Comtech Telecommunications Corp 10-Q for FY2022 Q1

Comtech Telecommunications Corp (CMTL)

10-Q 2021-12-09 For: 2021-10-31

Added on April 06, 2026

About this 10-Q

Comtech Telecommunications Corp filed this 10-Q on December 9, 2021, covering the quarter ended October 31, 2021 (FY2022 Q1).

Headline figures

Quarter ended October 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $116.76M; down 13.7% from $135.22M a year earlier
Net loss: $5.98M; compared with a net loss of $85.84M a year earlier
Diluted EPS: -$0.43; compared with -$3.39 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 - October 31, 2021 and July 31, 2021 (Unaudited)	2

		Condensed Consolidated Statements of Operations - Three Months Ended October 31, 2021 and 2020 (Unaudited)	3

		Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity - Three Months Ended October 31, 2021 and 2020 (Unaudited)	4

		Condensed Consolidated Statements of Cash Flows - Three Months Ended October 31, 2021 and 2020 (Unaudited)	5

		Notes to Condensed Consolidated Financial Statements (Unaudited)	7

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

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55

	Item 4.	Controls and Procedures	55

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	October 31, 2021		July 31, 2021
Current assets:
Cash and cash equivalents	$	30,917,000	30,861,000
Accounts receivable, net	136,822,000		158,110,000
Inventories, net	87,696,000		80,358,000
Prepaid expenses and other current assets	18,532,000		18,167,000
Total current assets	273,967,000		287,496,000
Property, plant and equipment, net	38,569,000		35,286,000
Operating lease right-of-use assets, net	48,656,000		44,486,000

Goodwill	347,692,000		347,698,000
Intangibles with finite lives, net	263,350,000		268,699,000
Deferred financing costs, net	1,622,000		1,824,000
Other assets, net	9,133,000		7,622,000
Total assets	$	982,989,000	993,111,000
Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable	$	34,441,000	36,193,000
Accrued expenses and other current liabilities	87,989,000		89,601,000
Operating lease liabilities, current	9,214,000		8,841,000
Dividends payable	2,629,000		2,601,000
Contract liabilities	62,607,000		66,130,000
Interest payable	128,000		195,000
Total current liabilities	197,008,000		203,561,000
Non-current portion of long-term debt	108,000,000		201,000,000
Operating lease liabilities, non-current	43,720,000		39,569,000
Income taxes payable	3,105,000		2,717,000
Deferred tax liability, net	21,263,000		21,230,000
Long-term contract liabilities	9,828,000		9,808,000
Other liabilities	14,036,000		14,507,000
Total liabilities	396,960,000		492,392,000
Commitments and contingencies (See Note 19)
Convertible preferred stock, par value $0.10 per share; authorized 125,000 shares; issued 100,000 at October 31, 2021 (includes accrued dividends of $235,000)	100,235,000		—
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 41,380,241 and 41,281,812 shares at October 31, 2021 and July 31, 2021, respectively	4,138,000		4,128,000
Additional paid-in capital	604,452,000		605,439,000
Retained earnings	319,053,000		333,001,000
	927,643,000		942,568,000
Less:
Treasury stock, at cost (15,033,317 shares at October 31, 2021 and July 31, 2021)	(441,849,000)		(441,849,000)
Total stockholders’ equity	485,794,000		500,719,000
Total liabilities, convertible preferred stock and stockholders’ equity	$	982,989,000	993,111,000


	Three months ended October 31,

		2021		2020
Net sales		$	116,759,000	135,218,000
Cost of sales		75,024,000		85,010,000
Gross profit		41,735,000		50,208,000

Expenses:
Selling, general and administrative		28,242,000		27,540,000
Research and development		12,497,000		11,635,000
Amortization of intangibles		5,349,000		5,566,000
Proxy solicitation costs		2,162,000		—
Acquisition plan expenses		—		91,183,000
		48,250,000		135,924,000

Operating loss		(6,515,000)		(85,716,000)

Other expenses (income):
Interest expense		1,607,000		2,297,000
Interest (income) and other		219,000		66,000
Change in fair value of convertible preferred stock purchase option liability		(304,000)		—

Loss before benefit from income taxes		(8,037,000)		(88,079,000)
Benefit from income taxes		(2,053,000)		(2,239,000)


Net loss		$	(5,984,000)	(85,840,000)

Adjustments to reflect redemption value of convertible preferred stock:
Convertible preferred stock issuance costs		(4,007,000)		—
Establishment of initial convertible preferred stock purchase option liability		(1,005,000)		—
Dividend on convertible preferred stock		(235,000)		—
Net loss attributable to common stockholders		$	(11,231,000)	(85,840,000)

Net loss per common share (See Note 6):
Basic		$	(0.43)	(3.39)
Diluted		$	(0.43)	(3.39)

Weighted average number of common shares outstanding – basic		26,426,000		25,305,000

Weighted average number of common and common equivalent shares outstanding – diluted		26,426,000		25,305,000


	Three months ended October 31, 2021 and 2020
	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, 2020	—	$	—	39,924,439	$	3,992,000	$	569,891,000	$	417,265,000	15,033,317	$	(441,849,000)	$	549,299,000
Equity-classified stock award compensation	—	—		—	—		699,000		—		—	—		699,000

Proceeds from issuance of employee stock purchase plan shares	—	—		15,265	1,000		181,000		—		—	—		182,000
Issuance of restricted stock	—	—		35,975	4,000		(4,000)		—		—	—		—
Net settlement of stock-based awards	—	—		68,074	7,000		(1,345,000)		—		—	—		(1,338,000)

Cash dividends declared, net ($0.10 per share)	—	—		—	—		—		(2,493,000)		—	—		(2,493,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—	—		—		(142,000)		—	—		(142,000)
Adoption of current expected credit loss standard	—	—		—	—		—		(215,000)		—	—		(215,000)
Net loss	—	—		—	—		—		(85,840,000)		—	—		(85,840,000)
Balance as of October 31, 2020	—	$	—	40,043,753	$	4,004,000	$	569,422,000	$	328,575,000	15,033,317	$	(441,849,000)	$	460,152,000

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	—	—		—	—		921,000		—		—	—		921,000
Proceeds from issuance of employee stock purchase plan shares	—	—		10,540	1,000		228,000		—		—	—		229,000
Issuance of restricted stock	—	—		13,428	1,000		(1,000)		—		—	—		—
Net settlement of stock-based awards	—	—		74,461	8,000		(2,135,000)		—		—	—		(2,127,000)

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)	—	5,247,000		—	—		—		(5,247,000)		—	—		(5,247,000)

Cash dividends declared, net ($0.10 per share)	—	—		—	—		—		(2,629,000)		—	—		(2,629,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—	—		—		(88,000)		—	—		(88,000)

Net loss	—	—		—	—		—		(5,984,000)		—	—		(5,984,000)
Balance as of October 31, 2021	100,000	$	100,235,000	41,380,241	$	4,138,000	$	604,452,000	$	319,053,000	15,033,317	$	(441,849,000)	$	485,794,000


☒			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)


	Purchase Price Allocation (1)		Measurement Period Adjustments	Purchase Price Allocation (As adjusted)
Initial upfront payment	$	23,979,000	—	$	23,979,000
Hold-back amount	4,991,000		—	4,991,000
Contingent earn-out consideration	8,500,000		—	8,500,000
Preliminary purchase price at fair value	$	37,470,000	—	$	37,470,000
Preliminary allocation of aggregate purchase price:
Cash and cash equivalents	$	1,391,000	—	$	1,391,000
Current assets	1,358,000		9,000	1,367,000
Property, plant and equipment	10,000		—	10,000
Deferred tax assets	313,000		(3,000)	310,000
Contract liabilities	(648,000)		—	(648,000)
Accrued warranty obligations	(750,000)		—	(750,000)
Other current liabilities	(1,175,000)		—	(1,175,000)
Non-current liabilities	(160,000)		—	(160,000)
Net tangible assets at preliminary fair value	$	339,000	6,000	$	345,000
Identifiable intangibles, deferred taxes and goodwill:						Estimated Useful Lives
Technology	$	15,300,000	—	$	15,300,000	15 years
Customer relationships	15,500,000		—	15,500,000		15 years
Trade name	800,000		—	800,000		20 years
Deferred tax liabilities	(8,374,000)		—	(8,374,000)
Goodwill	13,905,000		(6,000)	13,899,000		Indefinite
Preliminary allocation of aggregate purchase price	$	37,470,000	—	$	37,470,000


	Three months ended October 31, 2021
		Commercial Solutions		Government Solutions	Total
Geographical region and customer type
U.S. government		$	11,034,000	24,135,000	$	35,169,000
Domestic		51,220,000		5,335,000	56,555,000
Total United States		62,254,000		29,470,000	91,724,000

International		16,680,000		8,355,000	25,035,000
Total		$	78,934,000	37,825,000	$	116,759,000
Contract type
Firm fixed-price		$	78,720,000	30,382,000	$	109,102,000
Cost reimbursable		214,000		7,443,000	7,657,000
Total		$	78,934,000	37,825,000	$	116,759,000
Transfer of control
Point in time		$	24,200,000	16,563,000	$	40,763,000
Over time		54,734,000		21,262,000	75,996,000
Total		$	78,934,000	37,825,000	$	116,759,000


	Three months ended October 31, 2020
		Commercial Solutions		Government Solutions	Total
Geographical region and customer type
U.S. government		$	9,458,000	34,432,000	$	43,890,000
Domestic		49,300,000		7,414,000	56,714,000
Total United States		58,758,000		41,846,000	100,604,000

International		23,044,000		11,570,000	34,614,000
Total		$	81,802,000	53,416,000	$	135,218,000
Contract type
Firm fixed-price		$	80,988,000	32,656,000	$	113,644,000
Cost reimbursable		814,000		20,760,000	21,574,000
Total		$	81,802,000	53,416,000	$	135,218,000
Transfer of control
Point in time		$	29,671,000	23,031,000	$	52,702,000
Over time		52,131,000		30,385,000	82,516,000
Total		$	81,802,000	53,416,000	$	135,218,000


	October 31, 2021		July 31, 2021
Receivables from commercial and international customers	$	72,311,000	86,890,000
Unbilled receivables from commercial and international customers	34,210,000		36,131,000
Receivables from the U.S. government and its agencies	28,758,000		33,381,000
Unbilled receivables from the U.S. government and its agencies	3,010,000		3,356,000
Total accounts receivable	138,289,000		159,758,000
Less allowance for doubtful accounts	1,467,000		1,648,000
Accounts receivable, net	$	136,822,000	158,110,000


	October 31, 2021		July 31, 2021
Raw materials and components	$	67,151,000	62,249,000
Work-in-process and finished goods	41,606,000		38,338,000
Total inventories	108,757,000		100,587,000
Less reserve for excess and obsolete inventories	21,061,000		20,229,000
Inventories, net	$	87,696,000	80,358,000


	October 31, 2021		July 31, 2021
Accrued wages and benefits	$	23,599,000	26,367,000
Accrued warranty obligations	16,889,000		17,600,000
Accrued contract costs	13,682,000		12,750,000
Accrued acquisition-related costs	8,969,000		9,222,000
Accrued commissions and royalties	4,589,000		5,342,000
Accrued legal costs	2,596,000		2,854,000
Other	17,665,000		15,466,000
Accrued expenses and other current liabilities	$	87,989,000	89,601,000


	Operating		Finance	Total
Remainder of fiscal 2022	$	8,336,000	12,000	$	8,348,000
Fiscal 2023	8,709,000		5,000	8,714,000
Fiscal 2024	7,353,000		—	7,353,000
Fiscal 2025	6,832,000		—	6,832,000
Fiscal 2026	5,392,000		—	5,392,000
Thereafter	24,929,000		—	24,929,000
Total future undiscounted cash flows	61,551,000		17,000	61,568,000
Less: Present value discount	8,617,000		3,000	8,620,000
Lease liabilities	$	52,934,000	14,000	$	52,948,000

Weighted-average remaining lease terms (in years)	8.95		1.12
Weighted-average discount rate	3.45%		6.57%


FORM			10-Q


			October 31, 2021
Stock options			1,015,965
Performance shares			261,330
RSUs and restricted stock			566,270
Share units			237,741

Total			2,081,306


	Awards (in Shares)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2021	1,073,435	$	25.76

Expired/canceled	(56,250)	27.59
Exercised	(1,220)	17.88







Outstanding at October 31, 2021	1,015,965	$	25.66	4.19	$	1,087,000

Exercisable at October 31, 2021	780,525	$	28.01	2.87	$	218,000

Vested and expected to vest at October 31, 2021	1,003,360	$	25.76	4.13	$	1,041,000


	Awards (in Shares)	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at July 31, 2021	1,068,370	$	21.93
Granted	228,161	26.81
Settled	(190,310)	23.97
Canceled/Forfeited	(40,880)	23.15








Outstanding at October 31, 2021	1,065,341	$	22.56	$	22,979,000

Vested at October 31, 2021	353,816	$	21.94	$	7,632,000

Vested and expected to vest at October 31, 2021	1,015,655	$	22.54	$	21,908,000


	October 31, 2021
	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
Customer relationships	20.2	$	302,058,000	96,786,000	$	205,272,000
Technologies	14.8	114,949,000		72,143,000	42,806,000
Trademarks and other	16.7	32,926,000		17,654,000	15,272,000
Total		$	449,933,000	186,583,000	$	263,350,000


2022	$	21,685,000
2023	21,781,000
2024	21,154,000
2025	21,041,000
2026	19,888,000


($ in millions)	Fiscal Year 2021
Reconciliation of GAAP Net Loss to Adjusted EBITDA:
Net loss	$	(73.5)
Benefit from income taxes	(1.5)
Interest (income) and other	(0.1)
Interest expense	6.8
Amortization of stock-based compensation	10.0
Amortization of intangibles	21.0
Depreciation	9.4
Acquisition plan expenses	100.3
Restructuring costs	2.8
COVID-19 related costs	1.0
Strategic emerging technology costs	0.3
Adjusted EBITDA	$	76.5


	Three months ended October 31, 2021
($ in millions, except for per share amount)	Operating Loss		Net Loss Attributable to Common Stockholders		Net Loss per Diluted Common Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported	$	(6.5)	$	(11.2)	$	(0.43)
Adjustments to reflect redemption value of convertible preferred stock		—		5.2		0.20
Proxy solicitation costs		2.2		1.6		0.06

Restructuring costs		0.7		0.5		0.02
COVID-19 related costs		0.7		0.5		0.02
Change in fair value of convertible preferred stock purchase option liability		—		(0.3)		(0.01)


Net discrete tax benefit		—		(0.4)		(0.01)
Non-GAAP measures	$	(3.0)	$	(4.0)	$	(0.15)

	Three months ended October 31, 2020
($ in millions, except for per share amount)	Operating (Loss) Income		Net (Loss) Income		Net (Loss) Income per Diluted Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported	$	(85.7)	$	(85.8)	$	(3.39)
Acquisition plan expenses		91.2		88.3		3.49
Interest expense		—		1.0		0.04
Net discrete tax expense		—		0.2		0.01
Non-GAAP measures	$	5.5	$	3.7	$	0.15


	Obligations Due by Fiscal Years or Maturity Date (in thousands)
	Total		Remainder of 2022	2023 and 2024	2025 and 2026	After 2026
Credit Facility - principal payments	$	108,000	—	108,000	—	—
Credit Facility - interest payments	6,309		2,378	3,931	—	—
Operating and finance lease obligations	61,568		8,348	16,067	12,224	24,929
Contractual cash obligations	$	175,877	10,726	127,998	12,224	24,929



Date:	December 9, 2021	By: /s/ Fred Kornberg
	(Date)	Fred Kornberg
		Chairman of the Board and
		Chief Executive Officer
		(Principal Executive Officer)

Date:	December 9, 2021	By: /s/ Michael A. Bondi
	(Date)	Michael A. Bondi
		Chief Financial Officer
		(Principal Financial and Accounting Officer)


			/s/ Fred Kornberg
			Fred Kornberg Chairman of the Board and Chief Executive Officer


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