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)

PART I [Business](index=5&type=section&id=Item%201.%20Business) Comtech Telecommunications Corp. provides critical communications infrastructure and solutions through two main segments, navigating fiscal 2024 with refinancing and liquidity challenges while achieving record backlog and announcing a strategic transformation to a pure-play satellite and space communications company - The company operates through two core business segments: Satellite and Space Communications (secure satellite and wireless communications) and Terrestrial and Wireless Networks (next-generation 911 and public safety)[11](index=11&type=chunk)[21](index=21&type=chunk) - On October 17, 2024, the company announced a transformation strategy to become a pure-play satellite and space communications company, including exploring strategic alternatives for the Terrestrial and Wireless Networks segment, pursuing further portfolio-shaping, and implementing operational initiatives to align its cost structure[19](index=19&type=chunk)[71](index=71&type=chunk) - Fiscal 2024 results were impacted by refinancing and liquidity headwinds, which affected the supply chain and lengthened product cycles; despite this, the company exited fiscal 2024 with a record funded consolidated backlog of **$798.9 million**[13](index=13&type=chunk)[16](index=16&type=chunk) Fiscal 2024 Segment Contribution to Net Sales | Segment | Contribution to Net Sales | | :--- | :--- | | Satellite and Space Communications | ~60% | | Terrestrial and Wireless Networks | ~40% | [Satellite and Space Communications Segment](index=8&type=section&id=Satellite%20and%20Space%20Communications%20Segment) This segment, contributing approximately 60% of fiscal 2024 net sales, designs and supports sophisticated communications equipment for global defense, government, and commercial entities, driven by rising defense spending and satellite expansion - The segment is organized into four categories: satellite modem and amplifier technologies, troposcatter technologies, government services, and space components[26](index=26&type=chunk) - In September 2024, the company launched its new Digital Common Ground (DCG) portfolio of modems, designed to enable digitized, hybrid satellite network architectures for the U.S. DoD and coalition partners, and is one of the first to be Digital Intermediate Frequency Interoperability (DIFI) compliant[29](index=29&type=chunk)[30](index=30&type=chunk) - Key growth drivers include increasing demand from government and military for satellite communications, the launch of new LEO, MEO, and HTS satellites, the expansion of satellite-based cellular backhaul, and a growing market for advanced troposcatter systems[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) - Approximately **55.4%** of the segment's sales are derived from U.S. government and related agency contracts; key customers include the U.S. Armed Forces, major defense contractors like General Dynamics and Lockheed Martin, and commercial entities such as Intelsat and SES[43](index=43&type=chunk)[44](index=44&type=chunk) [Terrestrial and Wireless Networks Segment](index=11&type=section&id=Terrestrial%20and%20Wireless%20Networks%20Segment) Contributing approximately 40% of fiscal 2024 net sales, this segment is a leading provider of Next Generation 911 infrastructure and solutions, demonstrating strong performance with a 1.70x book-to-bill ratio, and is being explored for strategic alternatives - The segment is organized into three service areas: next generation 911 and call delivery, Solacom call handling solutions, and trusted location and messaging solutions[47](index=47&type=chunk) - The segment achieved a book-to-bill ratio of **1.70x** in fiscal 2024 and more than doubled its year-over-year bookings for next-generation solutions[15](index=15&type=chunk) - The company is exploring strategic alternatives for this segment as part of its strategy to become a pure-play satellite and space communications company[46](index=46&type=chunk) - Key customers include U.S. state and local governments (e.g., Massachusetts, Pennsylvania, Washington) and major telecommunications companies like AT&T, T-Mobile, and Verizon[64](index=64&type=chunk) [Strategic Transformation](index=15&type=section&id=Strategic%20Transformation) The company is executing a strategic transformation to become a pure-play satellite and space communications company, involving divestiture of the Terrestrial and Wireless Networks segment and other portfolio-shaping activities, including the recent divestiture of the PST product line and exit from UK operations - On October 17, 2024, the company announced its strategy to transform into a pure-play satellite and space communications company[71](index=71&type=chunk) - Completed the divestiture of its solid-state RF microwave high power amplifiers product line (PST Divestiture) on November 7, 2023, for net proceeds of **$33.2 million**[70](index=70&type=chunk) - In Q4 of fiscal 2024, the company decided to exit its operations in Basingstoke, United Kingdom, which were focused on LEO constellation-based antenna technologies, due to unattractive returns on invested capital[71](index=71&type=chunk) [Sales, Marketing and Customer Support](index=15&type=section&id=Sales%2C%20Marketing%20and%20Customer%20Support) The company utilizes direct sales, independent representatives, and value-added resellers, with U.S. sales accounting for 78.5% of consolidated net sales in fiscal 2024, including 33.7% from U.S. government contracts Sales by Geography and Customer Type (% of Consolidated Net Sales) | Category | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | **U.S. Government** | **33.7%** | **31.3%** | **27.2%** | | **Domestic** | **44.8%** | **44.7%** | **47.8%** | | **Total U.S.** | **78.5%** | **76.0%** | **75.0%** | | **International** | **21.5%** | **24.0%** | **25.0%** | | **Total** | **100.0%** | **100.0%** | **100.0%** | - In fiscal 2024, no single customer, other than the U.S. government, represented more than **10%** of consolidated net sales; in fiscal 2023, Verizon represented **10.6%** of sales[79](index=79&type=chunk) [Backlog](index=16&type=section&id=Backlog) As of July 31, 2024, Comtech reported a record consolidated backlog of $798.9 million, with the Terrestrial and Wireless Networks segment contributing $520.0 million and the Satellite and Space Communications segment contributing $278.9 million, expected to be recognized as sales within 24 months Backlog as of July 31, 2024 | Segment | Backlog (in millions) | | :--- | :--- | | Satellite and Space Communications | **$278.9** | | Terrestrial and Wireless Networks | **$520.0** | | **Consolidated Total** | **$798.9** | - The backlog composition as of July 31, 2024, was **66.6%** from U.S. commercial customers, **18.8%** from U.S. government contracts, and **14.6%** from international customers[82](index=82&type=chunk) [Research and Development](index=17&type=section&id=Research%20and%20Development) Internal research and development expenses significantly decreased in fiscal 2024 to $24.1 million, or 4.5% of net sales, primarily due to increased customer-funded R&D, higher capitalization of engineering costs, and workforce reductions Research and Development Expenses (Internal) | Fiscal Year | Amount (in millions) | % of Net Sales | | :--- | :--- | :--- | | 2024 | **$24.1** | **4.5%** | | 2023 | **$48.6** | **8.8%** | | 2022 | **$52.5** | **10.8%** | - Customer-funded R&D activities, which are reflected in net sales and cost of sales, increased to **$18.9 million** in fiscal 2024 from **$14.0 million** in fiscal 2023[88](index=88&type=chunk) [Human Capital](index=19&type=section&id=Human%20Capital) As of July 31, 2024, Comtech employed 1,676 people, focusing on fostering a diverse and inclusive workplace through initiatives like "Comtech University" and an expanded internship program - Total workforce was **1,676** employees as of July 31, 2024, with **345** based outside the United States[114](index=114&type=chunk) Employee Workforce Demographics | Category | 2024 | 2023 | | :--- | :--- | :--- | | Women | **24%** | **22%** | | People of Color | **39%** | **38%** | | Veterans | **12%** | **10%** | | People with Disabilities | **7%** | **5%** | - Launched "Comtech University" in fiscal 2024, an online learning management system to provide ongoing training and career development opportunities[111](index=111&type=chunk) [Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks, including substantial doubt about its ability to continue as a going concern due to operating losses and liquidity challenges, potential failure to realize strategic transformation benefits, ongoing global supply chain constraints, and cybersecurity threats - Business Risk: The company's cash and liquidity projections raise substantial doubt about its ability to continue as a going concern, stemming from operating losses over the past three fiscal years and negative cash flow from operations[141](index=141&type=chunk)[187](index=187&type=chunk)[189](index=189&type=chunk) - Strategic Transformation Risk: There is a risk that the company may fail to realize the anticipated benefits of its operational initiatives, including the strategic alternatives for its Terrestrial and Wireless Networks segment, or that these benefits may take longer to realize than expected[140](index=140&type=chunk)[181](index=181&type=chunk) - Global Risk: Ongoing challenges related to supply chain constraints and inflation, particularly for satellite and troposcatter components, could adversely impact revenue, gross margins, and financial results[137](index=137&type=chunk)[157](index=157&type=chunk) - Financial Risk: The company must service its debt and maintain compliance with various restrictive covenants under its credit facility; failure to comply could result in an event of default and acceleration of repayment obligations[147](index=147&type=chunk)[254](index=254&type=chunk)[259](index=259&type=chunk) - Cybersecurity Risk: The company could be negatively impacted by system failures, security breaches, or cyber-attacks on its IT networks or those it operates for customers, which could lead to financial penalties and reputational damage[148](index=148&type=chunk)[276](index=276&type=chunk) [Unresolved Staff Comments](index=62&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[365](index=365&type=chunk) [Properties](index=64&type=section&id=Item%202.%20Properties) The company primarily leases its facilities and does not own any material properties, with its corporate headquarters and major manufacturing in Chandler, Arizona, and other significant leased facilities globally Primary Leased Facilities (as of July 31, 2024) | Location | Property Type | Square Footage | Lease Expiration | | :--- | :--- | :--- | :--- | | Chandler, Arizona | Manufacturing, Engineering & Corporate HQ | **146,000** | July 2036 | | Orlando, Florida | Manufacturing and Engineering | **99,000** | April 2026 | | Hampshire, UK | Manufacturing and Engineering | **77,000** | November 2030 | | Santa Clara, California | Manufacturing and Engineering | **47,000** | April 2026 | | Seattle, Washington | Network Operations, R&D, Engineering & Sales | **30,000** | October 2033 | - As a result of the decision to exit the product line, the company is in discussions with landlords regarding the termination of leases for its two manufacturing facilities in Hampshire (Basingstoke), United Kingdom[379](index=379&type=chunk) [Legal Proceedings](index=66&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 13(a) of the Notes to Consolidated Financial Statements - The company is involved in legal actions that arise in the normal course of business; management believes the outcome of these matters will not have a material adverse effect on the company's financial condition or results of operations[757](index=757&type=chunk) [Mine Safety Disclosures](index=66&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[389](index=389&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=66&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the Nasdaq under "CMTL," with no equity repurchases in fiscal 2024, and a $100.0 million stock repurchase program remaining authorized - The company's common stock trades on the Nasdaq Stock Market LLC under the symbol "CMTL"[392](index=392&type=chunk) - No equity securities were repurchased during the fiscal year ended July 31, 2024; a **$100.0 million** stock repurchase program remains authorized with no time restrictions[393](index=393&type=chunk) [Reserved](index=67&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=68&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, significantly impacted by challenging business conditions, restructuring, and strategic shifts in fiscal 2024, resulting in a GAAP net loss and raising substantial doubt about its ability to continue as a going concern - Fiscal 2024 was operated under extremely difficult business conditions, including increased working capital needs, a CEO change, a prolonged contract protest, supply chain challenges, and a strained liquidity position[420](index=420&type=chunk) - The company's financial performance in FY2024 included consolidated net sales of **$540.4 million**, a GAAP net loss of **$135.4 million**, and Adjusted EBITDA of **$45.7 million**[419](index=419&type=chunk) - The company's liquidity situation and recurring losses raise substantial doubt about its ability to continue as a going concern; plans to address this include executing the transformation strategy, reducing working capital, and seeking financing opportunities[499](index=499&type=chunk)[501](index=501&type=chunk)[508](index=508&type=chunk) [Fiscal 2024 Highlights and Business Outlook for Fiscal 2025](index=72&type=section&id=Fiscal%202024%20Highlights%20and%20Business%20Outlook%20for%20Fiscal%202025) In fiscal 2024, Comtech achieved a record backlog and strong book-to-bill ratio despite operational and financial challenges, with post-year-end credit facility amendments and a new subordinated loan, while the fiscal 2025 outlook remains challenging due to ongoing transformation Fiscal 2024 Financial Highlights | Metric | Value | | :--- | :--- | | Consolidated Net Sales | **$540.4 million** | | Gross Margin | **29.1%** | | GAAP Net Loss Attributable to Common Stockholders | **$135.4 million** | | Adjusted EBITDA | **$45.7 million** | | New Bookings | **$700.6 million** | | Book-to-Bill Ratio | **1.30x** | | Year-End Backlog | **$798.9 million** | - Cash flows used in operating activities were **$54.5 million**, primarily due to a significant increase in unbilled receivables related to large, long-term contracts[419](index=419&type=chunk) - The business outlook for fiscal 2025 is challenging and unpredictable due to the transformation strategy, interest rates, inflation, and geopolitical conflicts[437](index=437&type=chunk) [Comparison of Fiscal 2024 and 2023](index=76&type=section&id=Comparison%20of%20Fiscal%202024%20and%202023) Consolidated net sales decreased by 1.7% to $540.4 million in fiscal 2024, with gross margin declining to 29.1%, and a significant operating loss of $79.9 million primarily due to a $64.5 million impairment charge Net Sales by Segment (in millions) | Segment | FY 2024 | FY 2023 | Change | | :--- | :--- | :--- | :--- | | Satellite and Space Communications | **$324.1** | **$337.8** | **-4.1%** | | Terrestrial and Wireless Networks | **$216.3** | **$212.2** | **+1.9%** | | **Consolidated Total** | **$540.4** | **$550.0** | **-1.7%** | - Gross profit decreased to **$157.2 million** (**29.1%** of sales) in FY2024 from **$184.5 million** (**33.5%** of sales) in FY2023, reflecting product mix changes and higher costs on certain engineering projects[448](index=448&type=chunk)[449](index=449&type=chunk) - A non-cash impairment charge of **$64.5 million** was recorded in the Satellite and Space Communications segment related to long-lived assets and goodwill[463](index=463&type=chunk)[466](index=466&type=chunk) Adjusted EBITDA by Segment (in millions) | Segment | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Satellite and Space Communications | **$29.8** | **$37.0** | | Terrestrial and Wireless Networks | **$44.7** | **$35.3** | | Unallocated | (**$28.7**) | (**$18.8**) | | **Consolidated Total** | **$45.7** | **$53.5** | [Liquidity and Capital Resources](index=85&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity position is under significant pressure with recurring operating losses and negative cash flow, raising substantial doubt about its ability to continue as a going concern, addressed by a new credit facility and subordinated loan - The company's financial condition raises substantial doubt about its ability to continue as a going concern due to recurring operating losses and negative cash flows[499](index=499&type=chunk)[501](index=501&type=chunk)[509](index=509&type=chunk) - Net cash used in operating activities was **$54.5 million** in fiscal 2024, a significant increase from **$4.4 million** used in fiscal 2023, primarily due to an increase in unbilled receivables[493](index=493&type=chunk) - In June 2024, the company entered a new **$222.0 million** credit facility; in October 2024, this facility was amended to waive defaults, and the company also entered into a new **$25.0 million** subordinated credit agreement to bolster liquidity[496](index=496&type=chunk)[498](index=498&type=chunk)[504](index=504&type=chunk) Contractual Cash Obligations (as of July 31, 2024) | Obligation (in thousands) | Total | Due Within 1 Year | | :--- | :--- | :--- | | Credit Facility - principal | **$194,163** | **$4,050** | | Credit Facility - interest | **$92,800** | **$28,985** | | Operating lease obligations | **$43,690** | **$8,263** | | **Total** | **$330,653** | **$41,298** | [Quantitative and Qualitative Disclosures About Market Risk](index=90&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations on its variable-rate Credit Facility, where a hypothetical 10% change would impact annual interest expense by approximately $2.7 million - The company's earnings and cash flows are subject to fluctuations from changes in interest rates on its Credit Facility borrowings[532](index=532&type=chunk) - A hypothetical **10%** change in interest rates would change annual interest expense by approximately **$2.7 million**[532](index=532&type=chunk) [Financial Statements and Supplementary Data](index=90&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates by reference the company's Reports of Independent Registered Public Accounting Firm, Consolidated Financial Statements, and Notes to Consolidated Financial Statements - The company's financial statements and related schedules are annexed to the report[534](index=534&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=91&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[535](index=535&type=chunk) [Controls and Procedures](index=91&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that as of July 31, 2024, the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting, stemming from insufficient resources and ineffective control activities, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of July 31, 2024[536](index=536&type=chunk) - Material weaknesses were identified in the control environment and in control activities related to revenue, inventory, and other assets, due to a lack of sufficient resources with appropriate knowledge and experience[542](index=542&type=chunk) - A remediation plan is ongoing, which includes hiring additional skilled resources in program management, accounting, and finance[544](index=544&type=chunk) [Other Information](index=92&type=section&id=Item%209B.%20Other%20Information) During the three months ended July 31, 2024, none of the company's directors or officers adopted or terminated a Rule 10b5-1 trading plan or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements in the fourth quarter of fiscal 2024[545](index=545&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=93&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information required for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders [Executive Compensation](index=93&type=section&id=Item%2011.%20Executive%20Compensation) Information required for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=93&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders [Certain Relationships and Related Transactions, and Director Independence](index=93&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders [Principal Accounting Fees and Services](index=93&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information required for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders PART IV [Exhibits, Financial Statement Schedules](index=94&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report, including corporate governance documents, material contracts, compensation plans, and certifications [Form 10-K Summary](index=97&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is noted as "None," indicating no summary is provided in this section of the report

Core Insights - The article compares Comtech Telecommunications (CMTL) and Qualcomm (QCOM) to determine which stock offers better value for investors [1] Valuation Metrics - CMTL has a forward P/E ratio of 7.75, while QCOM has a forward P/E of 15.93 [5] - CMTL's PEG ratio is 0.97, indicating a favorable valuation relative to its expected earnings growth, compared to QCOM's PEG ratio of 1.40 [5] - CMTL's P/B ratio is 0.30, significantly lower than QCOM's P/B ratio of 7.86, suggesting CMTL is undervalued relative to its book value [6] Zacks Rank and Earnings Outlook - CMTL has a Zacks Rank of 2 (Buy), indicating a positive earnings estimate revision trend, while QCOM has a Zacks Rank of 3 (Hold) [3] - The improving earnings outlook for CMTL is a positive indicator for value investors [3] Overall Conclusion - CMTL exhibits stronger estimate revision activity and more attractive valuation metrics than QCOM, making it a superior option for value investors at this time [7]

Core Viewpoint - Momentum investing focuses on "buying high and selling higher," contrasting with traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investing can be risky as stocks may lose momentum if their valuations exceed future growth potential [1] - A safer approach involves investing in bargain stocks that exhibit recent price momentum, identified through the Zacks Momentum Style Score [2] Group 2: Comtech Telecommunications (CMTL) Analysis - CMTL has shown a price increase of 30.3% over the past four weeks, indicating growing investor interest [3] - The stock gained 35.7% over the past 12 weeks, demonstrating its ability to deliver positive returns over a longer timeframe [4] - CMTL has a beta of 1.59, suggesting it moves 59% more than the market in either direction, indicating fast-paced momentum [4] - CMTL has a Momentum Score of B, suggesting it is an opportune time to invest in the stock [5] - The stock has a Zacks Rank 2 (Buy) due to upward revisions in earnings estimates, which attract more investors [6] - CMTL is trading at a Price-to-Sales ratio of 0.22, indicating it is relatively cheap at 22 cents for each dollar of sales [6] Group 3: Additional Investment Opportunities - Besides CMTL, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, presenting further investment opportunities [7] - Investors can explore over 45 Zacks Premium Screens tailored to different investing styles to identify potential winning stocks [8]

Core Message - Ken Peterman, former CEO and Chairman of Comtech Telecommunications Corp, endorses a complete board overhaul to restore stockholder value [1] - Peterman is the third former CEO of Comtech to call for a fully reconstituted Board of Directors [2] Board and Leadership Changes - Peterman's endorsement follows an open letter by Fred Kornberg and Michael Porcelain detailing the urgent need for board and leadership changes [2] - The current Board's actions have disrupted progress, driven away executives, impacted customer relations, and impeded stockholder value [4] - The June 2024 financing deal had a blended interest rate of 14.0%, with an effective interest rate exceeding 18.0% due to warrants issued to lenders [4] Strategic Initiatives - Peterman was a driving force behind the One Comtech initiative, aimed at unifying businesses, cutting operating costs, and driving efficiencies [3] - The One Comtech strategy was built on the foundation laid by Fred Kornberg and Mike Porcelain, focusing on acquisitions and operational excellence [4] Operational and Strategic Expertise - Mike Porcelain was instrumental in expanding Next-Generation 911 and satellite earth station product lines, and overseeing acquisitions like Solacom Technologies Inc and UHP Networks [4] - Fred Kornberg's tenure as CEO transformed Comtech from less than $20 million in revenue to a global leader with over 2,000 employees [5] Shareholder Perspective - Peterman, as a large stockholder, emphasizes the need for a Board with deep operational expertise and a proven track record of delivering long-term stockholder value [6] - His endorsement is independent and based on his assessment of what is best for Comtech's stockholders, customers, and employees [6] Background on Ken Peterman - Ken Peterman is the Founder and CEO of TheSpyGlass Group, specializing in defense and aerospace market trends [7] - He served as President and CEO of Comtech from August 2022 and was previously President of Viasat Government Systems from 2013 to 2021 [7]

Core Viewpoint - Significant stockholders and former CEOs of Comtech Telecommunications Corp. advocate for an independent evaluation of strategic options for the company's 911 Public Safety business, the appointment of an external CEO and COO, and other initiatives to enhance stockholder value [1][4][22]. Group 1: Nomination of New Directors - Michael Porcelain has nominated a slate of eight highly qualified director candidates for election to the Comtech Board at the upcoming 2024 Annual Meeting of Stockholders, collectively owning approximately 7.6% of the outstanding shares [2][6]. - The nominees include experienced professionals from various sectors, such as Keith Hall, Michael Hildebrandt, Fred Kornberg, and others, each bringing relevant industry expertise [3][23]. Group 2: Recommendations for Comtech - The nominees propose critical actions for Comtech's future success, including leadership change disclosures, a thorough search for an external CEO and COO, and an evaluation of strategic options for the 911 Public Safety business [9][10][11]. - Recommendations also include assessing capital structure and financing, enhancing core business units, optimizing operational efficiency, investing in innovation, and establishing targeted profit centers [12][13][14][15][16]. Group 3: Strategic Alternatives for 911 Public Safety Business - The stockholders recommend exploring strategic alternatives for the 911 Public Safety business, suggesting that a well-executed sale process could unlock substantial stockholder value, potentially exceeding $553 million based on industry comparisons [17][18]. - They have consulted with an industry-specific investment banking firm and believe that the 911 Public Safety business is significantly larger than Rave Mobile Safety, Inc., which was sold for $553 million [18][20]. Group 4: Engagement and Communication - The stockholders express their commitment to engaging in constructive dialogue with the Board and management to collaboratively develop strategies that benefit all stockholders [22][23]. - A new website, TheFutureComtech.com, has been created to facilitate communication and provide updates on the stockholders' initiatives and SEC filings [21].

Core Insights - Comtech Telecommunications Corp. (CMTL) has launched a Digital Common Ground (DCG) portfolio of modems aimed at assisting the U.S. Department of Defense and coalition partners in transitioning to a digitized and hybrid satellite network architecture [1] Group 1: Product Features and Market Position - The DCG product line is built on Comtech's advanced satellite communications modem portfolio, designed to serve both commercial and government markets on a unified platform with an open-standard and flexible architecture [2] - The product line offers multi-gigabit throughput, which is expected to minimize overall lifecycle costs for customers while delivering industry-leading performance and efficiency [3] - Modern cybersecurity design principles have been integrated at every level of the product line, ensuring secured over-the-air communication and compliance with Federal Information Protection Standards 140-3 Level 2 certification [4] Group 2: Market Impact and Financial Outlook - The DCG portfolio is one of the first to provide robust access to multi-orbit capabilities across commercial and purpose-built networks, compliant with Digital Intermediate Frequency Interoperability standards [5] - This launch is expected to generate incremental demand for Comtech's products and services, potentially leading to higher revenues and improved financial performance, which may positively impact the stock price [5] - Over the past year, CMTL's shares have decreased by 61.8%, contrasting with the industry's growth of 40.5% [6]

Core Viewpoint - Comtech Telecommunications Corp. is facing significant financial uncertainty due to delays in filing quarterly financial statements and ongoing refinancing efforts, raising concerns about its financial health and future prospects [2][3][10]. Financial Delays and Concerns - Comtech announced a delay in filing its quarterly financial statements on June 10, 2024, attributing this to refinancing efforts and reporting requirements related to goodwill and "going concern" considerations [3]. - The company expects to file within a five-week grace period allowed by the SEC, but the delay has heightened concerns regarding its financial stability [3]. - The situation has been exacerbated by the company's use of "unbilled receivables," which has been viewed as an aggressive accounting practice, contributing to a significant stock price decline in December 2023 [4]. Leadership and Strategic Issues - The company has experienced turmoil, including the firing of former CEO Ken Peterman in March 2024, which coincided with another delay in filing quarterly financial statements [10]. - Under Peterman's leadership, the "One Comtech" strategy initially led to revenue growth, but subsequent earnings reports raised "going concern" flags and revealed a depleted credit line nearing expiration [7]. Legal Investigations and Investor Actions - Hagens Berman is conducting an investigation into potential securities violations related to Comtech, emphasizing the importance of protecting investors who may have been misled [8]. - Investors who have suffered substantial losses are encouraged to take action and submit their losses to assist in the ongoing investigation [5][8].

Group 1: Company Initiatives - Comtech is actively deploying Next Generation 9-1-1 (NG9-1-1) systems across Canada, collaborating with leading ESInet providers like SaskTel, Bell, and Telus to build critical infrastructure [1][6] - The company recently completed a local NG9-1-1 PSAP migration in Ontario, highlighting its expanding presence in the public safety technology sector [1] - In October 2023, Comtech implemented its NG9-1-1 solution in Strathcona County, Alberta, marking it as the first public safety answering point in Canada to adopt this advanced technology [2] Group 2: Technological Advancements - The NG9-1-1 solution represents a significant improvement over traditional 9-1-1 services, supporting various communication formats including text, video, and data, in addition to voice calls [7] - The use of IP-based networks enhances the robustness and resilience of the system, minimizing disruptions and improving location accuracy for emergency responses [7] Group 3: Market Position and Future Outlook - Comtech is committed to nationwide deployment of NG9-1-1 services, with the recent venture in Saskatchewan setting a precedent for other regions [8] - The company is focusing on expanding its portfolio of NG9-1-1 call routing and handling solutions, which is expected to contribute positively to its long-term growth [8] - Despite challenges, shares of Comtech have seen a significant decline of 62.5% over the past year, contrasting with the industry's growth of 39.6% [12]