Company Overview
We are a leading global provider of next-generation 911 emergency systems
("NG-911") and secure wireless and satellite communications technologies. We see
these two end-markets as part of what Comtech has identified as the "Failsafe
Communications Market." This includes the critical communications infrastructure
that people, businesses, and governments rely on when durable, trusted
connectivity is required, no matter where they are - on land, at sea, or in the
air - and no matter what the circumstances - from armed conflict to a natural
disaster. Our solutions fulfill our customers' needs for secure wireless
communications in the most demanding environments, including those where
traditional communications are unavailable or cost-prohibitive, and in
mission-critical and other scenarios where performance is crucial. We anticipate
future growth in our business due to increasing demand for global voice, video
and data usage. We provide our solutions to both commercial and governmental
customers.
In the fourth quarter of fiscal 2022, we revised our business segments to better
align them with end-markets for our products and services. Our businesses have
been re-organized into two new reportable segments: "Satellite and Space
Communications " and "Terrestrial and Wireless Networks." All current and prior
periods reflected in this Form 10-K have been presented according to these two
segments, unless otherwise noted. For more information and for financial
information about our business segments, including net sales, operating income,
Adjusted EBITDA (a Non-GAAP financial measure), total assets, and our operations
outside the United States , refer to "Notes to Consolidated Financial Statements
- Note (11) Segment Information" included in "Part II - Item 8 - Financial
Statements and Supplementary Data." A description of the segments is provided
below:
•Satellite and Space Communications - is organized into four product areas:
Satellite Modem and Amplifier Technologies, Troposcatter and SATCOM Solutions,
Space Components and Antennas, and High-Power Amplifiers and Switches . This
segment offers customers: satellite ground station technologies, services and
system integration that facilitate the transmission of voice, video and data
over GEO, MEO and LEO satellite constellations, including solid-state and
traveling wave tube power amplifiers, modems, VSAT platforms and frequency
converters; satellite communications and tracking antenna systems, including
high precision full motion fixed and mobile X/Y tracking antennas, RF feeds,
reflectors and radomes; over-the-horizon microwave equipment that can transmit
digitized voice, video, and data over distances up to 200 miles using the
troposphere and diffraction, including the Comtech COMET™; solid-state, RF
microwave high-power amplifiers and control components designed for radar,
electronic warfare, data link, medical and aviation applications; and
procurement and supply chain management of high reliability EEE parts for
satellite, launch vehicle and manned space applications.
•Terrestrial and Wireless Networks - is organized into four product areas: Next
Generation 911 & Call Delivery, Solacom Call Handling Solutions, Trusted
Location and Messaging Solutions, and Cyber Security Training & Services. This
segment offers customers SMS Text to 911 services, providing alternate paths for
individuals who need to request assistance (via text messaging) a method to
reach Public Safety Answering Points; Next Generation 911 solutions, providing
emergency call routing, location validation, policy-based routing rules, logging
and security functionality; Emergency Services IP Network transport
infrastructure for emergency services communications and support of Next
Generation 911 services; call handling applications for Public Safety Answering
Points; wireless emergency alerts solutions for network operators; software and
equipment for location-based and text messaging services for various
applications, including for public safety, commercial and government services,
and cybersecurity training, skills labs, and competency assessments for both
technical and non-technical applications.
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Our Quarterly Financial Information
Quarterly and period-to-period sales and operating results may be significantly
affected by either short-term or long-term contracts with our customers. In
addition, our gross profit is affected by a variety of factors, including the
mix of products, systems and services sold, production efficiencies, estimates
of warranty expense, price competition and general economic conditions. Our
gross profit may also be affected by the impact of any cumulative adjustments to
contracts that are accounted for over time.
In particular our contracts with the U.S. government can be terminated for
convenience by it at any time and orders are subject to unpredictable funding,
deployment and technology decisions by the U.S. government. Some of these
contracts are indefinite delivery/indefinite quantity ("IDIQ") contracts and, as
such, the U.S. government is not obligated to purchase any equipment or services
under these contracts. We have, in the past, experienced and we continue to
expect significant fluctuations in sales and operating results from
quarter-to-quarter and period-to-period due to these factors. As such,
comparisons between periods and our current results may not be indicative of a
trend or future performance.
Critical Accounting Policies
We consider certain accounting policies to be critical due to the estimation process involved in each of them.
Revenue Recognition. In accordance with FASB ASC 606 - Revenue from Contracts
with Customers ("ASC 606"), we record revenue in an amount that reflects the
consideration to which we expect to be entitled in exchange for goods or
services promised to customers. Under ASC 606, we follow a five-step model to:
(1) identify the contract with our customer; (2) identify our performance
obligations in our contract; (3) determine the transaction price for our
contract; (4) allocate the transaction price to our performance obligations; and
(5) recognize revenue using one of the following two methods:
•Over time - We recognize revenue using the over-time method when there is a
continuous transfer of control to the customer over the contractual period of
performance. This generally occurs when we enter into a long-term contract
relating to the design, development or manufacture of complex equipment or
technology platforms to a buyer's specification (or to provide services related
to the performance of such contracts). Continuous transfer of control is
typically supported by contract clauses which allow our customers to
unilaterally terminate a contract for convenience, pay for costs incurred plus a
reasonable profit and take control of work-in-process. Revenue recognized over
time is generally based on the extent of progress toward completion of the
related performance obligations. The selection of the method to measure progress
requires judgment and is based on the nature of the products or services
provided. In certain instances, typically for firm fixed-price contracts, we use
the cost-to-cost measure because it best depicts the transfer of control to the
customer which occurs as we incur costs on our contracts. Under the cost-to-cost
measure, the extent of progress toward completion is measured based on the ratio
of costs incurred to date to the total estimated costs at completion, including
warranty costs. Revenues, including estimated fees or profits, are recorded
proportionally as costs are incurred. Costs to fulfill generally include direct
labor, materials, subcontractor costs, other direct costs and an allocation of
indirect costs. When these contracts are modified, the additional goods or
services are generally not distinct from those already provided. As a result,
these modifications form part of an existing contract and we must update the
transaction price and our measure of progress for the single performance
obligation and recognize a cumulative catch-up to revenue and gross profits.
For over time contracts using a cost-to-cost measure of progress, we have an
estimate at completion ("EAC") process in which management reviews the progress
and execution of our performance obligations. This EAC process requires
management judgment relative to assessing risks, estimating contract revenue and
costs, and making assumptions for schedule and technical issues. Since certain
contracts extend over a long period of time, the impact of revisions in revenue
and or cost estimates during the progress of work may impact current period
earnings through a cumulative adjustment. Additionally, if the EAC process
indicates a loss, a provision is made for the total anticipated loss in the
period that it becomes evident. Contract revenue and cost estimates for
significant contracts are generally reviewed and reassessed at least quarterly.
The cost-to-cost method is principally used to account for contracts in our
Satellite and Space Communications segment and, to a lesser extent, certain
location-based and messaging infrastructure contracts within our Terrestrial and
Wireless Networks segment. For service-based contracts in our Terrestrial and
Wireless Networks segment, we also recognize revenue over time. These services
are typically recognized as a series of services performed over the contract
term using the straight-line method, or based on our customers' actual usage of
the networks and platforms which we provide.
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•Point in time - When a performance obligation is not satisfied over time, we
must record revenue using the point in time accounting method which generally
results in revenue being recognized upon shipment or delivery of a promised good
or service to a customer. This generally occurs when we enter into short term
contracts or purchase orders where items are provided to customers with
relatively quick turn-around times. Modifications to such contracts and or
purchase orders, which typically provide for additional quantities or services,
are accounted for as a new contract because the pricing for these additional
quantities or services are based on standalone selling prices.
Point in time accounting is principally applied to contracts in our Satellite
and Space Communications segment, which includes satellite modems, solid-state
and traveling wave tube amplifiers and certain contracts for our solid-state,
high-power RF amplifiers. The contracts related to these products do not meet
the requirements for over time revenue recognition because our customers cannot
utilize the equipment for its intended purpose during any phase of our
manufacturing process; customers do not simultaneously receive and or consume
the benefits provided by our performance; customers do not control the asset
(i.e., prior to delivery, customers cannot direct the use of the asset, sell or
exchange the equipment, etc.); and, although many of our contracts have
termination for convenience clauses and or an enforceable right to payment for
performance completed to date, our performance creates an asset with an
alternative use through the point of delivery.
In determining that our equipment has alternative use, we considered the
underlying manufacturing process. In the early phases of manufacturing, raw
materials and work in process (including subassemblies) consist of common parts
that are highly fungible among many different types of products and customer
applications. Finished products are either configured to our standard
configuration or based on our customers' specifications. Finished products,
whether built to our standard specification or to a customers' specification,
can be sold to a variety of customers and across many different end use
applications with minimal rework, if needed, and without incurring a significant
economic loss.
When identifying a contract with our customer, we consider when it has approval
and commitment from both parties, if the rights of the parties are identified,
if the payment terms are identified, if it has commercial substance and if
collectability is probable.
When identifying performance obligations, we consider whether there are multiple
promises and how to account for them. In our contracts, multiple promises are
separated if they are distinct, both individually and in the context of the
contract. If multiple promises in a contract are highly interrelated or comprise
a series of distinct services performed over time, they are combined into a
single performance obligation. In some cases, we may also provide the customer
with an additional service-type warranty, which we recognize as a separate
performance obligation. Service-type warranties do not represent a significant
portion of our consolidated net sales. When service-type warranties represent a
separate performance obligation, the revenue is deferred and recognized ratably
over the extended warranty period. Our contracts, from time-to-time, may also
include options for additional goods and services. To date, these options have
not represented material rights to the customer as the pricing for them reflects
standalone selling prices. As a result, we do not consider options we offer to
be performance obligations for which we must allocate a portion of the
transaction price. In many cases, we provide assurance-type warranty coverage
for some of our products for a period of at least one year from the date of
delivery.
When identifying the transaction price, we typically utilize the contract's
stated price as a starting point. The transaction price in certain arrangements
may include estimated amounts of variable consideration, including award fees,
incentive fees or other provisions that can either increase or decrease the
transaction price. We estimate variable consideration as the amount to which we
expect to be entitled, and we include estimated amounts in the transaction price
to the extent it is probable that a significant reversal of cumulative revenue
recognized will not occur when the estimation uncertainty is resolved. The
estimation of this variable consideration and determination of whether to
include estimated amounts in the transaction price are based largely on an
assessment of our anticipated performance and all information (e.g., historical,
current and forecasted) that is reasonably available to us.
When allocating the contract's transaction price, we consider each distinct
performance obligation. For contracts with multiple performance obligations, we
allocate the contract's transaction price to each performance obligation using
our best estimate of the standalone selling price of each distinct good or
service in the contract. We determine standalone selling price based on the
price at which the performance obligation is sold separately. If the standalone
selling price is not observable through past transactions, we estimate the
standalone selling price taking into account available information such as
market conditions, including geographic or regional specific factors,
competitive positioning, internal costs, profit objectives and internally
approved pricing guidelines related to the performance obligations.
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Most of our contracts with customers are denominated in U.S. dollars and
typically are either firm fixed-price or cost reimbursable type contracts
(including fixed-fee, incentive-fee and time-and-material type contracts). In
almost all of our contracts with customers, we are the principal in the
arrangement and report revenue on a gross basis. Transaction prices for
contracts with U.S. domestic and international customers are usually based on
specific negotiations with each customer and in the case of the U.S. government,
sometimes based on estimated or actual costs of providing the goods or services
in accordance with applicable regulations.
The timing of revenue recognition, billings and collections results in
receivables, unbilled receivables and contract liabilities on our Consolidated
Balance Sheet. Under typical payment terms for our contracts accounted for over
time, amounts are billed as work progresses in accordance with agreed-upon
contractual terms, either at periodic intervals (e.g., monthly) or upon
achievement of contractual milestones. For certain contracts with provisions
that are intended to protect customers in the event we do not satisfy our
performance obligations, billings occur subsequent to revenue recognition,
resulting in unbilled receivables. Under ASC 606, unbilled receivables
constitute contract assets. On large long term contracts, and for contracts with
international customers that do not do business with us regularly, payment terms
typically require advanced payments and deposits. Under ASC 606, payments
received from customers in excess of revenue recognized to date results in a
contract liability. These contract liabilities are not considered to represent a
significant financing component of the contract because we believe these cash
advances and deposits are generally used to meet working capital demands which
can be higher in the earlier stages of a contract. Also, advanced payments and
deposits provide us with some measure of assurance that the customer will
perform on its obligations under the contract. Under the typical payment terms
for our contracts accounted for at a point in time, costs are accumulated in
inventory until the time of billing, which generally coincides with revenue
recognition.
We recognize the incremental costs to obtain or fulfill a contract as an expense
when incurred if the amortization period of the asset is one year or less.
Incremental costs to obtain or fulfill contracts with an amortization period
greater than one year were not material.
As commissions payable to our internal sales and marketing employees or
contractors are contingent upon multiple factors, such commissions are not
considered direct costs to obtain or fulfill a contract with a customer and are
expensed as incurred in selling, general and administrative expenses on our
Consolidated Statements of Operations. As for commissions payable to our
third-party sales representatives related to long-term contracts, we do consider
these types of commissions both direct and incremental costs to obtain and
fulfill such contracts. Therefore, such types of commissions are included in
total estimated costs at completion for such contracts and expensed over time
through cost of sales on our Consolidated Statements of Operations.
Remaining performance obligations represent the transaction price of firm orders
for which work has not been performed as of the end of a fiscal period.
Remaining performance obligations, which we refer to as backlog, exclude
unexercised contract options and potential orders under indefinite delivery /
indefinite quantity ("IDIQ") contracts.
Impairment of Goodwill and Other Intangible Assets. As of July 31, 2022 , total
goodwill recorded on our Consolidated Balance Sheet aggregated $347.7 million
(of which $173.6 million relates to our Satellite and Space Communications
segment and $174.1 million relates to our Terrestrial and Wireless Networks
segment). Additionally, as of July 31, 2022 , net intangibles recorded on our
Consolidated Balance Sheet aggregated $247.3 million (of which $72.4 million
relates to our Satellite and Space Communications segment and $174.9 million
relates to our Terrestrial and Wireless Networks segment).
For purposes of reviewing impairment and the recoverability of goodwill and
other intangible assets, our Satellite and Space Communications and Terrestrial
and Wireless Networks segments each constitute a reporting unit and we must make
various assumptions in determining their estimated fair values. Reporting units
are defined by how our Chief Executive Officer ("CEO") manages the business,
which includes resource allocation decisions. We may, in the future, change our
management approach which in turn may change the way we define our reporting
units, as such term is defined by Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and
Other." A change to our management approach may require us to perform an interim
goodwill impairment test and possibly record impairment charges in a future
period.
In accordance with FASB ASC 350, we perform a goodwill impairment analysis at
least annually (in the first quarter of each fiscal year), unless indicators of
impairment exist in interim periods. If we fail the quantitative assessment of
goodwill impairment ("quantitative assessment"), we would be required to
recognize an impairment loss equal to the amount that a reporting unit's
carrying value exceeded its fair value; however, any loss recognized should not
exceed the total amount of goodwill allocated to that reporting unit.
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As a result of our segment restructuring in the fourth quarter of fiscal 2022
from the Commercial Solutions and Government Solutions segments to the Satellite
and Space Communications and Terrestrial and Wireless Networks segments, we
performed an interim quantitative assessment as of July 29, 2022 and estimated
the fair value of each of our reporting units, both before and after the change,
using a combination of the income and market approaches. Based on our
quantitative evaluations, we determined that our Satellite and Space
Communications and Terrestrial and Wireless Networks reporting units had
estimated fair values in excess of their carrying values of at least and 18.4%
and 11.6%, respectively, and concluded that our goodwill was not impaired and
that neither of our two reporting units was at risk of failing the quantitative
assessment. Given its proximity to our next regularly scheduled annual goodwill
impairment testing date, we utilized our July 29, 2022 interim quantitative
assessment to conclude that our goodwill was not impaired and that neither of
our two reporting units was at risk of failing the quantitative assessment as of
August 1, 2022 .
In making this assessment, we considered, among other things, expectations of
projected net sales and cash flows, assumptions impacting the weighted average
cost of capital, trends in trading multiples of comparable companies, changes in
our stock price and changes in the carrying values of our reporting units with
goodwill. We also considered overall business conditions.
The income approach, also known as the discounted cash flow ("DCF") method,
utilizes the present value of cash flows to estimate fair value. The future cash
flows for our reporting units were projected based on our estimates, at that
time, of future revenues, operating income and other factors (such as working
capital and capital expenditures). For purposes of conducting our impairment
analysis, we assumed revenue growth rates and cash flow projections that are
below our actual long-term expectations. The discount rates used in our DCF
method were based on a weighted-average cost of capital ("WACC") determined from
relevant market comparisons, adjusted upward for specific reporting unit risks
(primarily the uncertainty of achieving projected operating cash flows). A
terminal value growth rate was applied to the final year of the projected
period, which reflects our estimate of stable, perpetual growth. We then
calculated a present value of the respective cash flows for each reporting unit
to arrive at an estimate of fair value under the income approach. Under the
market approach, we estimated a fair value based on comparable companies' market
multiples of revenues and earnings before interest, taxes, depreciation and
amortization and factored in a control premium. Finally, we compared our
estimates of fair values to our total public market capitalization and assessed
implied control premiums based on our common stock price of $11.62 as of the
date of testing.
It is possible that, during fiscal 2023 or beyond, business conditions (both in
the U.S. and internationally) could deteriorate from the current state, our
current or prospective customers could materially postpone, reduce or even forgo
purchases of our products and services to a greater extent than we currently
anticipate, or our common stock price could fluctuate. Such fluctuation could be
caused by uncertainty about the severity and length of the COVID-19 pandemic,
and its impact on global activity.
A significant decline in our customers' spending that is greater than we
anticipate or a shift in funding priorities may also have a negative effect on
future orders, sales, income and cash flows and we might be required to perform
a quantitative assessment during fiscal 2023 or beyond. If assumed net sales and
cash flow projections are not achieved in future periods or our common stock
price significantly declines from current levels, our Satellite and Space
Communications and Terrestrial and Wireless Networks reporting units could be at
risk of failing the quantitative assessment and goodwill and intangibles
assigned to the respective reporting units could be impaired.
In any event, we are required to perform the next annual goodwill impairment
analysis on August 1, 2023 (the start of our fiscal 2024). If our assumptions
and related estimates change in the future, or if we change our reporting unit
structure or other events and circumstances change (e.g., a sustained decrease
in the price of our common stock (considered on both absolute terms and relative
to peers)), we may be required to record impairment charges when we perform
these tests, or in other future periods. In addition to our impairment analysis
of goodwill, we also review net intangible assets with finite lives when an
event occurs indicating the potential for impairment. We believe that the
carrying values of our net intangible assets were recoverable as of July 31,
2022 . Any impairment charges that we may record in the future could be material
to our results of operations and financial condition.
Provision for Warranty Obligations. We provide warranty coverage for most of our
products, including products under long-term contracts, for a period of at least
one year from the date of shipment. We record a liability for estimated warranty
expense based on historical claims, product failure rates and other factors.
Costs associated with some of our warranties that are provided under long-term
contracts are incorporated into our estimates of total contract costs. There
exist inherent risks and uncertainties in estimating warranty expenses,
particularly on larger or longer-term contracts. If we do not accurately
estimate our warranty costs, any changes to our original estimates could be
material to our results of operations and financial condition.
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Accounting for Income Taxes. Our deferred tax assets and liabilities are
determined based on temporary differences between financial reporting and tax
bases of assets and liabilities and applying enacted tax rates expected to be in
effect for the year in which we expect the differences to reverse. Our provision
for income taxes is based on domestic (including federal and state) and
international statutory income tax rates in the tax jurisdictions where we
operate, permanent differences between financial reporting and tax reporting and
available credits and incentives. We recognize potential interest and penalties
related to uncertain tax positions in income tax expense. The U.S. federal
government is our most significant income tax jurisdiction.
Significant judgment is required in determining income tax provisions and tax
positions. We may be challenged upon review by the applicable taxing authority
and positions taken by us may not be sustained. We recognize all or a portion of
the benefit of income tax positions only when we have made a determination that
it is "more likely than not" that the tax position will be sustained upon
examination, based upon the technical merits of the position and other factors.
For tax positions that are determined as "more likely than not" to be sustained
upon examination, the tax benefit recognized is the largest amount of benefit
that is greater than 50% likely of being realized upon ultimate settlement.
The development of valuation allowances for deferred tax assets and reserves for
income tax positions requires consideration of timing and judgments about future
taxable income, tax issues and potential outcomes, and are subjective critical
estimates. Valuation allowances are established, when necessary, to reduce net
deferred tax assets to the amount "more likely than not" expected to be
realized. A portion of our deferred tax assets consist of federal research and
experimentation tax credit carryforwards, some of which was acquired in
connection with prior acquisitions. No valuation allowance has been established
on these deferred tax assets based on our evaluation that our ability to realize
such assets has met the criteria of "more likely than not." We continuously
evaluate additional facts representing positive and negative evidence in
determining our ability to realize these deferred tax assets. In certain
circumstances, the ultimate outcome of exposures and risks involves significant
uncertainties. If actual outcomes differ materially from these estimates, they
could have a material impact on our results of operations and financial
condition.
Our
Research and Development Costs. We generally expense all research and
development costs. Research and development expenses include payroll, employee
benefits, stock-based compensation expense, and other personnel-related expenses
associated with product development. Research and development expenses also
include third-party development and programming costs. Costs incurred internally
in researching and developing software to be sold are charged to expense until
technological feasibility has been established for the software. Judgment is
required in determining when technological feasibility of a product is
established. Technological feasibility for our advanced communication software
solutions is generally reached after all high-risk development issues have been
resolved through coding and testing. Generally, this occurs shortly before the
products are released to customers and when we are able to validate the
marketability of such product. Once technological feasibility is established,
all software costs are capitalized until the product is available for general
release to customers. To date, capitalized internally developed software costs
were not material.
Provisions for Excess and Obsolete Inventory. We record a provision for excess
and obsolete inventory based on historical and projected usage trends. Other
factors may also influence our provision, including decisions to exit a product
line, technological change and new product development. These factors could
result in a change in the amount of excess and obsolete inventory on hand.
Additionally, our estimates of future product demand may prove to be inaccurate,
in which case we may have understated or overstated the provision required for
excess and obsolete inventory. In the future, if we determine that our inventory
was overvalued, we would be required to recognize such costs in our financial
statements at the time of such determination. Any such charge could be material
to our results of operations and financial condition.
Allowance for Doubtful Accounts. We perform credit evaluations of our customers
and adjust credit limits based upon customer payment history and current
creditworthiness, as determined by our review of our customers' current credit
information. Generally, we will require cash in advance or payment secured by
irrevocable letters of credit before an order is accepted from an international
customer that we do not do business with regularly. In addition, we seek to
obtain insurance for certain domestic and international customers.
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We monitor collections and payments from our customers and maintain an allowance
for doubtful accounts based upon our historical experience and any specific
customer collection issues that we have identified. In light of ongoing tight
credit market conditions, we continue to see requests from our customers for
higher credit limits and longer payment terms. Because of our strong cash
position and the nominal amount of interest we are earning on our cash and cash
equivalents, we have, on a limited basis, approved certain customer requests. We
continue to monitor our accounts receivable credit portfolio. To-date, there has
been no material changes in our credit portfolio as a result of the effect of
the COVID-19 pandemic on worldwide business activities.
Although our overall credit losses have historically been within the allowances
we established, we cannot accurately predict our future credit loss experience,
given the current poor business environment. Measurement of credit losses
requires consideration of historical loss experience, including the need to
adjust for changing business conditions, and judgments about the probable
effects of relevant observable data, including present economic conditions such
as delinquency rates and the financial health of specific customers. Future
changes to the estimated allowance for doubtful accounts could be material to
our results of operations and financial condition.
Operating results
The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of our consolidated net sales:
Closed fiscal years
2022 2021 2020
Gross margin 37.0 % 36.8 % 36.8 %
Selling, general and administrative expenses 23.6 % 19.2 % 19.0 %
Research and development expenses 10.8 % 8.4 % 8.5 %
CEO transition costs 2.8 % - % - %
Proxy solicitation costs 2.3 % - % - %
Acquisition plan expenses - % 17.2 % 3.4 %
Amortization of intangibles 4.4 % 3.6 % 3.5 %
Operating (loss) income (6.9) % (11.7) % 2.5 %
Interest expense (income) and other 0.7 % 1.2 % 1.0 %
(Loss) income before (benefit from) provision for income taxes (7.6) % (12.9) % 1.5 %
Net (loss) income (6.8) % (12.6) % 1.1 %
Net (loss) income attributable to common stockholders (8.9) % (12.6) % 1.1 %
Adjusted EBITDA (a Non-GAAP measure) 8.1 % 13.2 % 12.6 %
For a definition and explanation of Adjusted EBITDA, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Comparison of fiscal years 2022 and 2021 – Adjusted EBITDA”.
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Fiscal 2022 Highlights and Fiscal 2023 Business Outlook
Our financial highlights for the year ended
• Consolidated net sales were
•Gross margins improved year-on-year by twenty basis points to 37.0%;
• GAAP net loss attributable to common shareholders was
• Loss of GAAP EPS of
• Adjusted EBITDA (a non-GAAP financial measure discussed below) of
•New bookings (also referred to as orders) of$445.5 million , resulting in an annual book-to-bill ratio of 0.92x (a measure defined as bookings divided by net sales);
•Backlog of
•Revenue visibility of approximately$1.1 billion . We measure this revenue visibility as the sum of our$618.1 million backlog, plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders; and •Cash flows provided by operating activities of$2.0 million . Excluding$15.9 million in aggregate payments for our CEO transition and settled proxy contest, cash flows provided by operating activities would have been$17.9 million ; Non-GAAP financial measures discussed above are reconciled to the most directly comparable GAAP financial measures in the table included in the below section "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2022 and 2021." InAugust 2022 , we announced thatKen Peterman was appointed President and CEO. Prior to such appointment, inMay 2022 ,Mr. Peterman joined our Board of Directors as Chairman. With over forty years in the defense sector,Mr. Peterman's significant experience in satellite technology and decades of experience withU.S. government contracting is expected to enhance our efforts to continually improve commercial success and shareholder value. Also, we progressed on our initiative to enhance our leadership team, welcomingDon Bach as our first ever Vice President of Procurement. In light of ongoing global supply chain disruptions, part shortages and extended lead times for components,Mr. Bach's immediate focus is expected to be on optimizing the end-to-end management of our consolidated inventories, including efforts to enhance our buying power across the various product areas. We also appointedAnirban Chakraborty as our first ever Chief Growth Officer.Mr. Chakraborty has been withComtech for four years, most recently serving as Senior Vice President of Strategy and Business Development within the Trusted Location and Messaging Solutions product area.Mr. Chakraborty is expected to focus on growth initiatives by seeking meaningful ways to deploy our cutting edge technological innovations in new market areas, as well as fostering centers of engineering excellence acrossComtech . During the fourth quarter, we continued to execute on our plans to deploy the proceeds of our$100.0 million strategic growth investment and continued to solidify our position as a leading solutions provider in our two key end-markets:Satellite and Space Communications and Terrestrial and Wireless Networks. We believe both are at the beginning of a long-term investment and upgrade cycle, and the demand environment for our products, despite the headwinds discussed below, remains strong. Considering these trends in our end-markets, we pressed forward during the most recent quarter on our investments in capital equipment and building improvements in connection with the opening of a new 146,000 square-foot facility inChandler, Arizona , and the establishment of a 56,000 square-foot facility inBasingstoke, United Kingdom . Although COVID-19 and supply chain issues have extended our original build-out schedules, particularly as it relates to ourChandler, Arizona facility, both manufacturing centers are expected to support production of next-generation broadband satellite technology and should be fully operational in fiscal 2023. 58
-------------------------------------------------------------------------------- Our business continues to face near-term challenges and continued uncertainties, as the repercussions of the military conflict betweenRussia andUkraine remain significant. ForComtech , the conflict is directly impacting near-term elements of our sales pipelines. Certain customers have paused procurement and deployment of satellite and troposcatter communication systems, and instead are purchasing war-fighting equipment. TheU.S. defense budget, and defense budgets worldwide, are being adjusted in real-time to reflect the priorities of war and changing European geopolitics. Anticipated funding for other expected orders, including for our satellite and space communication products, has been shifted to other programs and/or temporarily delayed as a result of changes in defense spending priorities. For example, inMay 2022 , theU.S. authorized a$40.0 billion military and humanitarian aid package forUkraine . While there are portions of this spending package that we could expect to benefit from in the future, such as financial support forUkraine's military and expandedU.S. military operations inEurope , we do not expect such spending for our communications related products and services to be immediate. Nonetheless, at the request of the Ukrainian government, in our third quarter of fiscal 2022, we donated multiple COMET™ troposcatter systems to supportUkraine's urgent need for secure, reliable communications. Shortly thereafter, as announced inSeptember 2022 , we were awarded a funded order to supply the Ukrainian government with additional systems. We expect related deliveries to occur in the first half of fiscal 2023. In lateMay 2022 , at the request of theU.S. Army , we conducted in-field demonstrations of our troposcatter solutions (including the COMET™) for bothU.S. andNATO allied government customers. These demonstrations consisted of end-to-end data communications links, showcasing small, medium and large troposcatter terminals. While it is always difficult to predict the timing and amount of future orders, we feel confident thatComtech is well-positioned to participate in the uptick in demand, as conflict and uncertainties present new opportunities for the types of communications solutions we provide. As we enter fiscal 2023, business conditions have become more challenging, and the operating environment is largely unpredictable, especially now with increasing news reports of inflation, interest rate hikes and a potential global recession. There also continues to be order and production delays, disruptions in component availability, increased pricing both for labor and parts, lower levels of factory utilization and higher logistics and operational costs. As the business environment relates to our operations inRussia , we are continuing to shift certain commercial software development and related support activities conducted in our Russian office to locations outside of the country. While we continue to seek and implement initiatives to lower such costs, our Business Outlook for Fiscal 2023 reflects additional expenses associated with shifting these development resources. In light of these business conditions and resulting challenges, for our first quarter of fiscal 2023, we are targeting consolidated net sales to increase between 1.0% and 3.0%, sequentially, and for our consolidated Adjusted EBITDA margin to approximate 8.0%. OnSeptember 29, 2022 , our Board of Directors declared a cash dividend of$0.10 per common share, payable onNovember 18, 2022 to stockholders of record at the close of business onOctober 19, 2022 . Future common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval and certain voting rights of holders of our Series A Convertible Preferred Stock. Additional information related to our Business Outlook for Fiscal 2023 and a definition and explanation of Adjusted EBITDA is included in the below section "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2022 and 2021."
Comparison of fiscal years 2022 and 2021
Net Sales . Consolidated net sales were$486.2 million and$581.7 million for fiscal 2022 and 2021, respectively, representing a decrease of$95.5 million , or 16.4%. The period-over-period decrease in net sales primarily reflects lower net sales in ourSatellite and Space Communications segment. Net sales by operating segment are discussed below.Satellite and Space Communications Net sales in ourSatellite and Space Communications segment were$279.7 million for fiscal 2022 as compared to$374.9 million for fiscal 2021, a decrease of$95.2 million , or 25.4%. OurSatellite and Space Communications segment represented 57.5% of consolidated net sales for fiscal 2022 as compared to 64.4% for fiscal 2021. Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2022 was 1.01x. Period-to-period fluctuations in bookings are normal for this segment. 59 -------------------------------------------------------------------------------- Fiscal 2022 net sales primarily reflect significantly lower sales of our global field support services, advanced VSAT products and other programs to theU.S. Army , as well as of our satellite ground station technologies, partially offset by higher sales of our satellite-based mobile communications and tracking systems and high-reliability EEE satellite-based space components. Fiscal 2021 net sales included revenue related to our performance on our 10-year,$211.0 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of theU.S. Marine Corps . There were nominal corresponding sales in fiscal 2022. In aggregate, net sales for ourSatellite and Space Communications segment were anticipated to be significantly lower than the amount we achieved in fiscal 2021. As discussed in our Form 10-Q filed with theSEC onJune 8, 2021 , our revenues in fiscal 2022 were expected to decline due to theU.S. government's decision to fully withdraw troops fromAfghanistan and make certain program changes. In addition, as a direct result of theRussia /Ukraine military conflict, we no longer expected to receive and ship orders toUkraine in fiscal 2022. That customer has an immediate need for wireless communication services but had redirected procurement dollars to war-fighting equipment. However, as announced inSeptember 2022 , we were awarded a funded order to supply the Ukrainian government with troposcatter systems that we expect to deliver in the first half of fiscal 2023. The lower sales of our satellite ground station technologies primarily reflects the timing of receipt of, and performance on, orders related to ourU.S. government and international customers. Our results for fiscal 2022 and 2021 include nominal sales from our TDMA satellite networking technologies acquired onMarch 2, 2021 . Our satellite ground station product line has been impacted by overall challenging business conditions, including the COVID-19 pandemic's effect on customer demand, particularly in international markets, which historically represents a large majority of end-users for this product line. Although our backlog of our satellite ground station products has increased during fiscal 2022, lead times for components are impacting the timing of shipments. We continue to monitor our inventory needs and navigate supply chain constraints which are impacting the timing of new orders, deliveries and installations. In addition, we do not expect to make any new sales to Russian customers at this time. Bookings, sales and profitability in ourSatellite and Space Communications segment can fluctuate dramatically from period-to-period due to many factors, including unpredictable funding, deployment and technology decisions by ourU.S. and international government customers, and changes in the general business environment. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance. Terrestrial and Wireless Networks Net sales in our Terrestrial and Wireless Networks segment were$206.5 million for fiscal 2022, as compared to$206.8 million for fiscal 2021, a decrease of$0.3 million , or 0.1%, reflecting slightly higher sales of our trusted location and messaging solutions and cyber security training services, offset by slightly lower sales of our 911 call routing services. Our Terrestrial and Wireless Networks segment represented 42.5% of consolidated net sales for fiscal 2022 as compared to 35.6% for fiscal 2021. Our book-to-bill ratio (a measure defined as bookings divided by net sales) for this segment was 0.79x. Period-to-period fluctuations in bookings are normal for this segment.
The bookings, sales and profitability of our Terrestrial and Wireless Networks segment may fluctuate from period to period due to many factors, including changes in the general business environment. As such, comparisons of our results from period to period may not be indicative of any future trend or performance.
Geography and Customer Type Sales by geography and customer type, as a percentage of related sales, for the fiscal years endedJuly 31, 2022 and 2021 are as follows: Fiscal Years Ended July 31, 2022 2021 2022 2021 2022 2021 Satellite and Space Communications Terrestrial and Wireless Networks Consolidated U.S. government 45.6 % 52.8 % 2.4 % 1.4 % 27.2 % 34.6 % Domestic 18.0 % 15.3 % 88.1 % 89.2 % 47.8 % 41.5 % Total U.S. 63.6 % 68.1 % 90.5 % 90.6 % 75.0 % 76.1 % International 36.4 % 31.9 % 9.5 % 9.4 % 25.0 % 23.9 % Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 60
--------------------------------------------------------------------------------
Sales at
Domestic sales include sales to business customers, as well as to
International sales for fiscal 2022 and 2021 (which include sales toU.S. domestic companies for inclusion in products that are sold to international customers) were$121.4 million and$138.9 million , respectively. Except for theU.S. , no individual country (including sales toU.S. domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for fiscal 2022 and 2021. Gross Profit. Gross profit was$179.8 million and$214.0 million for fiscal 2022 and 2021, respectively. Gross profit, as a percentage of consolidated net sales, for fiscal 2022 was 37.0% as compared to 36.8% for fiscal 2021. During fiscal 2022, we recorded a$2.5 million benefit to cost of sales as we reduced a warranty accrual due to lower than expected warranty claims in our NG-911 product line. During fiscal 2021, we recorded a$2.0 million benefit to cost of sales in our Unallocated segment related to a refund of historical excise tax paid. Excluding such items, gross profit, as a percentage of consolidated net sales, for fiscal 2022 and 2021 was 36.5% and 36.4%, respectively. Gross profit during the most recent period reflects the impact of an overall favorable product mix and a lower provision for warranty obligations during fiscal 2022 in light of the reduced level of sales activity during the period, offset in part by lower consolidated net sales. Our gross profit in both periods also reflects start-up costs associated with the opening of our new high-volume technology manufacturing centers, as well as increased costs resulting from the ongoing impacts of the COVID-19 pandemic and inflationary pressures. Gross profit, as a percentage of related segment net sales, is further discussed below. OurSatellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for fiscal 2022 decreased in comparison to fiscal 2021. The decrease in gross profit percentage primarily reflects changes in products and services mix, as well as lower levels of factory utilization and higher logistics and operational costs resulting from global supply chain constraints. Also, during fiscal 2022 and 2021, we incurred$1.1 million and$1.0 million , respectively, of incremental operating costs related to our antenna facility in theUnited Kingdom due to the impact of the COVID-19 pandemic. Although operations in theUnited Kingdom have largely resumed, we continued to experience lingering impacts from COVID-19 and the related facility shut-down in fiscal 2021. We do not expect to incur similar costs in fiscal 2023. Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for fiscal 2022 was comparable to fiscal 2021. The gross profit percentage in fiscal 2022 primarily reflects changes in products and services mix, and lower than expected warranty claims, as discussed above. Included in consolidated cost of sales for both fiscal 2022 and 2021 are provisions for excess and obsolete inventory of$4.4 million . As discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Provisions for Excess and Obsolete Inventory," we regularly review our inventory and record a provision for excess and obsolete inventory based on historical and projected usage trends.
Our consolidated gross margin, as a percentage of consolidated net sales, depends on the sales volume, sales mix and related gross margin for each segment, and is therefore inherently difficult to predict.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were$114.9 million and$111.8 million for fiscal 2022 and 2021, respectively. As a percentage of consolidated net sales, selling, general and administrative expenses were 23.6% and 19.2% for fiscal 2022 and 2021, respectively. During fiscal 2022 and 2021, we incurred$6.0 million and$2.8 million , respectively, of restructuring costs to streamline our operations, including costs related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility inChandler, Arizona . In addition, we received$3.1 million of legal expense recoveries from insurance in fiscal 2021. Excluding such items, selling, general and administrative expenses for fiscal 2022 and 2021 would have been$108.9 million or 22.4% and$112.1 million or 19.3%, respectively, of consolidated net sales. The increase in our selling, general and administrative expenses, as a percentage of consolidated net sales, is primarily due to lower consolidated net sales. Our selling, general and administrative expenses in the most recent period also reflect higher labor costs associated with a tight global labor market, increased investments in marketing, including new social media activities and other investments we are making to achieve our long term business goals. Such spending is expected to continue during fiscal 2023. 61 -------------------------------------------------------------------------------- Amortization of stock-based compensation expenses recorded as selling, general and administrative expenses was$6.3 million in fiscal 2022 as compared to$8.1 million in fiscal 2021. Such amortization for fiscal 2022 includes$0.8 million related to the retirement, inDecember 2021 , of three, long-standing members of the Board of Directors. Amortization of stock-based compensation is not allocated to our two reportable operating segments. Research and Development Expenses. Research and development expenses were$52.5 million and$49.1 million for fiscal 2022 and 2021, respectively, representing an increase of$3.4 million , or 6.9%. As a percentage of consolidated net sales, research and development expenses were 10.8% and 8.4% for fiscal 2022 and 2021, respectively. For fiscal 2022 and 2021, research and development expenses of$26.5 million and$28.0 million , respectively, related to ourSatellite and Space Communications segment, and$25.2 million and$20.1 million , respectively, related to our Terrestrial and Wireless Networks segment. The remaining research and development expenses of$0.8 million and$1.0 million in fiscal 2022 and 2021, respectively, related to the amortization of stock-based compensation expense. During fiscal 2022 and 2021, ourSatellite and Space Communications segment incurred$1.2 million and$0.3 million , respectively, of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations. As we have stated in the past, we are evaluating this new market in relation to our long-term business strategies, and we may incur additional costs in the future. Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During fiscal 2022 and 2021, customers reimbursed us$9.8 million and$13.6 million , respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales. Amortization of Intangibles. Amortization relating to intangible assets with finite lives was$21.4 million (of which$7.3 million was for theSatellite and Space Communications segment and$14.1 million was for the Terrestrial and Wireless Networks segment) for fiscal 2022 and$21.0 million (of which$5.7 million was for theSatellite and Space Communications segment and$15.3 million was for the Terrestrial and Wireless Networks segment) for fiscal 2021. Proxy Solicitation Costs. During fiscal 2022, we incurred$11.2 million of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) in our Unallocated segment as a result of a now-settled proxy contest initiated by a shareholder during the first quarter of fiscal 2022. There were no similar costs in the prior year. During our first quarter of fiscal 2022, we entered into a Cooperation Agreement with such shareholder. CEO Transition Costs. OnDecember 31, 2021 , our Board of Directors appointedMr. Porcelain as CEO. Prior to that,Mr. Porcelain served as our President and COO. Transition costs related to our former CEO,Mr. Kornberg , were$13.6 million and all expensed in our Unallocated segment during fiscal 2022. Of such amount,$10.3 million related toMr. Kornberg's severance payments and benefits upon termination of his employment; the remainder related toMr. Kornberg agreeing to serve as a Senior Technology Advisor for a minimum of two years. There were no similar costs in the prior year. OnAugust 9, 2022 , subsequent to year end, our Board of Directors appointed our Chairman of the Board,Mr. Peterman , as President and CEO. Transition costs related to our former President and CEO,Mr. Porcelain , pursuant to his separation agreement with the Company, were$7.4 million , of which$3.8 million related to the acceleration of unamortized stock based compensation, with the remaining$3.6 million related to his severance payments and benefits upon termination of employment. The cash portion of the transition costs of$3.6 million is expected to be paid toMr. Porcelain inOctober 2022 . Also, in connection withMr. Peterman entering into an employment agreement with the Company, effective as ofAugust 9, 2022 , we incurred a$1.0 million expense related to a cash sign-on bonus. CEO transition costs related toMr. Porcelain andMr. Peterman will be expensed in our Unallocated segment during the first quarter of fiscal 2023. Acquisition Plan Expenses. During fiscal 2021, we incurred$100.3 million of acquisition plan expenses, of which$88.3 million related to the previously announced litigation and merger termination with Gilat, including$70.0 million paid in cash to Gilat. The remaining costs primarily related to the acquisition of TDMA satellite networking technologies and GD NG-911 acquisition-related litigation. These expenses are primarily recorded in our Unallocated segment. There were no similar costs incurred during fiscal 2022. 62 --------------------------------------------------------------------------------
Operating income (loss). The operating loss for fiscal years 2022 and 2021 was
Fiscal Years Ended July 31,
2022 2021 2022 2021 2022 2021 2022 2021
Satellite and Space Terrestrial and Wireless
($ in millions) Communications Networks Unallocated Consolidated
Operating (loss) income $ (5.7) $ 24.3 $ 18.9 $ 25.2 $ (47.0) $ (117.8) $ (33.8) $ (68.3)
Percentage of related
net sales NA 6.5 % 9.2 % 12.2 % NA NA NA NA
Our GAAP operating loss of $33.8 million for fiscal 2022 reflects: (i) $13.6
million of CEO transition costs; (ii) $11.2 million of proxy solicitation costs;
(iii) $6.0 million of restructuring costs; (iv) $1.2 million of strategic
emerging technology costs; and (v) $1.1 million of incremental operating costs
due to the lingering impact of COVID-19, as discussed above. Excluding such
items, our consolidated operating loss for fiscal 2022 would have been $0.7
million . Our GAAP operating loss of $68.3 million for fiscal 2021 reflects: (i)
$100.3 million of acquisition plan expenses; (ii) $2.8 million of restructuring
costs; (iii) $1.0 million of incremental operating costs due to the impact of
COVID-19; and (iv) $0.3 million of strategic emerging technology costs, as
discussed above. Excluding such items, our consolidated operating income for
fiscal 2021 would have been $36.1 million , or 6.2% of consolidated net sales.
The decrease in operating income from $36.1 million for fiscal 2021 to an
operating loss of $0.7 million for fiscal 2022 was primarily due to lower
consolidated net sales, as discussed above. Operating income (loss) by
reportable segment is further discussed below.
The decrease in our
The decrease in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2022 was driven primarily by higher research and development expenses, as discussed above. The decrease in unallocated expenses for fiscal 2022 as compared to fiscal 2021 was primarily due to no acquisition plan expenses incurred during the most recent fiscal year, partially offset by CEO transition costs and proxy solicitation costs during fiscal 2022, as discussed above. Amortization of stock-based compensation was$7.8 million and$10.0 million , respectively, for fiscal 2022 and 2021. Stock-based compensation expense for fiscal 2022 includes$0.8 million related to the retirement of three, long-standing Board members, who retired inDecember 2021 . Our unallocated expenses for fiscal 2021 also reflects benefits of$3.1 million for legal expense recoveries from insurance and$2.0 million related to a refund of historical excise tax paid. Excluding these items in their respective periods, unallocated expense would have been$21.4 million and$21.6 million , respectively, for fiscal 2022 and 2021. GAAP operating results for fiscal 2023 will be impacted by start-up expenses and restructuring costs associated with the opening ofComtech's new high-volume technology manufacturing centers, as well as the expenses associated with the CEO change that was announced inAugust 2022 . Interest Expense and Other. Interest expense was$5.0 million and$6.8 million for fiscal 2022 and 2021, respectively. Interest expense for fiscal 2021 includes$1.2 million of incremental interest expense related to a now terminated financing commitment letter. Our effective interest rate (including amortization of deferred financing costs) in fiscal 2022 was approximately 3.4%. Our current cash borrowing rate (which excludes the amortization of deferred financing costs) under our existing Credit Facility is approximately 5.1%. Interest (Income) and Other. Interest (income) and other for both fiscal 2022 and 2021 was nominal. All of our available cash and cash equivalents are currently invested in bank deposits and money market deposit accounts which, at this time, are currently yielding an immaterial interest rate. Change in Fair Value of Convertible Preferred Stock Purchase Option Liability. During fiscal 2022, we recorded a$1.0 million non-cash benefit from the remeasurement of the convertible preferred stock purchase option liability. See "Notes to Condensed Consolidated Financial Statements - Note (15) - Convertible Preferred Stock" for more information. 63 -------------------------------------------------------------------------------- Benefit from Income Taxes. For fiscal 2022 and 2021, we recorded tax benefits of$4.0 million and$1.5 million , respectively. Our effective tax rate (excluding discrete tax items) for fiscal 2022 was 28.0%, as compared to a nominal effective tax rate for fiscal 2021. The increase was primarily due to expected product and geographical mix changes in fiscal 2022. For purposes of determining our 28.0% annual effective tax rate for fiscal 2022, CEO transition costs and proxy solicitation costs are considered significant, unusual or infrequently occurring discrete tax items and are excluded from the computation of our effective tax rate. During fiscal 2022, we recorded a net discrete tax benefit of$0.6 million , primarily related to the deductible portion of CEO transition costs and proxy solicitation costs. These benefits were partially offset by the establishment of a valuation allowance on certain foreign related net deferred tax assets and the settlement of certain stock-based awards during fiscal 2022. During fiscal 2021, we recorded a net discrete tax benefit of$1.6 million , primarily related to the release of valuation allowances previously established on certain foreign related deferred tax assets, the finalization of certain tax accounts in connection with the filing of our fiscal 2020 federal, state and foreign income tax returns and the settlement of certain stock-based awards during fiscal 2021. OurU.S federal income tax returns for fiscal 2019 through 2021 are subject to potential futureIRS audit. None of our state income tax returns prior to fiscal 2018 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.
Net loss attributable to common shareholders. During fiscal years 2022 and 2021, the consolidated net loss attributable to common shareholders was
Adjusted EBITDA. Adjusted EBITDA (both in dollars and as a percentage of related
net sales) for both fiscal 2022 and 2021 are shown in the table below (numbers
in the table may not foot due to rounding):
Fiscal Years Ended July 31,
2022 2021 2022 2021 2022 2021 2022 2021
Terrestrial and Wireless
($ in millions) Satellite and Space Communications Networks Unallocated Consolidated Net (loss) income $ (3.9) 24.4 18.8 24.4 (48.0) (122.2)$ (33.1) (73.5) (Benefit from) provision for income taxes (1.1) (0.4) - 0.8 (2.9) (1.9) (4.0) (1.5) Interest (income) and other (0.8) 0.2 0.1 - - (0.4) (0.7) (0.1) Change in fair value of convertible preferred stock option liability - - - - (1.0) - (1.0) - Interest expense 0.1 0.1 - - 4.9 6.8 5.0 6.8 Amortization of stock-based compensation - - - - 7.8 10.0 7.8 10.0 Amortization of intangibles 7.3 5.7 14.1 15.3 - - 21.4 21.0 Depreciation 4.0 3.7 6.1 5.3 0.2 0.3 10.3 9.4 Amortization of cost to fulfill assets 0.5 - - - - - 0.5 - CEO transition costs - - - - 13.6 - 13.6 - Proxy solicitation costs - - - - 11.2 - 11.2 - Restructuring costs 5.7 2.8 - - 0.3 - 6.0 2.8 Strategic emerging technology costs 1.2 0.3 - - - - 1.2 0.3 COVID-19 related costs 1.1 1.0 - - - - 1.1 1.0 Acquisition plan expenses - - - (1.1) - 101.3 - 100.3 Adjusted EBITDA $ 14.1 37.8 39.1 44.8 (13.9) (6.1)$ 39.3 76.5 Percentage of related net sales 5.0 % 10.1 % 18.9 % 21.7 % NA NA 8.1 % 13.2 %
The decrease in consolidated adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for fiscal 2022 compared to fiscal 2021 is mainly attributable to lower consolidated net sales, as indicated above.
64 --------------------------------------------------------------------------------
The decrease in our
The decrease in our Terrestrial and Wireless Networks segment's Adjusted EBITDA,
both in dollars and as a percentage of related segment net sales, was driven
primarily by higher research and development expenses, as discussed above.
Because our consolidated Adjusted EBITDA, as a percentage of consolidated net
sales, depends on the volume of sales, sales mix and related gross profit for
each segment as well as unallocated spending, it is inherently difficult to
forecast.
Reconciliations of our GAAP consolidated operating (loss) income, net (loss)
income attributable to common stockholders and net (loss) income per diluted
common share for fiscal 2022 and 2021 to the corresponding Non-GAAP measures are
shown in the tables below (numbers and per share amounts in the table may not
foot due to rounding). Non-GAAP net (loss) income attributable to common
stockholders and net (loss) income per diluted common share reflect Non-GAAP
provisions for income taxes based on full year results, as adjusted for the
Non-GAAP reconciling items included in the tables below. We evaluate our
Non-GAAP effective income tax rate on an ongoing basis, and it can change from
time to time. Our Non-GAAP effective income tax rate can differ materially from
our GAAP effective income tax rate. In addition, due to the GAAP net loss for
the period, Non-GAAP EPS for fiscal 2021 was computed using 25,885,000 weighted
average diluted shares outstanding during the period.
Fiscal 2022
Net Loss per
Ordinary Diluted Attributable Net Loss (in millions of dollars, except per share amounts)
Operating Loss to Common Stockholders Share Reconciliation of GAAP to Non-GAAP Earnings: GAAP measures, as reported$ (33.8) $ (43.3) $ (1.63) Adjustments to reflect redemption value of convertible preferred stock - 10.2 0.39 CEO transition costs 13.6 13.0 0.49 Proxy solicitation costs 11.2 8.7 0.33 Restructuring costs 6.0 4.6 0.17 Strategic emerging technology costs 1.2 0.9 0.03 COVID-19 related costs 1.1 0.8 0.03
Change in fair value of convertible preferred stock option
liability - (1.0) (0.04) Net discrete tax expense - 2.6 0.10 Non-GAAP measures$ (0.7) $ (3.5) $ (0.13) Fiscal 2021 Net (Loss) Operating (Loss) Income per ($ in millions, except for per share amounts) Income Net (Loss) Income Diluted Share Reconciliation of GAAP to Non-GAAP Earnings: GAAP measures, as reported$ (68.3) $ (73.5) $ (2.86) Acquisition plan expenses 100.3 93.3 3.60 Restructuring costs 2.8 2.1 0.08 COVID-19 related costs 1.0 0.8 0.03 Strategic emerging technology costs 0.3 0.3 0.01 Interest expense - 0.9 0.04 Net discrete tax benefit - (1.6) (0.06) Non-GAAP measures$ 36.1 $ 22.4 $ 0.86 65
-------------------------------------------------------------------------------- Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before income taxes, interest (income) and other, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, amortization of cost to fulfill assets, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, CEO transition costs, proxy solicitation costs, strategic alternatives analysis expenses and other. Our definition of Adjusted EBITDA may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and therefore may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is also a measure frequently requested by our investors and analysts. We believe that investors and analysts may use Adjusted EBITDA, along with other information contained in ourSEC filings, in assessing our performance and comparability of our results with other companies. Our Non-GAAP measures reflect the GAAP measures as reported, adjusted for certain items as described herein and also excludes the effects of our outstanding convertible preferred stock. These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct our business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP. These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP in the tables presented herein, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP. Investors are advised to carefully review the GAAP financial results that are disclosed in ourSEC filings. We have not quantitatively reconciled our Q1 fiscal 2023 Adjusted EBITDA target to the most directly comparable GAAP measure because items such as adjustments to the provision for income taxes, and interest expense, which are specific items that impact these measures, have not yet occurred, are out of our control, or cannot be predicted. Accordingly, reconciliations to the Non-GAAP forward looking metrics are not available without unreasonable effort and such unavailable reconciling items could significantly impact our financial results.
Comparison of fiscal years 2021 and 2020
Net Sales . Consolidated net sales were$581.7 million and$616.7 million for fiscal 2021 and 2020, respectively, representing a decrease of$35.0 million , or 5.7%. The decrease in net sales primarily reflects lower net sales in ourSatellite and Space Communications segment. Net sales by operating segment are discussed below.Satellite and Space Communications Net sales in ourSatellite and Space Communications segment were$374.9 million for fiscal 2021 as compared to$411.1 million for fiscal 2020, a decrease of$36.2 million or 8.8%. OurSatellite and Space Communications segment represented 64.4% of consolidated net sales for fiscal 2021 as compared to 66.7% for fiscal 2020. Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2021 was 0.91x. Period-to-period fluctuations in bookings are normal for this segment. Fiscal 2021 net sales in this segment primarily reflect lower sales of global field support services, advanced VSAT products and other programs for theU.S. Army . Such increase was offset in part by higher sales of our high reliability Electrical, Electronic and Electromechanical ("EEE") satellite-based space components (including incremental sales of X/Y antenna products that we now offer as a result of ourJanuary 2020 acquisition of CGC), performance on our 10-year,$211.0 million IDIQ contract awarded to us by a prime contractor to provide next-generation troposcatter systems in support of theU.S. Marine Corps and a nominal amount of sales related to our acquisition ofUHP Networks Inc. ("UHP") onMarch 2, 2021 , which extended our product offerings to include TDMA satellite modems. Terrestrial and Wireless Networks Net sales in our Terrestrial and Wireless Networks segment were$206.8 million for fiscal 2021, as compared to$205.6 million for fiscal 2020, an increase of$1.2 million , or 0.6%. Our Terrestrial and Wireless Networks segment represented 35.6% of consolidated net sales for fiscal 2021 as compared to 33.3% for fiscal 2020. Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2021 was 1.37x. Period-to-period fluctuations in bookings are normal for this segment. Net sales in fiscal 2021 reflect increased sales of our trusted location and messaging solutions, offset in part by the absence of 911 wireless call routing sales to AT&T. 66
-------------------------------------------------------------------------------- During fiscal 2021, we were awarded several important statewide NG-911 contracts and our strong momentum was acknowledged byFrost & Sullivan , who recognizedComtech for registering the most significant year-over-year market share increase among all NG-911 primary contract holders, growing our market share from an estimated 17.3% in 2019 to 26.2% in 2020, as calculated byFrost & Sullivan . Geography and Customer Type Sales by geography and customer type, as a percentage of related sales, for the fiscal years endedJuly 31, 2021 and 2020 are as follows: Fiscal Years Ended July 31, 2021 2020 2021 2020 2021 2020 Satellite and Space Communications Terrestrial and Wireless Networks Consolidated U.S. government 52.8 % 53.7 % 1.4 % 1.2 % 34.6 % 36.2 % Domestic 15.3 % 15.2 % 89.2 % 90.3 % 41.5 % 40.3 % Total U.S. 68.1 % 68.9 % 90.6 % 91.5 % 76.1 % 76.5 % International 31.9 % 31.1 % 9.4 % 8.5 % 23.9 % 23.5 % Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Sales at
Domestic sales include sales to commercial customers, as well as toU.S. state and local governments. Included in domestic sales are sales to Verizon, which accounted for 10.7% of consolidated net sales for fiscal 2021. Except for theU.S. government, there were no customers that represented more than 10.0% of consolidated net sales for fiscal 2020. International sales for fiscal 2021 and 2020 (which include sales toU.S. domestic companies for inclusion in products that are sold to international customers) were$138.9 million and$145.1 million , respectively. Except for theU.S. , no individual country (including sales toU.S. domestic companies for inclusion in products that are sold to a foreign country) represented more than 10% of consolidated net sales for fiscal 2021 and 2020. Gross Profit. Gross profit was$214.0 million and$226.8 million for fiscal 2021 and 2020, respectively. The decrease of$12.8 million primarily reflects the decline in consolidated net sales, as discussed above. Gross profit as a percentage of consolidated net sales was 36.8% for both fiscal periods. Our gross profit in fiscal 2021 reflects a higher percentage of consolidated net sales generated from our Terrestrial and Wireless Networks segment, offset by increased costs due to production delays, supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs resulting from the COVID-19 pandemic. In addition, our gross profit reflects start-up costs associated with the opening of our two new high-volume technology manufacturing centers. Our gross profit for fiscal 2021 also reflects a$2.0 million benefit from the refund of historical excise tax paid, which was recorded in our Unallocated segment. Gross profit, as a percentage of related segment net sales, is further discussed below. OurSatellite and Space Communications segment's gross profit, as a percentage of related segment net sales, for fiscal 2021 increased in comparison to fiscal 2020 primarily reflecting changes in products and services mix, as discussed above. Also, during fiscal 2021, we incurred$1.0 million of incremental operating costs for our antenna facility in theUnited Kingdom due to the impact of the COVID-19 pandemic. Our Terrestrial and Wireless Networks segment's gross profit, as a percentage of related segment net sales, for fiscal 2021 decreased in comparison to fiscal 2020 primarily reflecting changes in products and services mix, including the cessation of sales to AT&T for 911 wireless call routing services and an increase in sales related to a recently awarded statewide NG-911 deployment (which has lower margins than our 911 wireless call routing services). Included in consolidated cost of sales for fiscal 2021 and 2020 are provisions for excess and obsolete inventory of$4.4 million and$1.6 million , respectively. As discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Provisions for Excess and Obsolete Inventory," we regularly review our inventory and record a provision for excess and obsolete inventory based on historical and projected usage trends. 67
-------------------------------------------------------------------------------- Selling, General and Administrative Expenses. Selling, general and administrative expenses were$111.8 million and$117.1 million for fiscal 2021 and 2020, respectively, representing a decrease of$5.3 million , or 4.5%. As a percentage of consolidated net sales, selling, general and administrative expenses were 19.2% and 19.0% for fiscal 2021 and 2020, respectively. In fiscal 2021, we incurred$2.8 million of restructuring costs to streamline our operations, including$1.8 million related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility inChandler, Arizona , and$1.0 million for the consolidation of certain administrative and operating functions in our troposcatter and SATCOM solution product line. In addition, we received$3.1 million of legal expense recoveries from insurance in fiscal 2021. In fiscal 2020, we incurred estimated contract settlement costs of$0.4 million principally related to the repositioning of our trusted location and messaging solutions offerings in our Terrestrial and Wireless Networks segment. Excluding these costs in both periods, our selling, general and administrative expenses would have been$112.1 million , or 19.3% of consolidated net sales in fiscal 2021 and$116.7 million , or 18.9% of consolidated net sales in fiscal 2020. The decrease in our selling, general and administrative expenses, in dollars, is largely attributable to the benefit from our efforts to streamline business operations in ourSatellite and Space Communications segment. Amortization of stock-based compensation expenses recorded as selling, general and administrative expenses was$8.1 million in fiscal 2021 as compared to$7.5 million in fiscal 2020. Amortization of stock-based compensation is not allocated to our two reportable operating segments. Research and Development Expenses. Research and development expenses were$49.1 million and$52.2 million for fiscal 2021 and 2020, respectively, representing a decrease of$3.1 million , or 5.9%. As a percentage of consolidated net sales, research and development expenses were 8.4% and 8.5% for fiscal 2021 and 2020, respectively. For fiscal 2021 and 2020, research and development expenses of$28.0 million and$31.0 million , respectively, related to ourSatellite and Space Communications segment, and$20.1 million and$20.3 million , respectively, related to our Terrestrial and Wireless Networks segment. The remaining research and development expenses of$1.0 million and$0.9 million in fiscal 2021 and 2020, respectively, related to the amortization of stock-based compensation expense. During fiscal 2021, ourSatellite and Space Communications segment incurred$0.3 million of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations. Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During fiscal 2021 and 2020, customers reimbursed us$13.6 million and$11.9 million , respectively, which is not reflected in the reported research and development expenses but is included in net sales with the related costs included in cost of sales. Amortization of Intangibles. Amortization relating to intangible assets with finite lives was$21.0 million (of which$5.7 million was for theSatellite and Space Communications segment and$15.3 million was for the Terrestrial and Wireless Networks segment) for fiscal 2021 and$21.6 million (of which$5.1 million was for theSatellite and Space Communications segment and$16.5 million was for the Terrestrial and Wireless Networks segment) for fiscal 2020. Acquisition Plan Expenses. During fiscal 2021 and 2020, we incurred acquisition plan expenses of$100.3 million and$20.8 million , respectively. For fiscal 2021,$88.3 million related to the previously announced litigation and merger termination with Gilat, including$70.0 million paid in cash to Gilat. The remaining costs in fiscal 2021 primarily related to theApril 2021 settlement of litigation associated with our 2019 acquisition of GD NG-911 as well as theMarch 2021 closing of our acquisition of UHP. These expenses are primarily recorded in our Unallocated segment. 68 -------------------------------------------------------------------------------- Operating (Loss) Income. Operating loss for fiscal 2021 was$68.3 million as compared to operating income of$15.2 million for fiscal 2020. Operating income (loss) by reportable segment is shown in the table below: Fiscal Years Ended July 31, 2021 2020 2021 2020 2021 2020 2021 2020 Satellite and Space Terrestrial and Wireless ($ in millions) Communications Networks Unallocated Consolidated Operating income (loss)$ 24.3 $ 25.5 $ 25.2 $ 29.3 $ (117.8) $ (39.6) $ (68.3) $ 15.2 Percentage of related net sales 6.5 % 6.2 % 12.2 % 14.3 % NA NA NA 2.5 %
The decrease in our
The decrease in our Terrestrial and Wireless Networks segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2021 was driven primarily by a lower gross profit percentage, partially offset by lower amortization of intangibles, as discussed above. The increase in unallocated expenses for fiscal 2021 as compared to fiscal 2020 is primarily due to acquisition plan expenses, as discussed above. Amortization of stock-based compensation was$10.0 million and$9.3 million , respectively, for fiscal 2021 and 2020. Excluding (i)$100.3 million of acquisition plan expenses; (ii)$2.8 million of restructuring costs; (iii)$1.0 million of incremental operating costs due to the impact of COVID-19; and (iv)$0.3 million of strategic emerging technology costs, consolidated operating income for fiscal 2021 would have been$36.1 million , or 6.2% of consolidated net sales. Excluding$20.8 million of acquisition plan expenses and$0.4 million of estimated contract settlement costs, consolidated operating income for fiscal 2020 would have been$36.4 million , or 5.9% of consolidated net sales. The increase, as a percentage of consolidated net sales, was due primarily to lower selling, general and administrative expenses and lower research and development expenses, offset in part by lower consolidated net sales, as discussed above. Interest Expense and Other. Interest expense was$6.8 million and$6.1 million for fiscal 2021 and 2020, respectively. Interest expense for fiscal 2021 includes$1.2 million of incremental interest expense related to a now terminated financing commitment letter. Excluding the$1.2 million , our effective interest rate (including amortization of deferred financing costs) in fiscal 2021 was approximately 2.8%.
Interest (Revenue) and Other. Interest (income) and other for fiscal years 2021 and 2020 were minimal.
(Benefit from) Provision for Income Taxes. For fiscal 2021, we recorded a tax benefit of$1.5 million as compared to a tax provision of$2.3 million for fiscal 2020. Our effective tax rate for fiscal 2021 (excluding discrete tax items) was nominal, as compared to 37.0% for fiscal 2020. The decrease from 37.0% is primarily due to the exclusion of the$70.0 million of acquisition plan expense paid to Gilat during our first quarter of fiscal 2021, as such amount was considered an unusual and infrequently occurring item. In addition, given the nature of such item, no financial statement benefit was recorded for the$70.0 million payment to Gilat. During fiscal 2021, we recorded a net discrete tax benefit of$1.6 million , primarily related to: (i) the release of valuation allowances previously established on deferred tax assets of one of our foreign subsidiaries; (ii) the finalization of certain tax accounts in connection with the filing of our fiscal 2020 federal, state and foreign income tax returns; and (iii) the settlement of certain stock-based awards during fiscal 2021.
In fiscal 2020, we recorded a net discrete tax benefit of
Net (Loss) Income Attributable to Common Stockholders. During fiscal 2021, our consolidated net loss attributable to common stockholders was$73.5 million as compared to net income of$7.0 million during fiscal 2020. 69 -------------------------------------------------------------------------------- Adjusted EBITDA. Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both fiscal 2021 and 2020 are shown in the table below (numbers in the table may not foot due to rounding): Fiscal Years Ended July 31, 2021 2020 2021 2020 2021 2020 2021 2020 Terrestrial and Wireless
($ in millions) Satellite and Space Communications Networks Unallocated Consolidated Net income (loss) $ 24.4 25.7 24.4 28.9 (122.2) (47.6)$ (73.5) 7.0 (Benefit from) provision for income taxes (0.4) - 0.8 0.3 (1.9) 2.0 (1.5) 2.3 Interest (income) and other 0.2 (0.2) - - (0.4) - (0.1) (0.2) Interest expense 0.1 - - - 6.8 6.0 6.8 6.1 Amortization of stock-based compensation - - - - 10.0 9.3 10.0 9.3 Amortization of intangibles 5.7 5.1 15.3 16.5 - - 21.0 21.6 Depreciation 3.7 3.9 5.3 5.9 0.3 0.8 9.4 10.6 Estimated contract settlement costs - 0.4 - - - - - 0.4 Acquisition plan expenses - 0.8 (1.1) - 101.3 20.0 100.3 20.8 Restructuring costs 2.8 - - - - - 2.8 - COVID-19 related costs 1.0 - - - - - 1.0 - Strategic emerging technology costs 0.3 - - - - - 0.3 - Adjusted EBITDA $ 37.8 35.7 44.8 51.7 (6.1) (9.6)$ 76.5 77.8 Percentage of related net sales 10.1 % 8.7 % 21.7 % 25.1 % NA NA 13.2 % 12.6 % The increase in consolidated Adjusted EBITDA, as a percentage of consolidated net sales, for fiscal 2021 as compared to fiscal 2020 is primarily attributable to a higher percentage of consolidated net sales in our Terrestrial and Wireless Networks segment, as well as lower consolidated selling, general and administrative expenses and research and development expenses, as discussed above.
The increase in our
The decrease in our Terrestrial and Wireless Networks segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, is primarily due to a lower gross profit percentage, as discussed above.
For a definition and explanation of Adjusted EBITDA, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Comparison of fiscal years 2022 and 2021 – Adjusted EBITDA”.
70
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Reconciliations of our GAAP consolidated operating (loss) income, net (loss)
income and net (loss) income per diluted common share for fiscal 2021 and 2020
to the corresponding Non-GAAP measures are shown in the tables below (numbers
and per share amounts in the table may not foot due to rounding). Non-GAAP net
income and net income per diluted common share reflect Non-GAAP provisions for
income taxes based on full year results, as adjusted for the Non-GAAP
reconciling items included in the tables below. We evaluate our Non-GAAP
effective income tax rate on an ongoing basis, and it can change from time to
time. Our Non-GAAP effective income tax rate can differ materially from our GAAP
effective income tax rate. In addition, due to the GAAP net loss for the period,
Non-GAAP EPS for fiscal 2021 was computed using 25,885,000 weighted average
diluted shares outstanding during the period.
Fiscal 2021
Net (Loss) Income
Operating (Loss) per
($ in millions, except for per share amounts) Income Net (Loss) Income Diluted Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported $ (68.3) $ (73.5) $ (2.86)
Acquisition plan expenses 100.3 93.3 3.60
Restructuring costs 2.8 2.1 0.08
COVID-19 related costs 1.0 0.8 0.03
Strategic emerging technology costs 0.3 0.3 0.01
Interest expense - 0.9 0.04
Net discrete tax benefit - (1.6) (0.06)
Non-GAAP measures $ 36.1 $ 22.4 $ 0.86
Fiscal 2020
Net Income per
($ in millions, except for per share amounts) Operating Income Net Income Diluted Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported $ 15.2 $ 7.0 $ 0.28
Estimated contract settlement costs 0.4 0.3 0.01
Acquisition plan expenses 20.8 13.1 0.53
Net discrete tax benefit - (1.2) (0.05)
Non-GAAP measures $ 36.4 $ 19.2 $ 0.77
71
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Cash and capital resources
Our cash and cash equivalents were
•Net cash provided by operating activities was$2.0 million for fiscal 2022 as compared to net cash used in operating activities of$40.6 million for fiscal 2021. During fiscal 2022, we paid$15.9 million in aggregate payments related to our CEO transition and settled proxy contest. Excluding such payments, net cash provided by operating activities would have been$17.9 million for fiscal 2022. During fiscal 2021, in connection with an agreement to terminate our acquisition of Gilat, we made a$70.0 million payment to Gilat. Excluding such payment, net cash provided by operating activities would have been$29.4 million for fiscal 2021. The period-over-period decrease in cash flow from operating activities (excluding the$15.9 million and$70.0 million payments) reflects overall changes in net working capital requirements, principally the timing of shipments, billings and payments. •Net cash used in investing activities for fiscal 2022 and 2021 was$19.6 million and$15.5 million , respectively. Net cash used during fiscal 2022 primarily reflects capital expenditures to build-out cloud-based computer networks to support our recent NG-911 contract wins and capital investments and building improvements in connection with the opening of our new high-volume technology manufacturing centers. Net cash used in both periods also relates to expenditures for property, plant and equipment upgrades and enhancements. •Net cash provided by financing activities was$8.4 million and$39.1 million for fiscal 2022 and 2021, respectively. During fiscal 2022, we received an aggregate of$100.0 million in proceeds related to the issuance of a new series of Convertible Preferred Stock to certain investors. During fiscal 2022, we also made net payments under our Credit Facility of$71.0 million as compared to net borrowings under our Credit Facility of$51.5 million during fiscal 2021, primarily due to the$70.0 million payment we made to Gilat. During fiscal 2022 and 2021, we paid$11.0 million and$10.3 million , respectively, in cash dividends to our common stockholders. We also made$6.1 million and$2.8 million of payments to remit employees' statutory tax withholding requirements related to the net settlement of stock-based awards during fiscal 2022 and 2021, respectively.
The Credit Facility is described below and in the “Notes to the Consolidated Financial Statements – Note (7) – Credit Facility” included in “Part II – Item 8. – Financial Statements and Supplementary Data” included in this form 10-K.
The Convertible Preferred Stock is discussed below and in "Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock" included in "Part II - Item 8. - Financial Statements and Supplementary Data" included in this Form 10-K. Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss and maximize the income we receive without significantly increasing risk. To minimize risk, we generally invest our cash and cash equivalents in money market mutual funds (both government and commercial), certificates of deposit, bank deposits, andU.S. Treasury securities. Many of our money market mutual funds invest in direct obligations of theU.S. government, bank securities guaranteed by theFederal Deposit Insurance Corporation , certificates of deposit and commercial paper and other securities issued by other companies. While we cannot predict future market conditions or market liquidity, we believe our investment policies are appropriate in the current environment. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market. In addition to making capital investments for our new high-volume manufacturing centers, we have been making significant capital expenditures and building out cloud-based computer networks to support our previously announced NG-911 contract wins for the states ofPennsylvania ,South Carolina andArizona . We expect capital investments for these and other initiatives to continue in fiscal 2023. As discussed in "Notes to Consolidated Financial Statements - Note (2) - Acquisitions -UHP Networks Inc. " included in "Part II - Item 8. - Financial Statements and Supplementary Data" included in this Form 10-K, we completed our acquisition of UHP onMarch 2, 2021 , substantially all of which was paid for with shares of our common stock. 72
-------------------------------------------------------------------------------- OnJuly 13, 2022 , we filed a$200.0 million shelf registration statement with theSEC for the sale of various types of securities, including debt. This new shelf registration statement was declared effective by theSEC as ofJuly 25, 2022 and replaces the prior unused$400.0 million shelf registration statement that expired inDecember 2021 . OnSeptember 29, 2020 , our Board of Directors authorized a new$100.0 million stock repurchase program, which replaced our prior program. The new$100.0 million stock repurchase program has no time restrictions and repurchases may be made from time to time in open-market or privately negotiated transactions, or by other means in accordance with federal securities laws. There were no repurchases of our common stock during fiscal 2022 and 2021. As discussed further in "Notes to Consolidated Financial Statements - Note (16) -"Stockholders' Equity" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Form 10-K, onJune 9, 2022 , our Board of Directors declared a cash dividend of$0.10 per common share, which was paid onAugust 19, 2022 . OnSeptember 29, 2022 , our Board of Directors declared a cash dividend of$0.10 per common share, payable onNovember 18, 2022 to stockholders of record at the close of business onOctober 19, 2022 . Future common stock dividends remain subject to compliance with financial covenants under our Credit Facility, as well as Board approval and certain voting rights of holders of our Series A Convertible Preferred Stock. Our material cash requirements are for working capital, CEO transition costs expected to be paid inOctober 2022 , capital expenditures, income tax payments, debt service, facilities lease payments, dividends related to our common stock and dividends related to our Convertible Preferred Stock, which are payable in kind or in cash at our election. We have historically met our cash requirements with funds provided by a combination of cash and cash equivalent balances, cash generated from operating activities and cash generated from equity and debt financing transactions. In our first quarter of fiscal 2022, we secured a$100.0 million strategic growth investment to enhance our financial flexibility and strengthen our ability to capitalize on large contract awards and growing customer demand by making crucial investments in our satellite and space communications and terrestrial and wireless network solutions. Based on our current revenue visibility, we believe that our existing cash and cash equivalent balances, our cash generated from operating activities and amounts potentially available under our Credit Facility will be sufficient to meet our currently anticipated cash requirements in the next twelve months and beyond. Our material cash requirements could increase beyond our current expectations due to factors such as general economic conditions, a change in government spending priorities, or larger than usual customer orders. In addition, we may choose to raise additional funds through equity and debt financing transactions to provide additional flexibility or to pursue acquisitions. Although it is difficult in the current economic and credit environment to predict the terms and conditions of financing that may be available in the future, we believe that we would have sufficient access to credit from financial institutions and/or financing from public and private debt and equity markets. Credit Facility As discussed further in "Notes to Consolidated Financial Statements - Note (7) - Credit Facility" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Form 10-K (which discussion is incorporated herein by reference), onOctober 31, 2018 , we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders. As ofJuly 31, 2022 , the amount outstanding under our Credit Facility was$130.0 million , which is reflected in the non-current portion of long-term debt on our Consolidated Balance Sheet. AtJuly 31, 2022 , we had$0.6 million of standby letters of credit outstanding under our Credit Facility related to our guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit. During fiscal 2022, we had outstanding balances under the Credit Facility ranging from$100.0 million to$212.0 million . As ofJuly 31, 2022 , our Secured Leverage Ratio was 3.50x trailing twelve months ("TTM") Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as ofJuly 31, 2022 was 8.81x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA. Although we expect our Secured Leverage Ratio to remain elevated during the first quarter of fiscal 2023, as we make payments to various vendors associated with the build-out of our high-volume technology manufacturing facilities, to support our working capital needs for our existing contracts and to make required CEO transition related payments, given our overall expected business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future. 73 -------------------------------------------------------------------------------- Convertible Preferred Stock As discussed further in "Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Form 10-K (which discussion is incorporated herein by reference), onOctober 18, 2021 , we entered into a Subscription Agreement (the "Subscription Agreement") with certain affiliates and related funds ofWhite Hat Capital Partners LP andMagnetar Capital LLC (collectively, the "Investors"), relating to the issuance and sale of up to 125,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value$0.10 per share (the "Convertible Preferred Stock"), for an aggregate purchase price of up to$125.0 million , or$1,000 per share. OnOctober 19, 2021 (the "Initial Closing Date"), pursuant to the terms of the Subscription Agreement, the Investors purchased an aggregate of 100,000 shares of Convertible Preferred Stock (the "Initial Issuance") for an aggregate purchase price of$100.0 million .
Commitments
In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment. We do not expect that these commitments, as ofJuly 31, 2022 , will materially adversely affect our liquidity. AtJuly 31, 2022 , cash payments due under contractual obligations (including estimated interest expense on our Credit Facility), excluding purchase orders that we entered into in our normal course of business, are as follows: ($ in thousands) Total Due Within 1 Year Credit Facility - principal payments$ 130,000
–
Credit Facility - interest payments 7,914
6,341
Operating and financing lease obligations 62,596
9,953
Dividends payable 2,746
2,746
Contractual cash obligations$ 203,256 $
19,040
See "Notes to Consolidated Financial Statements - Note (8) -"Leases" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Form 10-K, for additional information on our lease commitments. As discussed further in "Notes to Consolidated Financial Statements - Note (15) - Convertible Preferred Stock" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Form 10-K, the holders of the Convertible Preferred Stock have the option to redeem such shares for cash commencing inOctober 2026 . As the Convertible Preferred Stock are not mandatorily redeemable for cash, the redemption value of such shares are not presented in the table above. In the ordinary course of business, we include indemnification provisions in certain of our customer contracts. Pursuant to these agreements, we have agreed to indemnify, hold harmless and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party, including but not limited to losses related to third-party intellectual property claims. It is not possible to determine the maximum potential amount under these agreements due to a history of nominal claims and the unique facts and circumstances involved in each particular agreement. As discussed further in "Notes to Consolidated Financial Statements - Note (12) - Commitments and Contingencies," included in "Part II - Item 8.- Financial Statements and Supplementary Data," included in this Form 10-K (which discussion is incorporated herein by reference), we are subject to a number of indemnification demands and we are incurring ongoing legal expenses in connection with these matters. Our insurance policies may not cover the cost of defending indemnification claims or providing indemnification. As a result, pending or future claims asserted against us by a party that we have agreed to indemnify could result in legal costs and damages that could have a material adverse effect on our consolidated results of operations and financial condition. We have change in control agreements with certain of our executive officers and certain key employees. All of these agreements may require payments by us, in certain circumstances, including, but not limited to, a change in control of our Company or a termination of the employee. 74 -------------------------------------------------------------------------------- As further discussed in "Notes to Consolidated Financial Statements - Note (9) - "Income Taxes " included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Form 10-K (which discussion is incorporated herein by reference), our Consolidated Balance Sheet atJuly 31, 2022 includes total liabilities of$10.0 million for uncertain tax positions, including interest, any or all of which may result in a cash payment. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of any potential cash settlement with the taxing authorities.
Recent accounting pronouncements
We are required to prepare our consolidated financial statements in accordance with theFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") which is the source for all authoritativeU.S. generally accepted accounting principles, which is commonly referred to as "GAAP." The FASB ASC is subject to updates by the FASB, which are known as Accounting Standards Updates ("ASUs"). As further discussed in "Notes to Consolidated Financial Statements - Note (1)(n) - Adoption of Accounting Standards and Updates" included in "Part II - Item 8. - Financial Statements and Supplementary Data," included in this Form 10-K, during fiscal 2022, we adopted: •FASB ASU No. 2019-12, which simplifies various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. Our adoption of this ASU onAugust 1, 2021 did not have a material impact on our consolidated financial statements or disclosures. •FASB ASU No. 2020-01, which clarifies the interactions between Topics 321, 323 and 815. This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815. Our adoption of this ASU onAugust 1, 2021 did not impact our consolidated financial statements or disclosures. •FASB ASU No. 2020-06, which simplifies the accounting for convertible instruments by removing certain separation models (including the cash conversion model and the beneficial conversion feature model) for convertible instruments. As a result, for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815 or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features are no longer separated from the host contract. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost as long as no other features require bifurcation and recognition as derivatives. OnAugust 1, 2021 , we early adopted this ASU. Our early adoption of this ASU did not have any impact on our consolidated financial statements or disclosures. •FASB ASU No. 2021-08, which requires that an acquirer recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally recognized contract assets and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. OnAugust 1, 2021 , we early adopted this ASU. Our early adoption of this ASU did not have any impact on our consolidated financial statements or disclosures. 75
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