Company Performance - Comtech Telecommunications (CMTL) reported a quarterly loss of $1.27 per share, significantly worse than the Zacks Consensus Estimate of a loss of $0.36, and compared to earnings of $0.24 per share a year ago, representing an earnings surprise of -252.78% [1] - The company posted revenues of $115.8 million for the quarter ended October 2024, missing the Zacks Consensus Estimate by 7.75%, and down from $151.91 million in the same quarter last year [2] - Over the last four quarters, Comtech has surpassed consensus EPS estimates only once and has not beaten consensus revenue estimates during this period [2] Future Outlook - The immediate price movement of Comtech's stock will largely depend on management's commentary during the earnings call and the company's earnings outlook [3][4] - The current consensus EPS estimate for the upcoming quarter is -$0.13 on revenues of $129.53 million, and for the current fiscal year, it is -$0.24 on revenues of $534.92 million [7] - The estimate revisions trend for Comtech is mixed, resulting in a Zacks Rank 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Industry Context - The Wireless Equipment industry, to which Comtech belongs, is currently ranked in the top 7% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% of ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Performance - Consolidated net sales for Q1 fiscal 2025 were $115.8 million, down from $126.2 million in Q4 fiscal 2024 and $151.9 million in Q1 fiscal 2024[230]. - Consolidated net sales decreased to $115.8 million for the three months ended October 31, 2024, down $36.1 million or 23.8% from $151.9 million in the same period of 2023[248]. - Net sales in the Satellite and Space Communications segment fell to $58.9 million, a significant decrease of $43.5 million or 42.5% compared to $102.4 million in the prior year[249]. - The Terrestrial and Wireless Networks segment saw an increase in net sales to $56.9 million, up $7.4 million or 14.9% from $49.5 million in the same period of 2023[250]. - Gross profit for the three months ended October 31, 2024, was $14.5 million, a decrease of $33.4 million from $47.9 million in the prior year, with a gross profit margin of 12.5% compared to 31.5%[253]. - GAAP net loss attributable to common stockholders was $155.9 million, including a $79.6 million non-cash impairment charge and a $17.4 million reserve for unbilled receivable[230]. - Consolidated net loss for the three months ended October 31, 2024, was $(148.4) million, compared to a net loss of $(1.4) million in the same period of 2023[289]. - Adjusted EBITDA decreased to $(19.4) million for the three months ended October 31, 2024, down from $18.4 million in the same period of 2023, reflecting lower consolidated net sales and gross profit[290]. - Operating loss for the three months ended October 31, 2024, was $129.2 million, compared to operating income of $2.1 million in Q4 2023[273]. - Non-GAAP net loss attributable to common stockholders for the three months ended October 31, 2024, was $(37.3) million, compared to $(3.3) million in the same period of 2023[296]. Segment Performance - The company operates through two reportable segments: Satellite and Space Communications, and Terrestrial and Wireless Networks[216]. - The Satellite and Space Communications segment reported an operating loss of $118.8 million in Q1 2025, impacted by lower net sales and a non-cash inventory write-down of $11.4 million[276]. - The Terrestrial and Wireless Networks segment saw an increase in Adjusted EBITDA due to higher net sales, despite a lower gross profit percentage[292]. - The book-to-bill ratio for the Satellite and Space Communications segment was 0.99x, while the Terrestrial and Wireless Networks segment had a book-to-bill ratio of 1.22x for the same period[249][250]. Impairments and Charges - A non-cash impairment charge of $79.6 million was recorded in the Satellite and Space Communications segment during the first quarter of fiscal 2025 related to long-lived assets, including goodwill[220]. - The company recorded a non-cash charge of $11.4 million related to inventory write-downs during the first quarter of fiscal 2025[257]. - Impairment of long-lived assets, including goodwill, amounted to $79.6 million for the three months ended October 31, 2024[297]. - A $17.4 million non-cash charge related to an allowance for doubtful accounts impacted overall performance, contributing to lower consolidated net sales and gross profit[290]. Costs and Expenses - Selling, general and administrative expenses rose to $51.6 million, representing 44.6% of consolidated net sales, compared to $32.7 million or 21.5% in the same period of 2023[259]. - Research and development expenses decreased to $3.7 million for the three months ended October 31, 2024, down 52.5% from $7.8 million in the same period of 2023[262]. - The company reduced its workforce by approximately 7%, resulting in annualized cost savings of about $18.0 million, with severance costs of approximately $1.1 million expected in Q2 fiscal 2025[245]. - Restructuring costs totaled $17.9 million for the three months ended October 31, 2024, compared to $3.7 million in the same period of 2023[297]. Revenue and Backlog - New bookings totaled $127.9 million, resulting in a book-to-bill ratio of 1.10x[230]. - Backlog increased to $811.0 million as of October 31, 2024, compared to $798.9 million as of July 31, 2024[230]. - Revenue visibility is approximately $1.6 billion, combining funded backlog and the total unfunded value of multi-year contracts[230]. Legal and Regulatory Matters - The company is subject to ongoing legal expenses related to pending and threatened legal actions, which may adversely affect financial condition[323]. - The company has entered into employment and change of control agreements with certain executive officers, which may require payments under specific circumstances[324]. Future Outlook and Guidance - The company is not providing forward-looking guidance due to unpredictable business conditions and challenges related to its transformation strategy[246]. - The evaluation of the company's ability to continue as a going concern is ongoing, with substantial doubt raised due to current financial conditions[300]. - The company has not provided future financial targets, making it difficult to reconcile business outlook to GAAP measures[295]. Goodwill and Intangible Assets - As of October 31, 2024, total goodwill recorded on the balance sheet is $204.6 million, with $30.5 million in the Satellite and Space Communications segment and $174.1 million in the Terrestrial and Wireless Networks segment[220]. - Amortization of intangibles increased to $6.6 million in Q1 2025 from $5.3 million in Q1 2024, with the Satellite and Space Communications segment accounting for $3.0 million of this amount[268].

Financial Performance - Consolidated net sales were $115.8 million, a decline of 23.8% compared to the prior year period[7] - Net bookings were $127.9 million, down 31.1% year-over-year, with a book-to-bill ratio of 1.10x[8] - Operating loss was $129.2 million, compared to operating income of $2.1 million in the prior year[11] - Net loss for the quarter was $148.4 million, compared to a net loss of $1.4 million in the prior year[11] - Gross profit for the same period was $14.5 million, down 69.7% from $47.9 million year-over-year[36] - Net loss attributable to common stockholders was $155.9 million, significantly higher than the $3.3 million loss reported in the previous year[36] - The company reported a basic and diluted net loss per common share of $5.29, compared to $0.11 in the same quarter of the previous year[36] - The company’s GAAP net loss attributable to common stockholders for the fiscal year 2024 was $79.89 million, with a loss per diluted share of $4.70[42] - Non-GAAP net loss for the fiscal year 2024 was $33.54 million, translating to a non-GAAP earnings per share of $0.10[42] Segment Performance - The Satellite & Space Communications segment reported net sales of $58.9 million, a decrease of 42.5% year-over-year[14] - The Terrestrial & Wireless Networks segment achieved net sales of $56.9 million, an increase of 14.9% compared to the prior year[20] Backlog and Revenue Visibility - Funded backlog increased to $811.0 million, with revenue visibility of approximately $1.6 billion[13] Asset and Liability Changes - Total current assets decreased to $306.6 million from $336.6 million as of July 31, 2024[38] - Total liabilities increased to $494.1 million from $426.1 million in the previous quarter[38] - Goodwill decreased to $204.6 million from $284.2 million, reflecting impairment of long-lived assets[38] - The company incurred $79.6 million in impairment of long-lived assets, including goodwill, during the quarter[36] Adjusted EBITDA and Strategic Review - Adjusted EBITDA is not provided for future financial targets, indicating potential volatility in financial results due to various factors[39] - Adjusted EBITDA for the quarter was a loss of $19.40 million, a significant decline from an adjusted EBITDA of $18.37 million in the prior year[40] - The company is conducting a comprehensive review of strategic alternatives, including capital-raising and de-levering opportunities[29] Costs and Amortization - Restructuring costs increased to $17.85 million in Q4 2024, compared to $3.72 million in the same quarter of the previous year[40] - The amortization of intangibles for the fiscal year 2024 was $21.15 million, compared to $16.39 million in the previous fiscal year[42] - The company has incurred strategic emerging technology costs of $280,000 in Q4 2024, down from $1.37 million in Q4 2023[40] Cash Position - Cash and cash equivalents were approximately $30 million as of October 31, 2024[26] Fair Value Changes - The company reported a change in the fair value of warrants and derivatives amounting to $5.52 million in Q4 2024, contributing positively to the adjusted earnings[42] Tax Rate Evaluation - The company is actively evaluating its non-GAAP effective income tax rate, which may differ materially from the GAAP effective income tax rate[41]

Core Summary - The SEC has charged Ken Peterman, former CEO of Comtech Telecommunications Corp, with insider trading related to the sale of Comtech shares based on material non-public information about the company's negative quarterly earnings results [2][3] - Peterman allegedly avoided losses of $12,445 by selling shares before the earnings announcement, and would have avoided an additional $110,000 in losses if not for a trading blackout [3] - The SEC is seeking permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and a bar preventing Peterman from serving as an officer or director of a public company [4] Legal Proceedings - The complaint was filed in the US District Court for the Eastern District of New York, charging Peterman with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 [4] - The US Attorney's Office for the Eastern District of New York has announced parallel criminal charges against Peterman [5] Investigation Details - The SEC's investigation was conducted by Mary Kay Dunning, Jordan Baker, and Liora Sukhatme, supervised by Tejal D Shah of the New York Regional Office [6] - The investigation received assistance from Leigh Barrett of the Office of Investigative and Market Analytics, and Heidi Verheggen and Kathryn Paige of the Division of Risk and Economic Analysis [6] - The litigation will be managed by Travis Hill and Mary Kay Dunning, supervised by Preethi Krishnamurthy of the New York Regional Office [6]

Core Viewpoint - Wall Street anticipates a year-over-year decline in earnings for Comtech Telecommunications (CMTL) due to lower revenues, with a focus on how actual results compare to estimates impacting stock price [1][2]. Earnings Expectations - The consensus estimate predicts a quarterly loss of $0.20 per share, reflecting a year-over-year change of -183.3% [3]. - Expected revenues are $125.53 million, down 17.4% from the same quarter last year [4]. Estimate Revisions - The consensus EPS estimate has been revised 289% lower in the last 30 days, indicating a significant reassessment by analysts [5]. - The Most Accurate Estimate aligns with the Zacks Consensus Estimate, resulting in an Earnings ESP of 0% [11][12]. Earnings Surprise Prediction - A positive Earnings ESP is a strong indicator of an earnings beat, especially when combined with a Zacks Rank of 1, 2, or 3 [9]. - Comtech currently holds a Zacks Rank of 5, making it challenging to predict an earnings beat [13]. Historical Performance - In the last reported quarter, Comtech was expected to post earnings of $0.05 per share but instead reported a loss of $0.35, resulting in a surprise of -800% [14]. - Over the past four quarters, the company has only beaten consensus EPS estimates once [15]. Conclusion - Comtech does not appear to be a strong candidate for an earnings beat, and investors should consider other factors when evaluating the stock ahead of its earnings release [18].

Comtech Telecommunications Corporation (CMTL) recently announced that it has secured a sole source contract from the U.S. Navy Information Warfare Systems Command. Per the contract valued at $50 million, CMTL will deliver SLM-5650B satellite communications modems, upgrade kits, firmware options, and technical support over the next four years. In addition, the company also recently secured a significant contract with SES Space & Defense for SLM 5650B and other advanced modems for use in sovereign connectivit ...

Financial Performance & Growth - Comtech's Q3 FY23 revenues reached $1363 million[9], with an Adjusted EBITDA of $125 million[11] and an Adjusted EBITDA Margin of 92%[12] - The company anticipates double-digit sales growth and faster Adjusted EBITDA growth[81] - Illustrative scenarios project Adjusted EBITDA ranging from $81 million to $97 million based on revenue growth scenarios of 5% to 20%[28] Strategic Initiatives & Transformation - Comtech is undergoing a planned transformation focusing on system processes, people, and lean operating/growth initiatives[15] - The company is focused on near-term opportunities to grow faster and transition to software, solutions, insights, and outcomes[19] - Cost savings initiatives are categorized into organization, processes & systems (30% contribution)[34], workforce (30% contribution)[38], and operations & execution (40% contribution)[40], Market Opportunities & Innovation - The 5G SATCOM market is projected to increase from $2 billion in 2022 to $43 billion in 2032[51] - The satellite-based earth observation market is expected to reach $113 billion in 2031[55] - Comtech's location-based services offer market-leading accuracy for locating people or objects with precision[43]

Financial Data and Key Metrics - The company's financial performance for Q4 2024 was below expectations, with significant pressure on margins, particularly in the satellite and space segment, which experienced a decline in adjusted EBITDA margins [12][14] - The company reported a record-funded backlog of almost $800 million, reflecting strong customer demand for its technologies, products, and solutions [13] - The company faced margin headwinds due to balance sheet-related issues impacting manufacturing and deliveries, as well as cost growth on cutting-edge, non-recurring engineering-related programs nearing completion [15] - A delay in the receipt of a large troposcatter-related foreign military sales order also negatively impacted profitability [15] Business Line Data and Key Metrics - Both the terrestrial and wireless networks business and the satellite and space business performed roughly in line with revenue expectations, but the satellite and space segment experienced margin pressure [14] - The company is undergoing a strategic review to identify alternatives for its terrestrial and wireless networks business, aiming to unlock value and simplify the capital structure [9] - The company is focusing on becoming a pure-play satellite and space communications company, targeting end markets undergoing technology-driven transformation cycles [10] Market Data and Key Metrics - The company's satellite and space segment is positioned to serve growing end markets, with a strong backlog indicating sustained demand [13] - The timing and amount of foreign military sales orders, such as the troposcatter-related order, are difficult to predict due to factors like political influences and defense spending budgets [16] Company Strategy and Industry Competition - The company is executing a transformation strategy to focus on operational discipline, execution, and profitable growth in its core markets [8] - The company aims to simplify its portfolio by divesting non-core businesses and focusing on high-margin opportunities in satellite and space communications [9][10] - The company is prioritizing customer-funded R&D projects to reduce costs and improve margins, while maintaining a strong engineering talent pool [42][43] Management Commentary on Operating Environment and Future Outlook - Management acknowledged the challenges in the current operating environment but expressed confidence in the company's strong foundation and competitive position [7][13] - The company is committed to improving profitability by transitioning development projects into production, which is expected to enhance margins [29] - Management emphasized the importance of customer-funded R&D and the potential for margin improvement as projects move into production [43][45] Other Important Information - The company is winding down its Basingstoke facility, which is expected to reduce costs and improve the bottom line in the satellite and space segment [48][62] - The company is working to reduce unbilled receivables, particularly in the satellite and space segment, with progress expected in Q1 2025 [31][32] Q&A Session Summary Question: Strategic Review of Terrestrial Business - The strategic review process for the terrestrial and wireless networks business is ongoing, with the company entertaining various interested parties [21] - Post-divestiture, the company anticipates reducing its cost structure and simplifying its capital structure, including paying down debt and addressing preferred shares [22][23] Question: Margin Headwinds and Operational Improvements - The margin headwinds in Q4 were driven by development projects in the satellite and space segment, particularly in amplifiers and modems, which have lower margins during the development phase [26][28] - The company expects margins to improve as these projects transition into production, with some projects expected to move into production in the second and third quarters of fiscal 2025 [29][56] Question: Unbilled Receivables and Liquidity - The company saw a reduction in unbilled receivables in Q4 and expects further reductions as deliveries on key programs, such as the Army and Marines next-gen tropo programs, are completed [31][32] - The company anticipates generating sufficient cash flow to meet obligations without additional financing, even if the terrestrial business divestiture does not occur [30] Question: R&D Investment Trends - The company's R&D expenses as a percentage of revenue have declined, but this is partly due to an increase in customer-funded R&D, which is reflected in revenues and cost of sales rather than reported R&D expenses [40][41] - The company is prioritizing high-margin R&D projects and focusing on transitioning development projects into production to improve profitability [42][43] Question: TFSR Contract Status - The TFSR contract remains under protest, with no clear timeline for resolution, as new protests are filed each time the contract is reawarded [37][38] Question: Basingstoke Facility Wind-Down - The Basingstoke facility, which had around 100 employees, is being wound down, and the company expects a meaningful reduction in expenditures as a result [62][63] Question: Future Revenue and Margin Expectations - For Q1 2025, the company expects revenue to remain stable compared to Q4 2024, with improved EBITDA performance [47] - The company anticipates margin improvement as development projects transition into production, particularly in the satellite and space segment [55][56]

Core Viewpoint - Comtech Telecommunications (CMTL) reported a quarterly loss of $0.35 per share, significantly missing the Zacks Consensus Estimate of $0.05, marking an earnings surprise of -800% compared to earnings of $0.29 per share a year ago [1][2] Financial Performance - The company posted revenues of $126.19 million for the quarter ended July 2024, which was 1.97% below the Zacks Consensus Estimate and down from $148.81 million in the same quarter last year [2] - Over the last four quarters, Comtech has surpassed consensus EPS estimates only once and has topped consensus revenue estimates just once as well [2] Stock Performance - Comtech shares have declined approximately 54.1% since the beginning of the year, contrasting with the S&P 500's gain of 21.9% [3] - The company's current Zacks Rank is 2 (Buy), indicating expectations for the stock to outperform the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.04 on revenues of $140.7 million, while for the current fiscal year, the estimate is $0.55 on revenues of $601.67 million [7] - The trend of estimate revisions for Comtech has been favorable ahead of the earnings release, although this could change following the recent report [6] Industry Context - The Wireless Equipment industry, to which Comtech belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - The performance of Comtech's stock may also be influenced by the overall outlook for the industry [8]

[Waiver and Amendment No. 1 to Credit Agreement](index=1&type=section&id=Waiver%20and%20Amendment%20No.%201%20to%20Credit%20Agreement) This document details the first amendment to the Credit Agreement, addressing existing defaults and modifying terms between Comtech Telecommunications Corp. and its lenders [Introduction and Background](index=1&type=section&id=Introduction%20and%20Background) This document, dated October 17, 2024, constitutes the first amendment to the Credit Agreement originally dated June 17, 2024, between Comtech Telecommunications Corp. (the "Borrowers"), various lenders, Wingspire Capital LLC as Revolving Agent, and TCW Asset Management Company LLC as Agent. The amendment addresses several existing Events of Default and modifies the terms of the original agreement - The amendment was entered into on **October 17, 2024**, by Comtech Telecommunications Corp. and its lenders to address existing defaults under the original Credit Agreement from June 17, 2024[1](index=1&type=chunk)[2](index=2&type=chunk) - Comtech was in default due to multiple covenant breaches and failures to deliver required financial reports[2](index=2&type=chunk) Existing Events of Default | Default Type | Description | | :--- | :--- | | **Financial Covenants** | Failure to maintain a Fixed Charge Coverage Ratio of at least 1.20:1.0 for the period ended July 31, 2024 | | | Failure to maintain a Net Leverage Ratio not greater than 3.25:1.0 for the quarter ended July 31, 2024 | | **Operational Covenants** | Failure to comply with the definition of "Permitted Intercompany Advances" | | **Reporting Failures** | Failure to deliver financial statements and Compliance Certificate for the month ended July 31, 2024 | | | Failure to deliver various required reports for the month ended September 30, 2024 | [Waiver and Amendments](index=2&type=section&id=Waiver%20and%20Amendments) The Lenders have agreed to waive the specified "Existing Events of Default" and amend the Credit Agreement. This waiver is limited and does not cover any other breaches. Key schedules and exhibits related to financial reporting, collateral, and borrowing notices are amended and restated - The Lenders have formally waived the previously identified Events of Default, but this waiver is limited and does not apply to any other current or future breaches[4](index=4&type=chunk) - The Credit Agreement is amended as detailed in Exhibit A, with specific schedules for Financial Statements (Schedule 5.1), Collateral Reporting (Schedule 5.2), and forms for Borrowing Base Certificate (Exhibit B-1) and Notice of Borrowing (Exhibit D-1) being fully replaced[5](index=5&type=chunk)[6](index=6&type=chunk)[7](index=7&type=chunk) [Conditions to Effectiveness and Fees](index=3&type=section&id=Conditions%20to%20Effectiveness%20and%20Fees) The amendment's effectiveness is contingent upon several conditions, including the receipt of at least $25 million in cash proceeds from new subordinated debt, payment of various fees, and delivery of a 26-week cash flow forecast. A significant Term Loan Amendment Fee of approximately $4.06 million is to be paid-in-kind by adding it to the loan's principal - A key condition for the amendment is that the Borrowers must receive at least **$25,000,000** in cash proceeds from the issuance of Specified Preferred Subordinated Debt[9](index=9&type=chunk) - Other conditions include the delivery of a 26-week cash flow forecast and payment of all outstanding Lender Group Expenses[9](index=9&type=chunk) Term Loan Amendment Fee | Item | Amount | Payment Method | | :--- | :--- | :--- | | Term Loan Amendment Fee | $4,058,410.62 | Paid-in-kind by adding to the outstanding principal of the Term Loan | [Post-Closing Covenants and Release](index=5&type=section&id=Post-Closing%20Covenants%20and%20Release) Comtech is required to deliver overdue financial statements and compliance certificates for July and September 2024 by specific deadlines in October and November 2024. Failure to comply constitutes an immediate Event of Default. As part of the agreement, the Loan Parties provide a broad release of all known claims against the Lenders and their affiliates - The company must deliver the overdue financial statements and related certificates for July 2024 by **October 31, 2024**[14](index=14&type=chunk) - The various overdue deliverables for September 2024 must be submitted by **October 25, October 30, and November 15, 2024**, respectively. Failure to meet these deadlines is an immediate Event of Default[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) - The Loan Parties have issued an unconditional release, discharging the Lenders and their affiliates from all known claims, demands, and liabilities arising on or prior to the date of the amendment[18](index=18&type=chunk) [Amended Credit Agreement](index=18&type=section&id=Amended%20Credit%20Agreement) This section details the comprehensive amendments to the original Credit Agreement, covering definitions, loan terms, conditions, covenants, and general administrative provisions [Section 1: Definitions and Construction](index=28&type=section&id=1.%20DEFINITIONS%20AND%20CONSTRUCTION) This section defines the key terms used throughout the amended credit agreement. Notable changes include revised definitions for "Applicable Margin," introducing a new pricing grid for Term Loans and an option for Paid-in-Kind (PIK) interest. It also introduces an "Amendment No. 1 Availability Block Amount" of $27.5 million, which reduces the available amount under the revolving credit facility - An "Amendment No. 1 Availability Block Amount" of **$27,500,000** is established, which reduces the amount available for borrowing under the revolving loan facility[49](index=49&type=chunk) - A portion of the interest on the Term Loan may be paid-in-kind ("PIK Interest"). The applicable PIK margin is **7.50%** during the Initial Pricing Period and **2.50%** thereafter[58](index=58&type=chunk) Amended Applicable Margin for Revolving Loans | Level | Average Revolver Usage | Base Rate Margin | SOFR Margin | | :--- | :--- | :--- | :--- | | I | < $32,500,000 | 4.75% | 5.75% | | II | $32.5M to < $50M | 5.00% | 6.00% | | III | ≥ $50,000,000 | 5.25% | 6.25% | Amended Applicable Margin for Term Loan | Period / Level | Condition | Base Rate Margin | SOFR Margin | | :--- | :--- | :--- | :--- | | **Initial Pricing Period** | From Amendment Date until Pricing Reset | 12.00% | 13.00% | | **Pricing Grid Period** | After Pricing Reset | | | | Level I | Net Leverage Ratio < 1.75:1.0 | 7.50% | 8.50% | | Level II | 1.75:1.0 ≤ Net Leverage Ratio < 2.50:1.0 | 8.00% | 9.00% | | Level III | 2.50:1.0 ≤ Net Leverage Ratio < 3.25:1.0 | 8.50% | 9.50% | | Level IV | Net Leverage Ratio ≥ 3.25:1.0 | 9.00% | 10.00% | [Section 2: Loans and Terms of Payment](index=97&type=section&id=2.%20LOANS%20AND%20TERMS%20OF%20PAYMENT) This section outlines the terms of the revolving loans and the term loan, including borrowing procedures, payment schedules, prepayments, and interest rate calculations. The revolving facility has a maximum of $60 million, reduced by a $27.5 million availability block. The term loan has an amended repayment schedule, requiring a significant payment of $4.05 million on July 31, 2025, followed by quarterly payments of $1.0125 million. The agreement introduces new mandatory prepayment triggers, including an "Available Cash Sweep" if cash exceeds $55 million - The revolving loan facility allows for borrowings up to the lesser of the Revolver Commitment or an amount based on the Borrowing Base, but is subject to a new **$27,500,000** "Amendment No. 1 Availability Block Amount"[292](index=292&type=chunk) - The Term Loan repayment schedule was amended. A payment of **$4,050,000** is due on **July 31, 2025**, followed by quarterly principal payments of **$1,012,500**[295](index=295&type=chunk) - A new mandatory prepayment is required if Available Cash exceeds **$55,000,000**. The prepayment amount is the excess over **$55,000,000**, but capped to ensure the Revolver Usage does not fall below **$15,000,000**[327](index=327&type=chunk) - Prepayment of the Term Loan will trigger a permanent pro-rata reduction in the Maximum Revolver Amount and corresponding Revolver Commitments[324](index=324&type=chunk)[337](index=337&type=chunk) [Section 3: Conditions; Term of Agreement](index=123&type=section&id=3.%20CONDITIONS%3B%20TERM%20OF%20AGREEMENT) This section details the conditions precedent for extending credit and the term of the agreement. The agreement will remain in effect until the Maturity Date, which is the earlier of July 31, 2028, or 90 days prior to the maturity of the Specified Preferred Subordinated Debt. It also references post-closing covenants that must be fulfilled to avoid an Event of Default - The agreement's maturity date is **July 31, 2028**, unless accelerated by the maturity of the new Specified Preferred Subordinated Debt[190](index=190&type=chunk)[388](index=388&type=chunk) - All extensions of credit are subject to conditions, including the accuracy of representations and warranties, no existing Default or Event of Default, and not exceeding the availability limits[387](index=387&type=chunk) - The company must fulfill specific post-closing obligations as detailed in Schedule 3.6, and failure to do so will constitute an Event of Default[392](index=392&type=chunk) [Section 4: Representations and Warranties](index=124&type=section&id=4.%20REPRESENTATIONS%20AND%20WARRANTIES) This section contains standard representations and warranties made by the Borrowers to the Lenders. These cover the company's legal status, authority to enter the agreement, financial condition, compliance with laws (including Patriot Act and OFAC), litigation, and other customary matters. These representations must be true and correct at the time of the agreement and for all subsequent extensions of credit - The Borrowers provide comprehensive representations regarding their due organization, good standing, and authority to execute the loan documents[395](index=395&type=chunk)[399](index=399&type=chunk) - The company affirms that since **July 31, 2023**, no event has occurred that has had or could reasonably be expected to have a Material Adverse Effect[409](index=409&type=chunk) - The Borrowers represent compliance with all applicable laws, including Sanctions, Anti-Corruption Laws, and Anti-Money Laundering Laws, and confirm that loan proceeds will not be used in violation of these regulations[426](index=426&type=chunk) [Section 5: Affirmative Covenants](index=133&type=section&id=5.%20AFFIRMATIVE%20COVENANTS) This section details the ongoing obligations of the Borrowers. Key covenants include timely delivery of financial statements and reports, maintaining corporate existence and properties, paying taxes, and maintaining adequate insurance. New covenants require the engagement of a Financial Advisor acceptable to the Agent and participation in weekly conference calls with the Agents and advisors to provide updates on liquidity and operations - Borrowers must deliver financial statements, compliance certificates, and other reports according to the schedules outlined in the agreement[434](index=434&type=chunk)[435](index=435&type=chunk) - A new covenant requires the engagement of a Financial Advisor acceptable to the Agent within **10 business days** of the Agent's request[470](index=470&type=chunk) - Commencing after the engagement of the Financial Advisor, the company must participate in weekly conference calls with the Agents to provide updates on liquidity and operations[471](index=471&type=chunk) - During any Board Observation Period, the Agent is entitled to designate a non-voting Board Observer to attend meetings of the Board of Directors[462](index=462&type=chunk) [Section 6: Negative Covenants](index=143&type=section&id=6.%20NEGATIVE%20COVENANTS) This section imposes restrictions on the Borrowers' activities to protect the Lenders. It limits the ability to incur additional debt, create liens, undergo fundamental corporate changes (mergers, dissolutions), dispose of assets, make investments, and engage in transactions with affiliates. It also restricts prepayments of other debt and amendments to key documents, including the new subordinated debt and preferred equity documents - The company is restricted from incurring any indebtedness or liens, other than those explicitly defined as "Permitted Indebtedness" and "Permitted Liens"[473](index=473&type=chunk) - Restricted Payments, such as dividends and share repurchases, are generally prohibited, with specific exceptions for tax-related distributions and other limited circumstances, contingent on meeting liquidity and leverage tests[478](index=478&type=chunk)[480](index=480&type=chunk) - The limit for Permitted Intercompany Advances from a Loan Party to a Specified Loan Party was increased from **$10,000,000** to **$15,000,000**[218](index=218&type=chunk) - The company is prohibited from prepaying the new Specified Preferred Subordinated Debt or other subordinated debt, and cannot amend the terms of such debt or the Specified Preferred Equity Documents if it would be materially adverse to the Lenders[476](index=476&type=chunk) [Section 7: Financial Covenants](index=150&type=section&id=7.%20FINANCIAL%20COVENANTS) This section establishes the key financial metrics that the Borrowers must maintain, measured on a quarterly basis. The amendment sets specific, evolving targets for the Fixed Charge Coverage Ratio, Net Leverage Ratio, Minimum TTM EBITDA, and Minimum Average Liquidity through the life of the loan Fixed Charge Coverage Ratio Covenant | Period Ending | Minimum Ratio | | :--- | :--- | | Jul 31, 2024 - Jan 31, 2025 | 1.20 : 1.0 | | Apr 30, 2025 - Apr 30, 2026 | 1.25 : 1.0 | | Jul 31, 2026 - Apr 30, 2027 | 1.30 : 1.0 | | From Jul 31, 2027 onwards | 1.35 : 1.0 | Net Leverage Ratio Covenant | Period Ending | Maximum Ratio | | :--- | :--- | | Jul 31, 2024 - Apr 30, 2025 | 3.25 : 1.0 | | Jul 31, 2025 - Oct 31, 2025 | 3.15 : 1.0 | | Jan 31, 2026 - Apr 30, 2026 | 3.00 : 1.0 | | Jul 31, 2026 - Oct 31, 2026 | 2.90 : 1.0 | | Jan 31, 2027 - Apr 30, 2027 | 2.75 : 1.0 | | From Jul 31, 2027 onwards | 2.65 : 1.0 | Minimum TTM EBITDA Covenant | Period Ending | Minimum TTM EBITDA | | :--- | :--- | | Oct 31, 2025 - Jan 31, 2026 | $35,000,000 | | Apr 30, 2026 - Jul 31, 2026 | $37,500,000 | | From Oct 31, 2026 onwards | $40,000,000 | - The company must maintain a Minimum Average Liquidity of at least **$20,000,000** for each fiscal quarter[497](index=497&type=chunk) [Section 8: Events of Default](index=151&type=section&id=8.%20EVENTS%20OF%20DEFAULT) This section defines what constitutes an "Event of Default." Triggers include failure to make payments, breaches of affirmative, negative, or financial covenants, material misrepresentations, insolvency proceedings, cross-defaults on other significant indebtedness (including the new subordinated debt), and the occurrence of a Change of Control - Failure to make any principal, interest, or fee payments within specified grace periods constitutes an Event of Default[498](index=498&type=chunk) - Breach of any covenant in Sections 5, 6, or 7, including the newly established financial covenants, is an Event of Default, with varying cure periods depending on the specific covenant[498](index=498&type=chunk)[500](index=500&type=chunk) - A cross-default is triggered by a default on the Specified Preferred Subordinated Debt or any other indebtedness exceeding **$5,000,000**[502](index=502&type=chunk) - Insolvency proceedings, whether voluntary or involuntary (if not dismissed within 45 days), are immediate Events of Default[500](index=500&type=chunk) [Section 9: Rights and Remedies](index=154&type=section&id=9.%20RIGHTS%20AND%20REMEDIES) This section outlines the Lenders' rights upon an Event of Default, which include accelerating all obligations to become immediately due and payable and terminating all commitments. A key provision is the "Curative Equity" right, which allows the Borrowers to cure a breach of certain financial covenants by raising new qualified equity and using the proceeds to prepay the loans. This right is limited to four times in total and not more than twice in any four-quarter period - Upon an Event of Default, the Agent, at the direction of the Required Lenders, can declare all Obligations immediately due and payable and terminate all lending commitments[505](index=505&type=chunk)[506](index=506&type=chunk) - The agreement includes a "Curative Equity" provision, allowing the company to cure a breach of the Fixed Charge Coverage Ratio or Net Leverage Ratio covenants by issuing new Qualified Equity Interests[510](index=510&type=chunk) - The Curative Equity right can be used a maximum of **four times** during the term of the agreement, and no more than **twice** in any four-consecutive-quarter period[514](index=514&type=chunk) - The full cash proceeds from any Curative Equity issuance must be used to prepay the Obligations[511](index=511&type=chunk) [Sections 10 - 17: General and Administrative Provisions](index=157&type=section&id=10.%20-%2017.%20General%20and%20Administrative%20Provisions) These sections cover standard legal and administrative aspects of the credit agreement. Section 10 includes waivers and indemnification clauses. Section 11 specifies procedures for notices. Section 12 establishes New York law as the governing law and venue. Section 13 governs the assignment of loans and participations. Section 14 details the process for amendments and waivers, generally requiring consent of the Required Lenders. Section 15 outlines the roles, rights, and responsibilities of the Agent and Revolving Agent. Section 16 addresses withholding taxes. Section 17 contains miscellaneous provisions, including confidentiality, integration, and an acknowledgment of bank resolution powers ("Bail-In") - The agreement is governed by New York law, and legal proceedings are to be held in New York County. All parties waive the right to a jury trial[527](index=527&type=chunk)[529](index=529&type=chunk)[530](index=530&type=chunk) - Amendments and waivers generally require the consent of the Required Lenders (more than **50%** of loan exposure), but more significant changes (e.g., increasing commitments, extending maturity, reducing principal/interest) require the consent of all affected Lenders[550](index=550&type=chunk)[552](index=552&type=chunk) - The agreement outlines the roles and protections for the Agent and Revolving Agent, who act on behalf of the Lenders but do not have a fiduciary relationship with them[560](index=560&type=chunk) - The agreement includes provisions for handling withholding taxes (Section 16) and erroneous payments by the Agent (Section 17.18)[602](index=602&type=chunk)[644](index=644&type=chunk)