
CEO Letter to Shareholders Strengthened Balance Sheet and Refinancing The company has successfully completed a major refinancing, securing a new credit facility that strengthens its balance sheet, consisting of a $60 million revolver and a $162 million term loan, both maturing in 2028, providing stability for operational improvements and future growth - Comtech secured a new credit facility comprising a $60 million revolver and a $162 million term loan, maturing in 2028130131 - The strengthened balance sheet is now properly aligned with near- and medium-term operating goals, allowing the company to focus on operational improvements31 Operational Priorities and Business Value The CEO's top operational priority is now accelerating the cash conversion cycle, specifically by managing down unbilled receivables, as the company emphasizes its fundamental value rooted in its mission-critical role in providing complex communication solutions for public safety (911) and satellite/space markets - The CEO has made accelerating the cash conversion cycle, particularly liquidating unbilled receivables, the top operational priority92 - Comtech plays a mission-critical role in public safety with its 911 technology and in satellite and space markets, providing essential communications infrastructure56 - Despite recent challenges, management believes in the underlying value of its business segments and their end markets, citing growing demand and emerging opportunities13513 Recent Key Developments New Business Wins Comtech has secured several significant contracts in Q3, highlighted by a major Next Generation 911 (NG911) contract with the Commonwealth of Massachusetts, alongside orders from the U.S. Army, an international military, and extensions for public safety and mobile network operator services, demonstrating continued market trust and demand - Awarded a major NG911 contract by the Commonwealth of Massachusetts with an initial five-year value over $140 million, and a potential total value over $250 million with a five-year extension102119 - Secured over $13.5 million in funded orders from the U.S. Army for VSAT equipment and over $6.0 million for cyber training solutions19 - Extended critical NG-911 services for a large Midwestern county with a potential value exceeding $10.0 million11 - Received over $5.5 million in orders from the Japan Aerospace Exploration Agency and extended SMS software services for an international mobile network operator for over $7.0 million19 Leadership Team Additions The company has strengthened its leadership team with key appointments, including Jeff Robertson as President of the Terrestrial & Wireless Networks (T&W) segment, Roly Rigual as VP of Business Development for the Satellite & Space Communications segment, and further additions in the T&W segment with a new COO and a General Manager for Safety & Security Technologies - Appointed public safety industry veteran Jeff Robertson as the new President of the Terrestrial & Wireless Networks (T&W) business segment20142 - Hired Roly Rigual as VP of Business Development in the Satellite & Space Communications segment to enhance government and defense customer relations21 - Further strengthened the T&W segment by appointing Tom Guthrie as COO and John Whitehead as General Manager of the Safety & Security Technologies (SST) unit154 Fiscal Q3 2024 Financial Results Consolidated Results For the third quarter of fiscal 2024, Comtech reported consolidated net sales of $128.1 million, a decrease of approximately 6% year-over-year, with a GAAP operating loss of $3.5 million, an improvement from the $5.3 million loss in the prior year's quarter, and Adjusted EBITDA of $11.9 million, while net bookings were $101.7 million, resulting in a book-to-bill ratio of 0.79x Consolidated Financial Highlights (Q3, $ millions) | Metric | Q3 FY2024 ($ millions) | Q3 FY2023 ($ millions) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $128.1 | $136.3 | -6.0% | | GAAP Operating Loss | ($3.5) | ($5.3) | Improvement | | Adjusted EBITDA | $11.9 | $12.5 | -4.8% | | Net Bookings | $101.7 | $185.6 | -45.2% | - The quarterly book-to-bill ratio was 0.79x, with total backlog standing at $653.4 million as of April 30, 202424 - The operating loss in Q3 2024 includes $2.5 million of CEO transition costs not present in the prior quarter107 Segment Performance The two segments showed divergent performance, with Terrestrial & Wireless Networks reporting increased net sales and significantly improved operating income and Adjusted EBITDA margins, while the Satellite & Space Communications segment experienced a decline in net sales, though its operating income and Adjusted EBITDA improved due to cost management Terrestrial & Wireless Networks The Terrestrial & Wireless Networks segment delivered strong results with net sales of $56.6 million, a 4.6% increase from Q3 2023, with operating income rising to $5.7 million and Adjusted EBITDA improving to $11.3 million, expanding the margin to 20.0%, and net bookings for the quarter at $40.7 million Terrestrial & Wireless Networks Segment Performance (Q3, $ millions) | Metric | Q3 FY2024 ($ millions) | Q3 FY2023 ($ millions) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $56.6 | $54.1 (approx) | +4.6% | | Operating Income | $5.7 | $9.2 (EBITDA) | N/A | | Adjusted EBITDA | $11.3 | $9.2 | +22.8% | | Adjusted EBITDA Margin | 20.0% | 16.9% | +310 bps | | Net Bookings | $40.7 | $74.2 | -45.1% | - The increase in segment net sales was primarily driven by higher revenue from NG-911 and call handling services108 Satellite & Space Communications The Satellite & Space Communications segment saw net sales decrease by $10.8 million compared to Q3 2023, primarily due to lower sales of troposcatter solutions and the divestiture of the PST product line, yet operating income was $2.8 million and Adjusted EBITDA increased to $7.2 million, driven by lower R&D and SG&A expenses, with net bookings at $61.0 million Satellite & Space Communications Segment Performance (Q3, $ millions) | Metric | Q3 FY2024 ($ millions) | Q3 FY2023 ($ millions) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $71.6 (approx) | $82.4 (approx) | -13.1% ($10.8) | | Operating Income | $2.8 | N/A | N/A | | Adjusted EBITDA | $7.2 | $6.4 | +12.5% | | Adjusted EBITDA Margin | 10.1% | 7.7% | +240 bps | | Net Bookings | $61.0 | $77.5 | -21.3% | - The decline in net sales reflects lower sales of troposcatter solutions, the PST Divestiture, and reduced sales of satellite terminals and equipment for the U.S. Army49 Outlook Q4 Fiscal 2024 Guidance For the fourth quarter of fiscal 2024, Comtech expects net sales and Adjusted EBITDA to be similar to the levels reported in the third quarter of fiscal 2024, as the company believes it is well-positioned for long-term opportunities with a stronger balance sheet and key leadership additions - The company expects net sales and Adjusted EBITDA for Q4 fiscal 2024 to be similar to Q3 fiscal 202411650 - Management expresses confidence in the company's position to capitalize on long-term opportunities, citing a stronger balance sheet, key team additions, and growing end markets34110 Appendix Financial Statements This section contains the unaudited condensed consolidated financial statements for the period, including the Statements of Operations and Balance Sheets, providing detailed financial data for investor review Statement of Operations (Three Months Ended Apr 30, $ thousands) | Statement of Operations (Three Months Ended Apr 30) | 2024 ($ thousands) | 2023 ($ thousands) | | :--- | :--- | :--- | | Net Sales | 128,076 | 136,316 | | Gross Profit | 38,954 | 43,146 | | Operating Loss | (3,470) | (5,276) | | Net Income (Loss) | 2,795 | (7,458) | Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP financial measures to non-GAAP measures, such as Adjusted EBITDA, explaining adjustments made for items like stock-based compensation, amortization, CEO transition costs, and restructuring costs, to offer a different perspective on the company's performance - Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, CEO transition costs, restructuring costs, and other specific items65 Reconciliation to Adjusted EBITDA (Q3, $ thousands) | Reconciliation to Adjusted EBITDA (Q3, $ thousands) | 2024 ($ thousands) | 2023 ($ thousands) | | :--- | :--- | :--- | | Net Income (Loss) | 2,795 | (7,458) | | Adjustments (Taxes, Interest, D&A, etc.) | 9,116 | 19,003 | | Adjusted EBITDA | 11,911 | 12,545 |