Comtech Telecommunications Corp 10-Q for FY2023 Q3

Comtech Telecommunications Corp (CMTL)

10-Q 2023-06-08 For: 2023-04-30

Added on April 06, 2026

About this 10-Q

Comtech Telecommunications Corp filed this 10-Q on June 8, 2023, covering the quarter ended April 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended April 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $136.32M; up 11.6% from $122.12M a year earlier
Net loss: $7.46M; compared with a net loss of $25K a year earlier
Diluted EPS: -$0.33; compared with -$0.06 a year earlier

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Delaware						11-2139466
(State or other jurisdiction of incorporation /organization)						(I.R.S. Employer Identification Number)
68 South Service Road, Suite 230, Melville, NY						11747
(Address of principal executive offices)						(Zip Code)


COMTECH TELECOMMUNICATIONS CORP. INDEX
			Page
PART I. FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements	2

		Condensed Consolidated Balance Sheets - April 30 , 2023 and July 31, 2022 (Unaudited)	2

		Condensed Consolidated Statements of Operations - Three and Nine Months Ended April 30, 2023 and 2022 (Unaudited)	3

		Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity - Three and Nine Months Ended April 30, 2023 and 2022 (Unaudited)	4

		Condensed Consolidated Statements of Cash Flows - Nine Months Ended April 30, 2023 and 2022 (Unaudited)	6

		Notes to Condensed Consolidated Financial Statements (Unaudited)	8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

	Item 4.	Controls and Procedures	54

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	55

	Item 1A.	Risk Factors	55

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

	Item 4.	Mine Safety Disclosures	55

	Item 6.	Exhibits	56

		Signature Page	57


Assets	April 30, 2023		July 31, 2022
Current assets:
Cash and cash equivalents	$	21,404,000	21,654,000
Accounts receivable, net	144,195,000		123,711,000
Inventories, net	107,311,000		96,317,000
Prepaid expenses and other current assets	17,924,000		21,649,000
Total current assets	290,834,000		263,331,000
Property, plant and equipment, net	53,806,000		50,363,000
Operating lease right-of-use assets, net	45,654,000		49,767,000

Goodwill	347,692,000		347,692,000
Intangibles with finite lives, net	231,256,000		247,303,000
Deferred financing costs, net	2,819,000		1,014,000
Other assets, net	17,798,000		14,827,000
Total assets	$	989,859,000	974,297,000
Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable	$	62,776,000	44,591,000
Accrued expenses and other current liabilities	64,944,000		72,662,000
Current portion of long-term debt	3,750,000		—
Operating lease liabilities, current	8,359,000		8,685,000
Dividends payable	—		2,746,000
Contract liabilities	67,725,000		64,601,000
Interest payable	1,208,000		172,000
Total current liabilities	208,762,000		193,457,000
Non-current portion of long-term debt	155,254,000		130,000,000
Operating lease liabilities, non-current	43,070,000		44,423,000
Income taxes payable	2,069,000		3,007,000
Deferred tax liability, net	10,627,000		15,355,000
Long-term contract liabilities	15,472,000		9,975,000
Other liabilities	3,334,000		6,291,000
Total liabilities	438,588,000		402,508,000
Commitments and contingencies (See Note 18)
Convertible preferred stock, par value $0.10 per share; authorized 125,000 shares; issued 100,000 at April 30, 2023 and July 31, 2022 (includes accrued dividends of $595,000 and $566,000, respectively)	110,417,000		105,204,000
Stockholders’ equity:
Preferred stock, par value $0.10 per share; authorized and unissued 1,875,000 shares	—		—
Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 42,922,265 and 42,672,827 shares at April 30, 2023 and July 31, 2022, respectively	4,292,000		4,267,000
Additional paid-in capital	634,191,000		625,484,000
Retained earnings	244,220,000		278,683,000
	882,703,000		908,434,000
Less:
Treasury stock, at cost (15,033,317 shares at April 30, 2023 and July 31, 2022)	(441,849,000)		(441,849,000)
Total stockholders’ equity	440,854,000		466,585,000
Total liabilities, convertible preferred stock and stockholders’ equity	$	989,859,000	974,297,000


	Three months ended April 30,			Nine months ended April 30,
	2023		2022	2023		2022
Net sales	$	136,316,000	122,116,000	$	401,180,000	359,256,000
Cost of sales	93,170,000		75,452,000	265,307,000		224,999,000
Gross profit	43,146,000		46,664,000	135,873,000		134,257,000

Expenses:
Selling, general and administrative	31,397,000		27,626,000	89,649,000		85,695,000
Research and development	11,676,000		14,255,000	36,868,000		39,384,000
Amortization of intangibles	5,349,000		5,349,000	16,047,000		16,047,000
CEO transition costs	—		—	9,090,000		13,554,000
Proxy solicitation costs	—		—	—		11,248,000

	48,422,000		47,230,000	151,654,000		165,928,000

Operating loss	(5,276,000)		(566,000)	(15,781,000)		(31,671,000)

Other expenses (income):
Interest expense	4,386,000		981,000	10,412,000		3,576,000
Interest (income) and other	728,000		(449,000)	928,000		(260,000)
Change in fair value of convertible preferred stock purchase option liability	—		(302,000)	—		(1,004,000)

Loss before benefit from income taxes	(10,390,000)		(796,000)	(27,121,000)		(33,983,000)
Benefit from income taxes	(2,932,000)		(771,000)	(3,762,000)		(6,100,000)


Net loss	$	(7,458,000)	(25,000)	$	(23,359,000)	(27,883,000)

Adjustments to reflect redemption value of convertible preferred stock:
Dividend on convertible preferred stock	(1,766,000)		(1,655,000)	(5,213,000)		(3,522,000)
Convertible preferred stock issuance costs	—		—	—		(4,007,000)
Establishment of initial convertible preferred stock purchase option liability	—		—	—		(1,005,000)
Net loss attributable to common stockholders	$	(9,224,000)	(1,680,000)	$	(28,572,000)	(36,417,000)

Net loss per common share (See Note 5):
Basic	$	(0.33)	(0.06)	$	(1.02)	(1.37)
Diluted	$	(0.33)	(0.06)	$	(1.02)	(1.37)

Weighted average number of common shares outstanding – basic	28,071,000		26,528,000	27,950,000		26,582,000

Weighted average number of common and common equivalent shares outstanding – diluted	28,071,000		26,528,000	27,950,000		26,582,000


	Three months ended April 30, 2023 and 2022
	Series A Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock			Stockholders' Equity
	Shares	Amount		Shares	Amount						Shares	Amount
Balance as of January 31, 2022	100,000	$	101,867,000	41,553,244	$	4,155,000	$	612,780,000	$	292,778,000	15,033,317	$	(441,849,000)	$	467,864,000
Equity-classified stock award compensation	—	—		—	—		1,071,000		—		—	—		1,071,000

Issuance of employee stock purchase plan shares	—	—		12,131	2,000		160,000		—		—	—		162,000

Net settlement of stock-based awards	—	—		(5,014)	(1,000)		(113,000)		—		—	—		(114,000)
Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)		1,655,000		—	—		—		(1,655,000)		—	—		(1,655,000)
Cash dividends declared, net ($0.10 per share)	—	—		—	—		—		(2,646,000)		—	—		(2,646,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—	—		—		(97,000)		—	—		(97,000)
Net loss	—	—		—	—		—		(25,000)		—	—		(25,000)
Balance as of April 30, 2022	100,000	$	103,522,000	41,560,361	$	4,156,000	$	613,898,000	$	288,355,000	15,033,317	$	(441,849,000)	$	464,560,000

Balance as of January 31, 2023	100,000	$	108,651,000	42,900,871	$	4,290,000	$	630,233,000	$	253,422,000	15,033,317	$	(441,849,000)	$	446,096,000
Equity-classified stock award compensation	—	—		—	—		4,126,000		—		—	—		4,126,000

Issuance of employee stock purchase plan shares	—	—		12,146	1,000		126,000		—		—	—		127,000

Net settlement of stock-based awards	—	—		9,248	1,000		(294,000)		—		—	—		(293,000)
Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)	—	1,766,000		—	—		—		(1,766,000)		—	—		(1,766,000)

Reversal of dividend equivalents ($0.10 per share)	—	—		—	—		—		22,000		—	—		22,000
Net loss	—	—		—	—		—		(7,458,000)		—	—		(7,458,000)
Balance as of April 30, 2023	100,000	$	110,417,000	42,922,265	$	4,292,000	$	634,191,000	$	244,220,000	15,033,317	$	(441,849,000)	$	440,854,000


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


(631)			962-7000
(Registrant's telephone number, including area code)


	Nine months ended April 30, 2023 and 2022
	Series A Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock			Stockholders' Equity
	Shares	Amount		Shares	Amount						Shares	Amount
Balance as of July 31, 2021	—	$	—	41,281,812	$	4,128,000	$	605,439,000	$	333,001,000	15,033,317	$	(441,849,000)	$	500,719,000
Equity-classified stock award compensation	—	—		—	—		3,975,000		—		—	—		3,975,000

CEO transition costs related to equity-classified stock-based awards (See Note 1)	—	—		—	—		7,388,000		—		—	—		7,388,000
Issuance of employee stock purchase plan shares	—	—		33,807	4,000		612,000		—		—	—		616,000
Issuance of restricted stock, net of forfeiture	—	—		132,854	13,000		(13,000)		—		—	—		—
Net settlement of stock-based awards	—	—		111,888	11,000		(3,503,000)		—		—	—		(3,492,000)
Issuance of convertible preferred stock	100,000	100,000,000		—	—		—		—		—	—		—
Convertible preferred stock issuance costs	—	(4,007,000)		—	—		—		—		—	—		—
Establishment of initial convertible preferred stock purchase option liability	—	(1,005,000)		—	—		—		—		—	—		—
Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)	—	8,534,000		—	—		—		(8,534,000)		—	—		(8,534,000)
Cash dividends declared, net ($0.30 per share)	—	—		—	—		—		(7,915,000)		—	—		(7,915,000)
Accrual of dividend equivalents, net of reversal ($0.30 per share)	—	—		—	—		—		(314,000)		—	—		(314,000)
Net loss	—	—		—	—		—		(27,883,000)		—	—		(27,883,000)
Balance as of April 30, 2022	100,000	$	103,522,000	41,560,361	$	4,156,000	$	613,898,000	$	288,355,000	15,033,317	$	(441,849,000)	$	464,560,000

Balance as of July 31, 2022	100,000	$	105,204,000	42,672,827	$	4,267,000	$	625,484,000	$	278,683,000	15,033,317	$	(441,849,000)	$	466,585,000
Equity-classified stock award compensation	—	—		—	—		6,298,000		—		—	—		6,298,000
CEO transition costs related to equity-classified stock-based awards (See Note 1)	—	—		—	—		3,764,000		—		—	—		3,764,000
Issuance of employee stock purchase plan shares	—	—		41,606	4,000		330,000		—		—	—		334,000
Issuance of restricted stock, net of forfeiture	—	—		93,091	9,000		(9,000)		—		—	—		—
Net settlement of stock-based awards	—	—		114,741	12,000		(1,676,000)		—		—	—		(1,664,000)




Adjustment to reflect redemption value of convertible preferred stock (including accrued dividends)	—	5,213,000		—	—		—		(5,213,000)		—	—		(5,213,000)

Cash dividends declared, net ($0.20 per share)	—	—		—	—		—		(5,549,000)		—	—		(5,549,000)
Accrual of dividend equivalents, net of reversal ($0.20 per share)	—	—		—	—		—		(342,000)		—	—		(342,000)
Net loss	—	—		—	—		—		(23,359,000)		—	—		(23,359,000)
Balance as of April 30, 2023	100,000	$	110,417,000	42,922,265	$	4,292,000	$	634,191,000	$	244,220,000	15,033,317	$	(441,849,000)	$	440,854,000


	Three months ended April 30, 2023					Nine months ended April 30, 2023
	Satellite and Space Communications		Terrestrial and Wireless Networks	Total		Satellite and Space Communications		Terrestrial and Wireless Networks	Total
Geographical region and customer type
U.S. government	$	38,779,000	855,000	$	39,634,000	$	118,739,000	2,841,000	$	121,580,000
Domestic	12,146,000		47,555,000	59,701,000		41,819,000		141,542,000	183,361,000
Total United States	50,925,000		48,410,000	99,335,000		160,558,000		144,383,000	304,941,000

International	31,324,000		5,657,000	36,981,000		82,971,000		13,268,000	96,239,000
Total	$	82,249,000	54,067,000	$	136,316,000	$	243,529,000	157,651,000	$	401,180,000
Contract type
Firm fixed-price	$	68,010,000	54,067,000	$	122,077,000	$	210,343,000	157,651,000	$	367,994,000
Cost reimbursable	14,239,000		—	14,239,000		33,186,000		—	33,186,000
Total	$	82,249,000	54,067,000	$	136,316,000	$	243,529,000	157,651,000	$	401,180,000
Transfer of control
Point in time	$	30,870,000	268,000	$	31,138,000	$	152,157,000	1,994,000	$	154,151,000
Over time	51,379,000		53,799,000	105,178,000		91,372,000		155,657,000	247,029,000
Total	$	82,249,000	54,067,000	$	136,316,000	$	243,529,000	157,651,000	$	401,180,000


	Three months ended April 30, 2022					Nine months ended April 30, 2022
	Satellite and Space Communications		Terrestrial and Wireless Networks	Total		Satellite and Space Communications		Terrestrial and Wireless Networks	Total
Geographical region and customer type
U.S. government	$	27,492,000	943,000	$	28,435,000	$	92,544,000	3,611,000	$	96,155,000
Domestic	12,189,000		47,143,000	59,332,000		35,239,000		137,968,000	173,207,000
Total United States	39,681,000		48,086,000	87,767,000		127,783,000		141,579,000	269,362,000

International	29,469,000		4,880,000	34,349,000		75,107,000		14,787,000	89,894,000
Total	$	69,150,000	52,966,000	$	122,116,000	$	202,890,000	156,366,000	$	359,256,000
Contract type
Firm fixed-price	$	61,051,000	52,966,000	$	114,017,000	$	180,120,000	156,366,000	$	336,486,000
Cost reimbursable	8,099,000		—	8,099,000		22,770,000		—	22,770,000
Total	$	69,150,000	52,966,000	$	122,116,000	$	202,890,000	156,366,000	$	359,256,000
Transfer of control
Point in time	$	46,880,000	465,000	$	47,345,000	$	134,018,000	1,889,000	$	135,907,000
Over time	22,270,000		52,501,000	74,771,000		68,872,000		154,477,000	223,349,000
Total	$	69,150,000	52,966,000	$	122,116,000	$	202,890,000	156,366,000	$	359,256,000


	April 30, 2023		July 31, 2022
Receivables from commercial and international customers	$	63,924,000	59,922,000
Unbilled receivables from commercial and international customers	49,935,000		39,826,000
Receivables from the U.S. government and its agencies	20,703,000		24,776,000
Unbilled receivables from the U.S. government and its agencies	12,381,000		1,524,000
Total accounts receivable	146,943,000		126,048,000
Less allowance for doubtful accounts	2,748,000		2,337,000
Accounts receivable, net	$	144,195,000	123,711,000


	April 30, 2023		July 31, 2022
Raw materials and components	$	89,400,000	78,478,000
Work-in-process and finished goods	42,165,000		40,960,000
Total inventories	131,565,000		119,438,000
Less reserve for excess and obsolete inventories	24,254,000		23,121,000
Inventories, net	$	107,311,000	96,317,000


	April 30, 2023		July 31, 2022
Accrued wages and benefits	$	19,180,000	25,675,000
Accrued contract costs	14,255,000		15,921,000
Accrued warranty obligations	8,240,000		9,420,000

Accrued commissions and royalties	6,559,000		5,697,000
Accrued legal costs	1,107,000		2,514,000
Other	15,603,000		13,435,000
Accrued expenses and other current liabilities	$	64,944,000	72,662,000


	April 30, 2023
Term Loan	$	48,750,000
Less unamortized deferred financing costs related to Term Loan	746,000
Term Loan, net	48,004,000
Revolving Loan Facility	111,000,000
Amount outstanding under Credit Facility, net	159,004,000
Less current portion of long-term debt	3,750,000
Non-current portion of long-term debt	$	155,254,000


FORM			10-Q



Remainder of fiscal 2023	$	2,291,000
Fiscal 2024	9,271,000
Fiscal 2025	8,655,000
Fiscal 2026	7,232,000
Fiscal 2027	5,184,000
Thereafter	26,009,000
Total future undiscounted cash flows	58,642,000
Less: Present value discount	7,213,000
Lease liabilities	$	51,429,000

Weighted-average remaining lease terms (in years)	8.51
Weighted-average discount rate	3.41%


	Awards (in Shares)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2022	483,480	$	24.43

Expired/canceled	(9,460)	26.55

Outstanding at October 31, 2022	474,020	24.38

Expired/canceled	(182,400)	24.75

Outstanding at January 31, 2023	291,620	24.15

Expired/canceled	(1,300)	25.51

Outstanding at April 30, 2023	290,320	$	24.15	3.74	$	—

Exercisable at April 30, 2023	245,740	$	25.28	3.18	$	—

Vested and expected to vest at April 30, 2023	288,205	$	24.19	3.72	$	—


	Awards (in Shares)	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at July 31, 2022	1,110,750	$	19.05
Granted	785,092	11.13
Settled	(256,069)	24.55
Canceled/Forfeited	(37,805)	16.44
Outstanding at October 31, 2022	1,601,968	14.35
Granted	105,887	12.40
Settled	(16,374)	19.01
Canceled/Forfeited	(23,236)	17.98
Outstanding at January 31, 2023	1,668,245	14.13
Granted	56,402	11.38
Settled	(48,614)	14.45
Canceled/Forfeited	(31,549)	17.11
Outstanding at April 30, 2023	1,644,484	$	13.97	$	17,020,000

Vested at April 30, 2023	534,171	$	15.70	$	5,529,000

Vested and expected to vest at April 30, 2023	1,597,645	$	13.96	$	16,536,000


			April 30, 2023
Stock options			290,320
Performance shares			677,476
RSUs, restricted stock and share units			967,008


Total			1,934,804


	April 30, 2023
	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
Customer relationships	20.2	$	302,058,000	118,215,000	$	183,843,000
Technologies	14.8	114,949,000		79,453,000	35,496,000
Trademarks and other	16.7	32,926,000		21,009,000	11,917,000
Total		$	449,933,000	218,677,000	$	231,256,000


2023	$	21,460,000
2024	21,154,000
2025	21,039,000
2026	19,888,000
2027	18,534,000


($ in millions)	Fiscal Year 2022
Reconciliation of GAAP Net Loss to Adjusted EBITDA:
Net loss	$	(33.1)
Benefit from income taxes	(4.0)
Interest (income) and other	(0.7)
Change in fair value of convertible preferred stock purchase option liability	(1.0)
Interest expense	5.0
Amortization of stock-based compensation	7.8
Amortization of intangibles	21.4
Depreciation	10.3
Amortization of cost to fulfill assets	0.5
CEO transition costs	13.6
Proxy solicitation costs	11.2
Restructuring costs	6.0
COVID-19 related costs	1.1
Strategic emerging technology costs	1.2
Adjusted EBITDA	$	39.3


	Three months ended April 30, 2023
($ in millions, except for per share amount)	Operating (Loss) Income		Net (Loss) Income Attributable to Common Stockholders		Net (Loss) Income per Diluted Common Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported	$	(5.3)	$	(9.2)	$	(0.33)
Adjustments to reflect redemption value of convertible preferred stock		—		1.8		0.06
Amortization of intangibles		5.3		4.1		0.15
Amortization of stock-based compensation		4.1		3.2		0.11
Restructuring costs		4.1		3.2		0.11
Strategic emerging technology costs		1.0		0.9		0.03
Amortization of costs to fulfill assets		0.2		0.2		0.01
Net discrete tax benefit		—		(1.2)		(0.04)
Non-GAAP measures	$	9.6	$	3.0	$	0.11

	Three months ended April 30, 2022
($ in millions, except for per share amount)	Operating (Loss) Income		Net (Loss) Income Attributable to Common Stockholders		Net (Loss) Income per Diluted Common Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported	$	(0.6)	$	(1.7)	$	(0.06)
Adjustments to reflect redemption value of convertible preferred stock		—		1.7		0.06


Amortization of intangibles		5.3		4.1		0.15
Amortization of stock-based compensation		1.1		0.8		0.03
Restructuring costs		1.6		1.1		0.04
Strategic emerging technology costs		0.9		0.7		0.03
Amortization of costs to fulfill assets		0.2		0.2		0.01
COVID-19 related costs		0.1		0.1		—
Change in fair value of convertible preferred stock purchase option liability		—		(0.3)		(0.01)
Net discrete tax expense		—		0.2		0.01
Non-GAAP measures	$	8.7	$	6.9	$	0.25



	Total		Due Within 1 Year
Credit Facility - principal payments	$	159,750	3,750
Credit Facility - interest payments	21,331		14,323
Operating lease obligations	58,642		9,343
Contractual cash obligations	$	239,723	27,416



Date:	June 8, 2023	By: /s/ Ken Peterman
	(Date)	Ken Peterman
		Chairman of the Board
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	June 8, 2023	By: /s/ Michael A. Bondi
	(Date)	Michael A. Bondi
		Chief Financial Officer
		(Principal Financial and Accounting Officer)


			/s/ Ken Peterman
			Ken Peterman Chairman of the Board President and Chief Executive Officer


			/s/ Michael A. Bondi
			Michael A. Bondi Chief Financial Officer