
PART I Business 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)1121 - 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 structure1971 - 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 million1316 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 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 components26 - 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) compliant2930 - 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 systems394041 - 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 SES4344 Terrestrial and Wireless Networks Segment 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 solutions47 - 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 solutions15 - The company is exploring strategic alternatives for this segment as part of its strategy to become a pure-play satellite and space communications company46 - Key customers include U.S. state and local governments (e.g., Massachusetts, Pennsylvania, Washington) and major telecommunications companies like AT&T, T-Mobile, and Verizon64 Strategic Transformation 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 company71 - 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 million70 - 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 capital71 Sales, Marketing and Customer Support 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 sales79 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 customers82 Research and Development 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 202388 Human Capital 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 States114 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 opportunities111 Risk Factors 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 operations141187189 - 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 expected140181 - 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 results137157 - 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 obligations147254259 - 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 damage148276 Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None365 Properties 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 Kingdom379 Legal Proceedings 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 operations757 Mine Safety Disclosures This item is not applicable to the company - Not applicable389 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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 - 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 restrictions393 Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations 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 position420 - 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 million419 - 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 opportunities499501508 Fiscal 2024 Highlights and Business Outlook for Fiscal 2025 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 contracts419 - The business outlook for fiscal 2025 is challenging and unpredictable due to the transformation strategy, interest rates, inflation, and geopolitical conflicts437 Comparison of Fiscal 2024 and 2023 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 projects448449 - A non-cash impairment charge of $64.5 million was recorded in the Satellite and Space Communications segment related to long-lived assets and goodwill463466 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 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 flows499501509 - 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 receivables493 - 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 liquidity496498504 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 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 borrowings532 - A hypothetical 10% change in interest rates would change annual interest expense by approximately $2.7 million532 Financial Statements and Supplementary Data 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 report534 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None535 Controls and Procedures 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, 2024536 - 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 experience542 - A remediation plan is ongoing, which includes hiring additional skilled resources in program management, accounting, and finance544 Other Information 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 2024545 PART III Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders Executive Compensation 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 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 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 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 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 This item is noted as "None," indicating no summary is provided in this section of the report