Comtech Announces Financial Results for the First Quarter of Fiscal 2025

Chandler, Ariz. January 13, 2025 – Comtech Telecommunications Corp. (NASDAQ: CMTL) today reported financial results for its first fiscal quarter ended October 31, 2024. In addition, Comtech separately announced today that its Board of Directors (the “Board”) has named Ken Traub as President and Chief Executive Officer, effective immediately, in addition to his current role as Chairman, and that the Board and management team are undertaking a series of prompt and decisive actions to address the company’s current challenges and build a stronger company for long-term. 

Consolidated Financial Results

• Net sales of US$ 115.8 million;
• Net bookings of US$ 127.9 million, representing a book-to-bill ratio of 1.10x;
• Gross margin of 12.5%;
• Operating loss of US$129.2 million, net loss of US$148.4 million and Adjusted EBITDA loss (a Non-GAAP measure) of US$19.4 million;
• Funded backlog of US$811.0 million; and
• Revenue visibility of approximately US$1.6 billion.

Business Highlights

• Awarded a sole source contract valued at over US$50.0 million by the U.S. Navy Information Warfare Systems Command;
• Awarded a contract renewal valued at over US$30.0 million for critical enhanced 911 call routing services for one of the largest U.S. wireless carriers;
• Awarded a large, multi-year location-based services maintenance and support contract valued at over US$19.0 million for one of the largest U.S. wireless carriers;
• Launched a new Digital Common Ground (“DCG”) portfolio of modems for U.S. government and commercial customers; and
• Subsequent to quarter end, appointed Daniel Gizinski as President of the Satellite & Space Communications (“S&S”) segment, adding deep leadership expertise in satellite communications engineering, operations and product strategy.

Traub commented, “While Comtech’s recent historical performance has been unsatisfactory, the Company has great assets, including its people, technologies, reputation, customers and relationships. Since I joined the Company as Executive Chairman about six weeks ago, I have learned a lot, which gives me confidence that we can overcome the challenges and create new opportunities to strengthen the business and drive value. We are implementing a comprehensive set of initiatives to better position Comtech for the future including improving operational discipline, streamlining operations, supporting profitable growth initiatives, undertaking a broad review of strategic alternatives and strengthening the capital structure. I am honored to expand my role as President and CEO today, and look forward to leading the Company into a stronger and brighter future.”

Consolidated Results Commentary

Consolidated net sales of US$ 115.8 million in the first fiscal quarter declined 23.8% compared to the prior year period, primarily due to the performance of the S&S segment and partially offset by growth in the Terrestrial & Wireless Networks (“T&W”) segment.

Consolidated net bookings were US$ 127.9 million in the first fiscal quarter, a decrease of 31.1% compared to the prior year period. The book-to-bill ratio in the quarter was 1.10x, as compared to 1.22x in the prior year period. This was driven by several large awards in the prior year period, including funding from the U.S. Army related to the GFSR and EDIM contracts and an order from an international customer and reseller of the Company’s troposcatter solutions.

The first fiscal quarter results also reflect Comtech’s prior decisions to divest of its high-power solid-state amplifier (“PST”) and steerable antenna (“CGC”) product lines in fiscal 2024.

Gross profit was US$ 14.5 million, or 12.5% of consolidated net sales, as compared to US$ 47.9 million, or 31.5% of consolidated net sales, in the prior year period. This was driven by a large, high-margin troposcatter sale in the prior year period; higher-than-expected costs at completion for certain nonrecurring engineering-related projects in the satellite ground infrastructure product line; and late delivery penalties related to an international MTTS troposcatter solutions order. Gross profit in the more recent period was also impacted by a non-cash charge of US$ 11.4 million related to the write-down of certain inventories in the S&S segment resulting from the Company’s review of its product portfolio, which is expected to improve the company’s profitability in future periods.

Operating loss in the first fiscal quarter was US$ 129.2 million, as compared to operating income of US$ 2.1 million for the prior year period, and net loss in the first fiscal quarter was US$ 148.4 million, as compared to US$ 1.4 million in the prior year period. This was primarily due to a non-cash goodwill impairment charge of $79.6 million in the S&S segment; US$ 17.9 million of restructuring costs (including the aforementioned inventory write down); and a non-cash charge of US$ 17.4 million to fully reserve for an unbilled receivable contract asset related to an international customer and reseller of the Company’s troposcatter solutions, among other things.

Adjusted EBITDA loss (a non-GAAP measure) was US$ 19.4 million in the first fiscal quarter, compared to Adjusted EBITDA income of US$ 18.4 million in the prior year period.

Backlog was US$ 811.0 million as of October 31, 2024, compared to US$ 798.9 million as of July 31, 2024.

Revenue visibility, measured as the sum of funded backlog and the total unfunded value of certain multi-year contracts, was approximately US$ 1.6 billion at the end of the quarter.

Satellite and Space Communications Segment Commentary

Net sales in the S&S segment were US$ 58.9 million in the first fiscal quarter, a decrease of 42.5% compared to the prior year period. This was driven by a decline in sales of troposcatter and SATCOM solutions; the impact of the PST divestiture completed in November 2023; and the impact of the CGC divestiture initiated in the fourth quarter of fiscal 2024. The decrease also reflects the impact of late delivery penalties related to an international MTTS troposcatter solutions order.

Net bookings in the S&S segment were US$ 58.4 million in the first fiscal quarter, a decrease of 57.4% compared to the prior year period. The book-to-bill ratio in the quarter was 0.99x, as compared to 1.34x in the prior year period.

Key S&S contract awards and product launches during the first fiscal quarter included:

• Securing in excess of $16.0 million of funded orders from the U.S. Army calling for the supply of VSAT equipment and related services;
• Receiving more than $8.5 million in incremental funding related to the Company’s U.S. Army EDIM contract;
• Awarded over $6.0 million in funded orders from a new international customer for certain frequency-type power amplifiers;
• Awarded a production order, valued in excess of US$ 5.0 million, by an existing customer deploying a new LEO constellation (deliveries are anticipated to begin in the mid-2025 timeframe);
• Awarded a sole source contract, valued in excess of US$ 50.0 million, by the U.S. Navy Information Warfare Systems Command (the contract has a four-year period of performance, and funded orders received to date are valued at approximately $2.0 million);
• Awarded approximately US$ 2.0 million in funded orders from a new international customer of the Company’s ELEVATE™ networking platform; and
• Launched the DCG platform, based on the proven success of the Company’s previous software-defined modem platforms.

S&S segment operating loss was US$ 118.8 million in the first fiscal quarter, compared to operating income of US$ 10.1 million in the prior year period, and net loss in the first fiscal quarter was US$ 119.4 million, as compared to net income of US$ 9.3 million for the prior year period. This was driven by a non-cash goodwill impairment charge of US$ 79.6 million; a non-cash charge of US$ 17.4 million to fully reserve for an unbilled receivable contract asset related to an international customer and reseller of the Company’s troposcatter solutions; US$ 13.8 million of restructuring costs (including the aforementioned non-cash charge related to inventory write-downs); US$ 3.0 million of amortization of intangibles; and lower net sales and gross profit in this segment.

Adjusted EBITDA loss in the S&S segment was US$ 21.1 million in the first fiscal quarter, compared to Adjusted EBITDA of US$ 15.1 million in the prior year period, driven by significantly lower net sales and gross profit, and higher selling, general and administrative expenses (due to the aforementioned US$ 17.4 million non-cash charge related to an allowance for doubtful account), offset in part by lower research and development expenses.

At quarter end, the S&S segment had US$ 278.4 million in funded backlog.

Subsequent to quarter end, Daniel Gizinski was appointed as President of the S&S segment, bringing to Comtech over 15 years of experience in satellite communications engineering, operations, product strategy and executive management. He oversees all aspects of this segment, including product development, operations and market expansion.

Terrestrial & Wireless Networks Segment Commentary

Net sales in the T&W segment were US$ 56.9 million in the first fiscal quarter, an increase of 14.9% as compared to the prior year. This growth was driven by higher net sales of call handling and Next Generation 911 (“NG-911”) services, partially offset by lower net sales of location-based solutions.

Net bookings in the T&W segment were US$ 69.4 million in the first fiscal quarter, an increase of 43.4% compared to the prior year period. The book-to-bill ratio in the quarter was 1.22x, as compared to 0.98x in the prior year period.

Key T&W contract wins and renewals during the first fiscal quarter included:

• Awarded a contract renewal by one of the largest U.S. wireless carriers, valued in excess of US$ 30.million, for critical enhanced 911 call routing services;
• Awarded a large, multi-year contract, valued at over US$ 19 million, for location-based maintenance and support services for one of the largest U.S. wireless carriers;
• Awarded a contract by a municipality located in British Columbia, Canada, valued at more than US$ 2 million, for an NG-911 Guardian call handling solution;
• Awarded over US$ 1 million in funding to continue servicing certain PSAPs in a New England state; and
• Awarded over US$1 million of funding related to an NG-911 deployment in South Carolina.

The T&W segment recorded operating income of US$ 5.3 million in the first fiscal quarter, an increase of 31.6% compared to the prior year period, and net income of US$ 5.3 million in the first quarter, an increase of 28.9% compared to the prior year period. Adjusted EBITDA was US$11 million, an increase of 14.0% compared to the prior year period. This growth reflects higher net sales, partially offset by a lower gross profit percentage in this segment.

At quarter end, the T&W segment had US$ 532.6 million in funded backlog.

Cost-Savings and Profit Improvement Initiatives

As announced separately today, the company is conducting a thorough review of processes, product lines, staffing levels and cost structures to identify actions that are expected to meaningfully reduce costs, enable a more efficient and effective organization and improve its cash conversion cycle. To that end, the company notes that since July 2024, it has significantly progressed with its plans to wind down its steerable antenna operations located in the U.K. (GAAP operating losses related to this product line in fiscal 2024, 2023 and 2022 were US$ 32.3 million, US$ 8.2 million and US$ 9.9 million, respectively). In addition to discontinuing approximately 70 products within the company’s satellite ground infrastructure product line to focus on higher margin revenue opportunities, the company has also reduced its global workforce by approximately 13% since July 31, 2024, which represents approximately US$ 26 million in annualized labor costs. Severance associated with such actions approximated US$ 2.8 million, of which US$ 1.1 million will be expensed in the second quarter of fiscal 2025.

Liquidity

Comtech’s cash and cash equivalents were approximately US$ 30 million as of both October 31, 2024 and January 10, 2025. As previously disclosed, on June 17, 2024, the company entered into a new US$ 222.0 million credit facility. The credit facility was subsequently amended on October 17, 2024, to, among other things, suspend financial covenant testing for the company’s first fiscal quarter ended October 31, 2024. On October 17, 2024, the company also entered into a US$ 25.0 million subordinated credit facility.

As of quarter end, aggregated outstanding debt under these two credit facilities was approximately US$ 225 million, before consideration of GAAP related adjustments to reflect offsetting deferred financing costs and discounts related to each facility. Over the next twelve months, commencing with its fiscal quarter ending January 31, 2025, when financial covenant testing resumes, the company believes that it will not be able to comply with one or more of these covenants. As a result, such debt was presented as “current” on the company’s condensed consolidated balance sheet as of October 31, 2024.

Strengthening the balance sheet is a top priority for the company. This includes lowering investments in working capital, reducing debt levels and cash interest costs and regaining compliance with financial covenants. The Comtech Board is confident that Traub possesses the requisite skill set, track record and experience to oversee these initiatives.

As announced in a separate press release today, the company’s Board is conducting a comprehensive review of strategic alternatives. This process will include evaluating capital-raising and de-levering opportunities.

Comtech Telecommunications Corp. is a provider of satellite and space communications technologies; terrestrial and wireless network solutions; Next Generation 911 (“NG911”) and emergency services; and cloud native capabilities to commercial and government customers around the world. Through its culture of innovation and employee empowerment,