stock-based compensation, restructuring costs, CEO transition costs, proxy solicitation costs, change in fair value of warrants and derivatives and write-off of deferred financing costs and debt discounts. 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. Although closely aligned, our definition of Adjusted EBITDA is different than EBITDA (as such term is defined in our Credit Facility and Subordinated 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.

Adjusted EBITDA, as well as adjusted operating income (loss), net income (loss) attributable to common shareholders and net income (loss) per diluted common share, as presented in the above tables, are non-GAAP measures. These Non-GAAP measures are frequently requested by investors and analysts. We believe that investors and analysts may use these Non-GAAP measures 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 reflect the GAAP measures as reported, adjusted for certain items as described herein and also excludes the effects of our outstanding convertible preferred stock.

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 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. As we have not provided future Non-GAAP financial guidance or targets, there is no need to reconcile our business outlook to the most directly comparable GAAP measures. Furthermore, even if guidance or targets had been provided, 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 at this time. 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 would not be available without unreasonable effort and such unavailable reconciling items could significantly impact our financial results.