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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 2021

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-7928
CMTL-20210131_G1.JPG
(Exact name of registrant as specified in its charter)
Delaware   11-2139466
(State or other jurisdiction of incorporation /organization)   (I.R.S. Employer Identification Number)
68 South Service Road, Suite 230,
Melville, NY
   
11747
(Address of principal executive offices)   (Zip Code)
(631) 962-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class   Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $.10 per share   CMTL NASDAQ Stock Market LLC
Series A Junior Participating Cumulative Preferred Stock, par value $0.10 per share    
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes               No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes               No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Emerging growth company
Non-accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes               No
As of March 8, 2021, the number of outstanding shares of Common Stock, par value $0.10 per share, of the registrant was 26,053,684 shares.


COMTECH TELECOMMUNICATIONS CORP.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1.
2
2
3
4
6
8
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 4.
Item 6.
1

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Assets January 31, 2021 July 31, 2020
Current assets:
Cash and cash equivalents $ 30,934,000  47,878,000 
Accounts receivable, net 149,928,000  126,816,000 
Inventories, net 81,630,000  82,302,000 
Prepaid expenses and other current assets 19,417,000  20,101,000 
Total current assets 281,909,000  277,097,000 
Property, plant and equipment, net 26,136,000  27,037,000 
Operating lease right-of-use assets, net 51,020,000  30,033,000 
Goodwill 333,793,000  330,519,000 
Intangibles with finite lives, net 247,758,000  258,019,000 
Deferred financing costs, net 2,023,000  2,391,000 
Other assets, net 3,956,000  4,551,000 
Total assets $ 946,595,000  929,647,000 
Liabilities and Stockholders’ Equity    
Current liabilities:    
Accounts payable $ 38,994,000  23,423,000 
Accrued expenses and other current liabilities 79,185,000  85,161,000 
Operating lease liabilities, current 8,771,000  8,247,000 
Dividends payable 2,495,000  2,468,000 
Contract liabilities 49,990,000  40,250,000 
Interest payable 265,000  163,000 
Total current liabilities 179,700,000  159,712,000 
Non-current portion of long-term debt, net 208,000,000  149,500,000 
Operating lease liabilities, non-current 45,259,000  24,109,000 
Income taxes payable 2,286,000  1,963,000 
Deferred tax liability, net 16,442,000  17,637,000 
Long-term contract liabilities 15,066,000  9,596,000 
Other liabilities 16,558,000  17,831,000 
Total liabilities 483,311,000  380,348,000 
Commitments and contingencies (See Note 18)
Stockholders’ equity:    
Preferred stock, par value $0.10 per share; shares authorized and unissued 2,000,000
—  — 
Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 40,059,977 shares and 39,924,439 shares at January 31, 2021 and July 31, 2020, respectively
4,006,000  3,992,000 
Additional paid-in capital 570,891,000  569,891,000 
Retained earnings 330,236,000  417,265,000 
905,133,000  991,148,000 
Less:    
Treasury stock, at cost (15,033,317 shares at January 31, 2021 and July 31, 2020)
(441,849,000) (441,849,000)
Total stockholders’ equity 463,284,000  549,299,000 
Total liabilities and stockholders’ equity $ 946,595,000  929,647,000 
See accompanying notes to condensed consolidated financial statements.
2

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended January 31, Six months ended January 31,
  2021 2020 2021 2020
Net sales $ 161,292,000  161,654,000  296,510,000  331,921,000 
Cost of sales 105,612,000  101,052,000  190,622,000  207,752,000 
Gross profit 55,680,000  60,602,000  105,888,000  124,169,000 
Expenses:    
Selling, general and administrative 29,462,000  29,374,000  57,002,000  61,225,000 
Research and development 12,664,000  13,740,000  24,299,000  28,601,000 
Amortization of intangibles 4,795,000  5,229,000  10,361,000  10,435,000 
Acquisition plan expenses 3,357,000  6,025,000  94,540,000  8,414,000 
  50,278,000  54,368,000  186,202,000  108,675,000 
Operating income (loss) 5,402,000  6,234,000  (80,314,000) 15,494,000 
Other expenses (income):    
Interest expense 1,418,000  1,616,000  3,715,000  3,420,000 
Interest (income) and other (66,000) 6,000  —  (71,000)
Income (loss) before (benefit from) provision for income taxes 4,050,000  4,612,000  (84,029,000) 12,145,000 
(Benefit from) provision for income taxes (155,000) 1,117,000  (2,394,000) 2,262,000 
Net income (loss) $ 4,205,000  3,495,000  (81,635,000) 9,883,000 
Net income (loss) per share:    
Basic $ 0.17  0.14  (3.22) 0.40 
Diluted $ 0.17  0.14  (3.22) 0.40 
Weighted average number of common shares outstanding – basic 25,337,000  24,659,000  25,321,000  24,607,000 
Weighted average number of common and common equivalent shares outstanding – diluted 25,420,000  25,058,000  25,321,000  24,904,000 
 
See accompanying notes to condensed consolidated financial statements.

3

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Three months ended January 31, 2021 and 2020
Common Stock Additional
Paid-in Capital
Retained Earnings Treasury Stock Stockholders'
Equity
Shares Amount Shares Amount
Balance as of October 31, 2019 39,402,226  $ 3,940,000  $ 551,316,000  $ 424,237,000  15,033,317  $ (441,849,000) $ 537,644,000 
Equity-classified stock award compensation
—  —  1,238,000  —  —  —  1,238,000 
Proceeds from exercises of stock options
6,100  1,000  161,000  —  —  —  162,000 
Proceeds from issuance of employee stock purchase plan shares
9,875  1,000  263,000  —  —  —  264,000 
Forfeiture of restricted stock (12,652) (1,000) 1,000  —  —  —  — 
Net settlement of stock-based awards
23,506  2,000  (688,000) —  —  —  (686,000)
Common Stock issued for acquisition of CGC Technology Limited ("CGC") 323,504  32,000  11,543,000  —  —  —  11,575,000 
Cash dividends declared, net ($0.10 per share)
—  —  —  (2,432,000) —  —  (2,432,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)
—  —  —  (57,000) —  —  (57,000)
Net income
—  —  —  3,495,000  —  —  3,495,000 
Balance as of January 31, 2020 39,752,559  $ 3,975,000  $ 563,834,000  $ 425,243,000  15,033,317  $ (441,849,000) $ 551,203,000 
Balance as of October 31, 2020 40,043,753  $ 4,004,000  $ 569,422,000  $ 328,575,000  15,033,317  $ (441,849,000) $ 460,152,000 
Equity-classified stock award compensation
—  —  1,287,000  —  —  —  1,287,000 
Proceeds from issuance of employee stock purchase plan shares
15,857  2,000  185,000  —  —  —  187,000 
Net settlement of stock-based awards
367  —  (3,000) —  —  —  (3,000)
Cash dividends declared, net ($0.10 per share)
—  —  —  (2,495,000) —  —  (2,495,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)
—  —  —  (49,000) —  —  (49,000)
Net income —  —  —  4,205,000  —  —  4,205,000 
Balance as of January 31, 2021 40,059,977  $ 4,006,000  $ 570,891,000  $ 330,236,000  15,033,317  $ (441,849,000) $ 463,284,000 

See accompanying notes to condensed consolidated financial statements.

4

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Six months ended January 31, 2021 and 2020
Common Stock Additional
Paid-in Capital
Retained Earnings Treasury Stock Stockholders'
Equity
Shares Amount Shares Amount
Balance as of July 31, 2019 39,276,161  $ 3,928,000  $ 552,670,000  $ 420,333,000  15,033,317  $ (441,849,000) $ 535,082,000 
Equity-classified stock award compensation
—  —  2,117,000  —  —  —  2,117,000 
Proceeds from exercises of stock options
16,700  2,000  466,000  —  —  —  468,000 
Proceeds from issuance of employee stock purchase plan shares
20,010  2,000  508,000  —  —  —  510,000 
Issuance of restricted stock
8,858  1,000  (1,000) —  —  —  — 
Net settlement of stock-based awards
107,326  10,000  (3,469,000) —  —  —  (3,459,000)
Common stock issued for acquisition of CGC 323,504  32,000  11,543,000  —  —  —  11,575,000 
Cash dividends declared, net ($0.20 per share)
—  —  —  (4,860,000) —  —  (4,860,000)
Accrual of dividend equivalents, net of reversal ($0.20 per share)
—  —  —  (113,000) —  —  (113,000)
Net income
—  —  —  9,883,000  —  —  9,883,000 
Balance as of January 31, 2020 39,752,559  $ 3,975,000  $ 563,834,000  $ 425,243,000  15,033,317  $ (441,849,000) $ 551,203,000 
Balance as of July 31, 2020 39,924,439  $ 3,992,000  $ 569,891,000  $ 417,265,000  15,033,317  $ (441,849,000) $ 549,299,000 
Equity-classified stock award compensation
—  —  1,986,000  —  —  —  1,986,000 
Proceeds from issuance of employee stock purchase plan shares
31,122  3,000  366,000  —  —  —  369,000 
Issuance of restricted stock
35,975  4,000  (4,000) —  —  —  — 
Net settlement of stock-based awards
68,441  7,000  (1,348,000) —  —  —  (1,341,000)
Cash dividends declared, net ($0.20 per share)
—  —  —  (4,988,000) —  —  (4,988,000)
Accrual of dividend equivalents, net of reversal ($0.20 per share)
—  —  —  (191,000) —  —  (191,000)
Adoption of current expected credit loss standard —  —  —  (215,000) —  —  (215,000)
Net loss —  —  —  (81,635,000) —  —  (81,635,000)
Balance as of January 31, 2021 40,059,977  $ 4,006,000  $ 570,891,000  $ 330,236,000  15,033,317  $ (441,849,000) $ 463,284,000 

See accompanying notes to condensed consolidated financial statements. (Continued)
5

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended January 31,
  2021 2020
Cash flows from operating activities:    
Net (loss) income $ (81,635,000) 9,883,000 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization of property, plant and equipment 5,009,000  5,372,000 
Amortization of intangible assets with finite lives 10,361,000  10,435,000 
Amortization of stock-based compensation 1,986,000  2,117,000 
Amortization of deferred financing costs 368,000  369,000 
Changes in other liabilities (3,756,000) (2,067,000)
Loss on disposal of property, plant and equipment 29,000  17,000 
Provision for (benefit from) allowance for doubtful accounts 204,000  (626,000)
Provision for excess and obsolete inventory 2,444,000  932,000 
Deferred income tax (benefit) expense (287,000) 2,912,000 
Other (225,000) (32,000)
Changes in assets and liabilities, net of effects of business acquisitions:    
Accounts receivable (23,736,000) (220,000)
Inventories (1,772,000) 98,000 
Prepaid expenses and other current assets 2,124,000  (2,049,000)
Other assets (115,000) (197,000)
Accounts payable 14,481,000  2,270,000 
Accrued expenses and other current liabilities (6,734,000) 3,418,000 
Contract liabilities 15,210,000  2,119,000 
Other liabilities, non-current 3,687,000  32,000 
Interest payable 102,000  (245,000)
Income taxes payable (1,117,000) (3,271,000)
Net cash (used in) provided by operating activities (See Note (2)) (63,372,000) 31,267,000 
Cash flows from investing activities:    
Payment for acquisition of CGC, net of cash acquired (750,000) (11,165,000)
Purchases of property, plant and equipment (3,686,000) (2,508,000)
Net cash used in investing activities (4,436,000) (13,673,000)
Cash flows from financing activities:    
Net borrowings (payments) of long-term debt under Credit Facility 58,500,000  (7,000,000)
Remittance of employees' statutory tax withholding for stock awards (2,740,000) (5,246,000)
Cash dividends paid (5,237,000) (5,120,000)
Repayment of principal amounts under finance lease liabilities (28,000) (311,000)
Proceeds from issuance of employee stock purchase plan shares 369,000  510,000 
Proceeds from exercises of stock options —  468,000 
Net cash provided by (used in) financing activities 50,864,000  (16,699,000)
Net (decrease) increase in cash and cash equivalents (16,944,000) 895,000 
Cash and cash equivalents at beginning of period 47,878,000  45,576,000 
Cash and cash equivalents at end of period $ 30,934,000  46,471,000 
See accompanying notes to condensed consolidated financial statements. (Continued)


6

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six months ended January 31,
2021 2020
Supplemental cash flow disclosures:
Cash paid (received) during the period for:
Interest $ 3,208,000  3,202,000 
Income taxes, net $ (991,000) 2,624,000 
Non-cash investing and financing activities:
Reclass of finance lease right-of-use assets to property, plant and equipment $ —  698,000 
Cash dividends declared but unpaid (including accrual of dividend equivalents) $ 2,686,000  2,545,000 
Accrued additions to property, plant and equipment $ 1,132,000  787,000 
Issuance of restricted stock $ 4,000  — 
Common stock issued for acquisitions $ —  11,575,000 
Accruals related to acquisitions $ —  750,000 

See accompanying notes to condensed consolidated financial statements.

7

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)     General

The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp. and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and six months ended January 31, 2021 and 2020 are unaudited. In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods. Our results of operations for such periods are not necessarily indicative of the results of operations to be expected for the full fiscal year.

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reported period. Actual results may differ from those estimates.

Our condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements, filed with the Securities and Exchange Commission ("SEC"), for the fiscal year ended July 31, 2020 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC.

As disclosed in more detail in Note (14) - "Segment Information," we manage our business in two reportable segments: Commercial Solutions and Government Solutions.

Certain reclassifications have been made to previously reported condensed consolidated financial statements to conform to the current fiscal period presentation.

    Impact of Coronavirus Disease 2019 Pandemic ("COVID-19") on Our Business

Since March 2020, we have conducted most of our non-production related operations using remote working arrangements, curtailed most business travel, and have established social distancing safeguards. Additionally, we have experienced order delays, production delays, minor supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs. Although the COVID-19 pandemic is by no means over and additional waves of COVID-19 could again alter the business landscape, we believe that the pandemic’s worst impact on our business is largely behind us. Our long-term fundamentals remain strong and we continue to believe both of our segments are well-positioned for growth.

(2)     Acquisitions
    CGC Technology Limited

On January 27, 2020, we completed the acquisition of CGC Technology Limited ("CGC"), a privately held company located in the United Kingdom, pursuant to the Share Purchase Agreement, dated as of January 27, 2020. CGC is a leading global provider of high precision full motion fixed and mobile X/Y satellite tracking antennas, reflectors, radomes and other ground station equipment.

The acquisition has an aggregate purchase price for accounting purposes of $23,650,000, of which $12,075,000 was paid in cash and $11,575,000 was paid by the issuance of 323,504 shares of Comtech’s common stock at a volume weighted average stock price of $35.78. The fair value of consideration transferred in connection with this acquisition was $23,490,000, which was net of $160,000 of cash acquired.

We are accounting for the acquisition of CGC under the acquisition method of accounting in accordance with FASB ASC 805. The purchase price was allocated to the assets acquired and liabilities assumed, based on their fair value as of January 27, 2020, pursuant to the business combination accounting rules. Acquisition plan expenses were not included as a component of consideration transferred and were expensed in the period incurred. Pro forma financial information is not disclosed, as the acquisition was not material.

8

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the fair value of the assets acquired and liabilities assumed in connection with the CGC acquisition:
Purchase Price Allocation (1)
Measurement Period Adjustments Purchase Price Allocation
Paid in cash $ 12,075,000  —  $ 12,075,000 
Paid in common stock 11,575,000  —  11,575,000 
Purchase price at fair value $ 23,650,000  —  $ 23,650,000 
Allocation of aggregate purchase price:
Cash and cash equivalents $ 160,000  —  $ 160,000 
Current assets 5,005,000  —  5,005,000 
Property, plant and equipment 697,000  121,000  818,000 
Operating lease assets 924,000  —  924,000 
Deferred tax assets, non-current 470,000  47,000  517,000 
Non-current assets 89,000  —  89,000 
Contract liabilities (6,890,000) —  (6,890,000)
Accrued warranty obligations (1,000,000) (500,000) (1,500,000)
Other current liabilities (3,104,000) —  (3,104,000)
Non-current liabilities (1,327,000) —  (1,327,000)
Net tangible liabilities at fair value $ (4,976,000) (332,000) $ (5,308,000)
Identifiable intangibles, deferred taxes and goodwill: Estimated Useful Lives
Technology $ 6,700,000  300,000  $ 7,000,000  20 years
Customer relationships 8,100,000  (300,000) 7,800,000  19 years
Trade name 1,000,000  100,000  1,100,000  5 years
Other intangible liabilities —  (2,500,000) (2,500,000) 1.5 years
Deferred tax liabilities (2,984,000) 426,000  (2,558,000)
Goodwill 15,810,000  2,306,000  18,116,000  Indefinite
Allocation of aggregate purchase price $ 23,650,000  —  $ 23,650,000 

(1) As reported in the Company's Quarterly Report on Form 10-Q for the three months ended October 31, 2020.

The acquired identifiable intangible assets and liabilities are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets and liabilities are utilized over their estimated useful lives. The fair value of customer relationships was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future. The fair value of technology and trade name was based on the discounted capitalization of royalty expense saved because we now own the assets. The fair value of other intangible liabilities was based on the difference in cash flows related to remaining performance obligations under certain acquired contracts as compared to market terms for similar arrangements that a market participant would expect. Other intangible liabilities will be credited against the cost of sales over the remaining performance of the contracts.

Among the factors contributing to the recognition of goodwill, as a component of the purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Government Solutions segment based on specific identification and is generally not deductible for income tax purposes.

9

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Subsequent Event - Acquisition of UHP Networks Inc.

On March 2, 2021, we completed our acquisition of UHP Networks Inc. ("UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions pursuant to a stock purchase agreement initially entered into in November 2019 and amended in June 2020 and on March 2, 2021.

The initial up-front payment of approximately $24,000,000 was paid in shares of our common stock. An additional $5,000,000, payable at our option in cash and or shares of common stock, is subject to certain conditions that we expect will be satisfied within twelve months after the acquisition. The stock purchase agreement also provides for an earn-out payment of up to an additional $9,000,000, also payable at our option in cash and or common stock, if specified sales milestones are reached during the eighteen-month period ending September 30, 2022. We issued 1,026,567 shares of our common stock at closing, based on a volume weighted average price of approximately $28.14 per share, to satisfy initial payment and escrow arrangements under the terms of the stock purchase agreement.
Acquisition Plan Expenses

During the three and six months ended January 31, 2021 and 2020, we incurred acquisition plan expenses of $3,357,000 and $6,025,000 and $94,540,000 and $8,414,000, respectively. Of the amount recorded in the six months ended January 31, 2021, $88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, Ltd. ("Gilat"), including $70,000,000 paid in cash to Gilat. The remaining costs for the three and six months ended January 31, 2021 primarily related to the acquisition of UHP and GD NG-911 acquisition-related litigation. Additionally, we recorded $1,178,000 of incremental interest expense for ticking fees related to a now terminated financing commitment letter.

Cash Flow Presentation of $70,000,000 Merger Termination Fee

Because we did not complete the Gilat acquisition, we presented the first quarter fiscal 2021 $70,000,000 payment to Gilat as a reduction to cash flows from operating activities for the period rather than as a cash outflow stemming from investing activities.

(3)     Adoption of Accounting Standards and Updates

We are required to prepare our condensed consolidated financial statements in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") which is the source for all authoritative U.S. generally accepted accounting principles, which are commonly referred to as "GAAP." The FASB ASC is subject to updates by the FASB, which are known as Accounting Standards Updates ("ASUs"). During the six months ended January 31, 2021, we adopted:

FASB ASU No. 2016-13, which requires companies to utilize an impairment model (current expected credit loss ("CECL”)) for most financial assets measured at amortized cost and certain other financial instruments, which include, but are not limited to trade receivables and contract assets. This accounting standard replaced the incurred loss model with a model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate those losses. On August 1, 2020, we adopted this ASU on a modified-retrospective basis and recorded a $215,000 decrease to opening retained earnings.

FASB ASU No. 2018-13, which modifies the disclosure requirements for fair value measurements in Topic 820. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

10

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
FASB ASU No. 2018-17, which requires entities to consider indirect interests held through related parties under common control on a proportional basis, rather than as the equivalent of a direct interest in its entirety, when determining whether a decision-making fee is a variable interest. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2018-18, which clarifies when certain transactions between collaborative arrangement participants should be accounted for under ASC 606 and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination. The ASU also precludes entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2019-08, which requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured based on the grant-date fair value of the share-based payment award. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

(4)     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.

11

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The cost-to-cost method is principally used to account for contracts in our mission-critical technologies and high-performance transmission technologies product lines and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line. For service-based contracts in our public safety and location technologies product line, we 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.

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 ground station technologies product line (which includes satellite modems, solid-state and traveling wave tube amplifiers) and certain contracts for our solid-state, high-power amplifiers in our high-performance transmission technologies product line. Point in time accounting is also applied to certain contracts in our mission-critical technologies product line. The contracts related to these product lines 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 for our products. 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.

12

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.

Almost all 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. Sales by geography and customer type, as a percentage of consolidated net sales, are as follows:
  Three months ended January 31, Six months ended January 31,
  2021 2020 2021 2020
United States    
U.S. government 44.2  % 41.5  % 38.8  % 41.2  %
Domestic 33.9  % 36.6  % 37.6  % 36.3  %
Total United States 78.1  % 78.1  % 76.4  % 77.5  %
International 21.9  % 21.9  % 23.6  % 22.5  %
Total 100.0  % 100.0  % 100.0  % 100.0  %

Sales to U.S. government customers include sales to the U.S. Department of Defense ("DoD"), intelligence and civilian agencies, as well as sales directly to or through prime contractors. Domestic sales include sales to commercial customers, as well as to U.S. state and local governments. Included in domestic sales are sales to Verizon Communications Inc. ("Verizon"), which accounted for 10.0% and 11.1% of consolidated net sales for the three and six months ended January 31, 2021, respectively. Except for the U.S. government, there were no customers that represented more than 10.0% of consolidated net sales during the three and six months ended January 31, 2020. Except for the U.S., no individual country (including sales to U.S. domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three and six months ended January 31, 2021 and 2020.

13

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following tables summarize our disaggregation of revenue consistent with information reviewed by our chief operating decision-maker ("CODM") for the three and six months ended January 31, 2021 and 2020. We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors which impact our business:

Three months ended January 31, 2021 Six months ended January 31, 2021
Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total
Geographical region and customer type
U.S. government $ 16,846,000  54,498,000  $ 71,344,000  $ 26,304,000  88,930,000  $ 115,234,000 
Domestic 47,959,000  6,684,000  54,643,000  97,259,000  14,098,000  111,357,000 
Total United States 64,805,000  61,182,000  125,987,000  123,563,000  103,028,000  226,591,000 
International 23,020,000  12,285,000  35,305,000  46,064,000  23,855,000  69,919,000 
Total $ 87,825,000  73,467,000  $ 161,292,000  $ 169,627,000  126,883,000  $ 296,510,000 
Contract type
Firm fixed-price $ 87,144,000  38,074,000  $ 125,218,000  $ 168,132,000  70,730,000  $ 238,862,000 
Cost reimbursable 681,000  35,393,000  36,074,000  1,495,000  56,153,000  57,648,000 
Total $ 87,825,000  73,467,000  $ 161,292,000  $ 169,627,000  126,883,000  $ 296,510,000 
Transfer of control
Point in time $ 37,135,000  26,535,000  $ 63,670,000  $ 66,806,000  49,566,000  $ 116,372,000 
Over time 50,690,000  46,932,000  97,622,000  102,821,000  77,317,000  180,138,000 
Total $ 87,825,000  73,467,000  $ 161,292,000  $ 169,627,000  126,883,000  $ 296,510,000 

Three months ended January 31, 2020 Six months ended January 31, 2020
Commercial Solutions Government Solutions Total Commercial Solutions Government Solutions Total
Geographical region and customer type
U.S. government $ 17,189,000  49,900,000  $ 67,089,000  $ 33,937,000  102,673,000  $ 136,610,000 
Domestic 54,003,000  5,233,000  59,236,000  107,357,000  13,274,000  120,631,000 
Total United States 71,192,000  55,133,000  126,325,000  141,294,000  115,947,000  257,241,000 
International 24,930,000  10,399,000  35,329,000  49,142,000  25,538,000  74,680,000 
Total $ 96,122,000  65,532,000  $ 161,654,000  $ 190,436,000  141,485,000  $ 331,921,000 
Contract type
Firm fixed-price $ 95,094,000  38,875,000  $ 133,969,000  $ 187,765,000  89,598,000  $ 277,363,000 
Cost reimbursable 1,028,000  26,657,000  27,685,000  2,671,000  51,887,000  54,558,000 
Total $ 96,122,000  65,532,000  $ 161,654,000  $ 190,436,000  141,485,000  $ 331,921,000 
Transfer of control
Point in time $ 43,011,000  28,675,000  $ 71,686,000  $ 80,734,000  66,460,000  $ 147,194,000 
Over time 53,111,000  36,857,000  89,968,000  109,702,000  75,025,000  184,727,000 
Total $ 96,122,000  65,532,000  $ 161,654,000  $ 190,436,000  141,485,000  $ 331,921,000 
14

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The timing of revenue recognition, billings and collections results in receivables, unbilled receivables and contract liabilities on our Condensed 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. There were no material impairment losses recognized on contract assets during the six months ended January 31, 2021 and 2020, respectively. 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. Of the contract liability balance at July 31, 2020 and July 31, 2019, $24,320,000 and $26,665,000 was recognized as revenue during the six months ended January 31, 2021 and 2020, respectively.

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 Condensed 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 Condensed 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. As of January 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $659,957,000 (which represents the amount of our consolidated funded backlog). We estimate that a substantial portion of our remaining performance obligations at January 31, 2021 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter. During the three and six months ended January 31, 2021, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(5)    Fair Value Measurements and Financial Instruments

Using the fair value hierarchy described in FASB ASC 820 "Fair Value Measurements and Disclosures," we valued our cash and cash equivalents using Level 1 inputs that were based on quoted market prices.

We believe that the carrying amounts of our other current financial assets (such as accounts receivable) and other current liabilities (including accounts payable and accrued expenses) approximate their fair values due to their short-term maturities.

The fair value of our Credit Facility that we entered into on October 31, 2018 approximates its carrying amount due to its variable interest rate and pricing grid that is dependent upon our leverage ratio as of the end of each fiscal quarter.

As of January 31, 2021 and July 31, 2020, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.
15

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(6)    Earnings Per Share

Our basic earnings per share ("EPS") is computed based on the weighted average number of common shares (including vested but unissued stock units, share units, performance shares and restricted stock units ("RSUs")), outstanding during each respective period. Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, if dilutive, outstanding during each respective period. Pursuant to FASB ASC 260 "Earnings Per Share," equity-classified stock-based awards that are subject to performance conditions are not considered in our diluted EPS calculations until the respective performance conditions have been satisfied. When calculating our diluted earnings per share, we consider the amount an employee must pay upon assumed exercise of stock-based awards and the amount of stock-based compensation cost attributed to future services and not yet recognized.

There were no repurchases of our common stock during the three or six months ended January 31, 2021 and 2020. See Note (17) - "Stockholders’ Equity" for more information.

Weighted average stock options, RSUs and restricted stock outstanding of 1,496,000 for the three months ended January 31, 2021 and 1,515,000 and 178,000 shares for the six months ended January 31, 2021 and 2020, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 237,000 and 203,000 weighted average performance shares outstanding for the three months ended January 31, 2021 and 2020, respectively, and 235,000 and 196,000 for the six months ended January 31, 2021 and 2020, respectively, as the performance conditions have not yet been satisfied. However, net income (loss) (the numerator) for EPS calculations for each respective period, is reduced by the compensation expense related to these awards.

The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:
  Three months ended January 31, Six months ended January 31,
2021 2020 2021 2020
Numerator:    
Net income (loss) for basic calculation $ 4,205,000  3,495,000  $ (81,635,000) 9,883,000 
Numerator for diluted calculation $ 4,205,000  3,495,000  $ (81,635,000) 9,883,000 
Denominator:    
Denominator for basic calculation 25,337,000  24,659,000  25,321,000  24,607,000 
Effect of dilutive securities:    
Stock-based awards 83,000  399,000  —  297,000 
Denominator for diluted calculation 25,420,000  25,058,000  25,321,000  24,904,000 
(7)     Accounts Receivable

Accounts receivable consist of the following at:
  January 31, 2021 July 31, 2020
Receivables from commercial and international customers $ 77,551,000  67,109,000 
Unbilled receivables from commercial and international customers 25,137,000  21,588,000 
Receivables from the U.S. government and its agencies 43,241,000  32,870,000 
Unbilled receivables from the U.S. government and its agencies 6,101,000  7,018,000 
Total accounts receivable 152,030,000  128,585,000 
Less allowance for doubtful accounts 2,102,000  1,769,000 
Accounts receivable, net $ 149,928,000  126,816,000 
16

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Unbilled receivables as of January 31, 2021 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date. Under ASC 606, unbilled receivables constitute contract assets. Management estimates that a substantial portion of the amounts not yet billed at January 31, 2021 will be billed and collected within one year.

Allowance for doubtful accounts as of January 31, 2021 includes $215,000 recorded at August 1, 2020 as a result of our adoption of FASB ASU No. 2016-13, which is discussed in more detail in Note (3) - "Adoption of Accounting Standards and Updates."

As of January 31, 2021, the U.S. government (and its agencies) and Verizon represented 32.5% and 12.7%, respectively, of total accounts receivable. As of July 31, 2020, except for the U.S. government (and its agencies), which represented 31.0% of total accounts receivable, there were no other customers which accounted for greater than 10.0% of total accounts receivable.

(8)     Inventories

Inventories consist of the following at:
  January 31, 2021 July 31, 2020
Raw materials and components $ 62,194,000  59,175,000 
Work-in-process and finished goods 39,569,000  42,203,000 
Total inventories 101,763,000  101,378,000 
Less reserve for excess and obsolete inventories 20,133,000  19,076,000 
Inventories, net $ 81,630,000  82,302,000 

As of January 31, 2021 and July 31, 2020, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $5,535,000 and $7,215,000, respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $1,597,000 and $1,387,000, respectively.

(9)     Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:
  January 31, 2021 July 31, 2020
Accrued wages and benefits $ 26,623,000  20,857,000 
Accrued contract costs 13,240,000  15,306,000 
Accrued warranty obligations 16,674,000  15,200,000 
Accrued legal costs 2,986,000  2,539,000 
Accrued commissions and royalties 5,225,000  4,621,000 
Accrued acquisition plan expenses 3,376,000  7,014,000 
Other 11,061,000  19,624,000 
Accrued expenses and other current liabilities $ 79,185,000  85,161,000 

Accrued contract costs represent direct and indirect costs on contracts as well as estimates of amounts owed for invoices not yet received from vendors or reflected in accounts payable.

17

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accrued warranty obligations as of January 31, 2021 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers. We generally provide warranty coverage for some of our products for a period of at least one year from the date of delivery. We record a liability for estimated warranty expense based on historical claims, product failure rates, consideration of contractual obligations, future costs to resolve software issues and other factors. Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.

Changes in our accrued warranty obligations during the six months ended January 31, 2021 and 2020 were as follows:
Six months ended January 31,
  2021 2020
Balance at beginning of period $ 15,200,000  15,968,000 
Provision for warranty obligations 2,329,000  1,937,000 
Additions (in connection with acquisitions) 500,000  1,000,000 
Charges incurred (1,355,000) (2,479,000)
Reclassification from non-current liabilities —  302,000 
Balance at end of period $ 16,674,000  16,728,000 

(10)     Credit Facility

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders.

The Credit Facility provides a senior secured loan facility of up to $550,000,000 consisting of: (i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $300,000,000; (ii) an accordion feature allowing us to borrow up to an additional $250,000,000; (iii) a $35,000,000 letter of credit sublimit; and (iv) a swingline loan credit sublimit of $25,000,000.
    
The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date"). If we issue new unsecured debt in excess of $5,000,000 with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

As of January 31, 2021, the amount outstanding under our Credit Facility was $208,000,000 which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet. At January 31, 2021, we had $2,991,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit. During the six months ended January 31, 2021, we had outstanding balances under the Credit Facility ranging from $125,000,000 to $217,000,000.

As of January 31, 2021, total net deferred financing costs related to the Credit Facility were $2,023,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended January 31, 2021 and 2020 was $1,414,000 and $1,572,000, respectively. Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the six months ended January 31, 2021 and 2020 was $2,525,000 and $3,325,000, respectively. Our blended interest rate approximated 2.73% and 4.33%, respectively, for the three months ended January 31, 2021 and 2020. Our blended interest rate approximated 2.71% and 4.51%, respectively, for the six months ended January 31, 2021 and 2020.

18

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Borrowings under the Credit Facility shall be either: (i) Alternate Base Rate borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the greatest of (a) the Prime Rate (as defined) in effect on such day, (b) the Federal Funds Effective Rate (as defined) in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate (as defined) on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00% per annum, plus (y) the Applicable Rate (as defined), or (ii) Eurodollar borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted LIBO Rate for such interest period plus (y) the Applicable Rate. Determination of the Applicable Rate is based on a pricing grid that is dependent upon our Secured Leverage Ratio (as defined) as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

The Credit Facility contains customary representations, warranties and affirmative covenants. The Credit Facility also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements. The Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business. In addition, under certain circumstances, we may be required to enter into amendments to the Credit Facility in connection with any further syndication of the Credit Facility.

The Credit Facility provides for, among other things: (i) no scheduled payments of principal until maturity; (ii) a maximum Secured Leverage Ratio of 3.75x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and a Maximum Total Leverage Ratio of 4.50x TTM Adjusted EBITDA, each with no step downs; and (iii) a Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

As of January 31, 2021, our Secured Leverage Ratio was 3.00x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as of January 31, 2021 was 12.45x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA. Given our expected future business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future.

The obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries (the "Guarantors"). As collateral security under the Credit Facility and the guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

On December 6, 2018, we entered into an amendment to the Credit Facility to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis. On January 14, 2021, we entered into a further amendment of the Credit Facility to update the LIBO Rate replacement mechanism language and other definitional items.

Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility, which has been documented and filed with the SEC.

19

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(11)     Leases
Our leases historically relate to the leasing of facilities and equipment. In accordance with FASB ASC 842 - "Leases" ("ASC 842"), we determine at inception whether an arrangement is, or contains, a lease and whether the lease should be classified as an operating or a financing lease. At lease commencement, we recognize a right-of-use ("ROU") asset and lease liability based on the present value of the future lease payments over the estimated lease term. We have elected to not recognize a ROU asset or lease liability for any leases with terms of twelve months or less. Instead, for such short-term leases, we recognize lease expense on a straight-line basis over the lease term. Certain of our leases include options to extend the term of the lease or to terminate the lease early. When it is reasonably certain that we will exercise a renewal option or will not exercise a termination option, we include the impact of exercising or not exercising such option, respectively, in the estimate of the lease term. As our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate ("IBR") on the commencement date to calculate the present value of future lease payments. Such IBR represents our estimated rate of interest to borrow on a collateralized basis over a term commensurate with the expected lease term.

Some of our leases include payments that are based on the Consumer Price Index ("CPI") or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability using the index as of the lease commencement date. Other variable lease payments, such as common area maintenance, property taxes, and usage-based amounts, are required by ASC 842 to be excluded from the ROU asset and lease liability and expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset would also consider, to the extent applicable, any deferred rent upon adoption, lease pre-payments or initial direct costs of obtaining the lease (e.g., such as commissions).

For all classes of leased assets, we elected the practical expedient to not separate lease components (i.e., the actual item being leased, such as the facility or piece of equipment) from non-lease components (i.e., the distinct elements of a contract not related to securing the use of the leased asset, such as common area maintenance and consumable supplies).

Certain of our facility lease agreements (which are classified as operating leases) contain rent holidays or rent escalation clauses. For rent holidays and rent escalation clauses during the lease term, we record rental expense on a straight-line basis over the term of the lease. As of January 31, 2021, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

The components of lease expense are as follows:

Three months ended January 31, Six months ended January 31,
2021 2020 2021 2020
Finance lease expense:
Amortization of ROU assets $ 16,000  44,000  $ 28,000  152,000 
Interest on lease liabilities 1,000  1,000  2,000  3,000 
Operating lease expense 2,861,000  2,699,000  5,349,000  5,336,000 
Short-term lease expense 255,000  878,000  502,000  1,741,000 
Variable lease expense 1,190,000  1,016,000  2,154,000  2,009,000 
Sublease income (16,000) —  (33,000) — 
Total lease expense $ 4,307,000  4,638,000  $ 8,002,000  9,241,000 

20

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Additional information related to leases is as follows:

Six months ended January 31,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating leases - Operating cash outflows $ 5,050,000  $ 5,725,000 
Finance leases - Operating cash outflows 2,000  3,000 
Finance leases - Financing cash outflows 28,000  300,000 
ROU assets obtained in the exchange for lease liabilities (non-cash):
Operating leases $ 25,663,000  $ 1,823,000 

During the second quarter of fiscal 2021, we commenced a 15-year operating lease for a facility in Chandler, Arizona and a 10-year operating lease for a facility in the United Kingdom. Accordingly, amounts related to both leases are reflected as an operating lease right-of-use assets or the related operating lease liabilities in our Condensed Consolidated Balance Sheet as of January 31, 2021.

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of January 31, 2021:

Operating Finance Total
Remainder of fiscal 2021 $ 5,355,000  16,000  $ 5,371,000 
Fiscal 2022 10,063,000  13,000  10,076,000 
Fiscal 2023 8,502,000  3,000  8,505,000 
Fiscal 2024 7,159,000  —  7,159,000 
Fiscal 2025 6,531,000  —  6,531,000 
Thereafter 25,128,000  —  25,128,000 
Total future undiscounted cash flows 62,738,000  32,000  62,770,000 
Less: Present value discount 8,708,000  3,000  8,711,000 
Lease liabilities $ 54,030,000  29,000  $ 54,059,000 
Weighted-average remaining lease terms (in years) 8.75 1.42
Weighted-average discount rate 3.56% 6.02%

We lease our Melville, New York production facility from a partnership controlled by our CEO and Chairman. Lease payments made during the six months ended January 31, 2021 and 2020 were $329,000 and $322,000, respectively. The current lease provides for our use of the premises as they exist through December 2031. The annual rent of the facility for calendar year 2021 is $665,000 and is subject to customary adjustments. We have a right of first refusal in the event of a sale of the facility.

There are no other rental commitments that have not commenced as of January 31, 2021.

21

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(12)     Income Taxes

At January 31, 2021 and July 31, 2020, total unrecognized tax benefits were $8,727,000 and $8,345,000, respectively, including interest of $125,000 and $75,000, respectively. At January 31, 2021 and July 31, 2020, $2,286,000 and 1,963,000, respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets. The remaining unrecognized tax benefits of $6,441,000 and $6,382,000 at January 31, 2021 and July 31, 2020, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets. Of the total unrecognized tax benefits, $8,009,000 and $7,700,000 at January 31, 2021 and July 31, 2020, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized. Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our condensed consolidated financial statements. We do not expect that there will be any significant changes to our total unrecognized tax benefits within the next twelve months.

Our federal income tax returns for fiscal 2017 through 2019 are subject to potential future Internal Revenue Service ("IRS") audit. None of our state income tax returns prior to fiscal 2016 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

(13)     Stock-Based Compensation

Overview

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended and/or restated from time to time (the "Plan") and our 2001 Employee Stock Purchase Plan, as amended and/or restated from time to time (the "ESPP"), and recognize related stock-based compensation in our condensed consolidated financial statements. The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants): (i) incentive and non-qualified stock options, (ii) restricted stock units ("RSUs"), (iii) RSUs with performance measures (which we refer to as "performance shares"), (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, "share units") and (vi) stock appreciation rights ("SARs"), among other types of awards. Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

As of January 31, 2021, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500. Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a stockholder who owns stock representing more than 10.0% of the voting power, no more than five years. We expect to settle all outstanding awards under the Plan and employee purchases under the ESPP with the issuance of new shares of our common stock.

As of January 31, 2021, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,395,629 shares (net of 4,410,781 expired and canceled awards), of which an aggregate of 6,929,904 have been exercised or settled.

As of January 31, 2021, the following stock-based awards, by award type, were outstanding:
  January 31, 2021
Stock options 1,331,835 
Performance shares 252,349 
RSUs and restricted stock 594,019 
Share units 287,522 
Total 2,465,725 

22

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our ESPP provides for the issuance of up to 1,050,000 shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value on the first or last day of each calendar quarter, whichever is lower. Through January 31, 2021, we have cumulatively issued 871,131 shares of our common stock to participating employees in connection with our ESPP.

Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:
  Three months ended January 31, Six months ended January 31,
  2021 2020 2021 2020
Cost of sales $ 59,000  60,000  $ 132,000  119,000 
Selling, general and administrative expenses 1,158,000  1,094,000  1,700,000  1,837,000 
Research and development expenses 70,000  84,000  154,000  161,000 
Stock-based compensation expense before income tax benefit
1,287,000  1,238,000  1,986,000  2,117,000 
Estimated income tax benefit (280,000) (271,000) (424,000) (460,000)
Net stock-based compensation expense $ 1,007,000  967,000  $ 1,562,000  1,657,000 

Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. At January 31, 2021, unrecognized stock-based compensation of $12,736,000, net of estimated forfeitures of $1,103,000, is expected to be recognized over a weighted average period of 3.3 years. Total stock-based compensation capitalized and included in ending inventory at both January 31, 2021 and July 31, 2020 was $48,000. There are no liability-classified stock-based awards outstanding as of January 31, 2021 or July 31, 2020.
    
    Stock-based compensation expense (benefit), by award type, is summarized as follows:
Three months ended January 31, Six months ended January 31,
2021 2020 2021 2020
Stock options $ 97,000  82,000  $ 217,000  164,000 
Performance shares 443,000  421,000  665,000  773,000 
RSUs and restricted stock 699,000  675,000  1,621,000  1,373,000 
ESPP 48,000  60,000  99,000  117,000 
Share units —  —  (616,000) (310,000)
Stock-based compensation expense before income tax benefit
1,287,000  1,238,000  1,986,000  2,117,000 
Estimated income tax benefit (280,000) (271,000) (424,000) (460,000)
Net stock-based compensation expense $ 1,007,000  967,000  $ 1,562,000  1,657,000 

ESPP stock-based compensation expense primarily relates to the 15% discount offered to participants in the ESPP.

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled. Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of January 31, 2021 and July 31, 2020. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.

23

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock Options

The following table summarizes the Plan's activity:
  Awards
(in Shares)
Weighted Average
Exercise Price
Weighted Average
Remaining Contractual
Term (Years)
Aggregate
Intrinsic Value
Outstanding at July 31, 2020 1,422,025  $ 26.17     
Expired/canceled (77,390) 29.90     
Outstanding at October 31, 2020 1,344,635  25.95     
Expired/canceled (12,800) 25.86     
Outstanding at January 31, 2021 1,331,835  $ 25.96  4.18 $ 1,121,000 
Exercisable at January 31, 2021 1,003,835  $ 28.58  2.51 $ 1,000 
Vested and expected to vest at January 31, 2021 1,319,141  $ 26.03  4.13 $ 1,078,000 
Stock options outstanding as of January 31, 2021 have exercise prices ranging from $17.88 - $33.94, representing the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years.

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock and share units:
    Awards
(in Shares)
Weighted Average
Grant Date
Fair Value
Aggregate
Intrinsic Value
Outstanding at July 31, 2020   999,574  $ 21.15 
Granted   383,337  16.67 
Settled   (176,051) 20.47 
Canceled/Forfeited   (65,215) 16.16 
Outstanding at October 31, 2020   1,141,645  20.03 
Settled   (526) 11.40 
Canceled/Forfeited   (7,229) 20.15 
Outstanding at January 31, 2021   1,133,890  $ 20.04  $ 24,197,000 
   
Vested at January 31, 2021   396,254  $ 16.61  $ 8,456,000 
   
Vested and expected to vest at January 31, 2021   1,085,777  $ 19.98  $ 23,170,000 

The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2021 was $9,000 and $2,905,000, respectively. The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2020 was $19,000 and $5,825,000.

The performance shares granted to employees since fiscal 2014 principally vest over a three-year performance period, if pre-established performance goals are attained, or as specified pursuant to the Plan and related agreements. As of January 31, 2021, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

24

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
RSUs and restricted stock granted to non-employee directors prior to July 31, 2019 have a vesting period of three years and are convertible into shares of our common stock generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. RSUs and restricted stock granted to non-employee directors after July 31, 2019 have a vesting period of five years. RSUs granted to employees have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one-for-one basis for no cash consideration.

Share units granted prior to July 31, 2017 were vested when issued and are convertible into shares of our common stock, generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. Share units granted on or after July 31, 2017 were granted to certain employees in lieu of non-equity incentive compensation and are convertible into shares of our common stock on the one-year anniversary of the respective grant date. Cumulatively, through January 31, 2021, 672,085 share units granted have been settled.

The fair value of performance shares, RSUs, restricted stock and share units is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive and an applicable estimated discount for any post-vesting transfer restrictions. RSUs, performance shares and restricted stock granted since fiscal 2013 are entitled to dividend equivalents unless forfeited before vesting occurs. Share units granted since fiscal 2014 are entitled to dividend equivalents while the underlying shares are unissued.

Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of settlement of the underlying award. During the three and six months ended January 31, 2021, we accrued $49,000 and $191,000, respectively, of dividend equivalents (net of forfeitures) and paid out $1,000 and $276,000, respectively. Accrued dividend equivalents were recorded as a reduction to retained earnings. As of January 31, 2021 and July 31, 2020, accrued dividend equivalents were $698,000 and $783,000, respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and six months ended January 31, 2021, we recorded income tax expense of $8,000 and $207,000, respectively, and during the three and six months ended January 31, 2020, we recorded an income tax expense of $141,000 and an income tax benefit of $471,000, respectively.

(14)     Segment Information

Reportable operating segments are determined based on Comtech’s management approach. The management approach, as defined by FASB ASC 280 - "Segment Reporting" is based on the way that the CODM organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. Our CODM, for purposes of FASB ASC 280, is our Chief Executive Officer.

Our Commercial Solutions segment offers satellite ground station technologies (such as modems and amplifiers) and public safety and location technologies (such as 911 call routing and mapping solutions) to commercial customers and smaller government customers, such as state and local governments. This segment also serves certain large government customers (including the U.S. government) that have requirements for off-the-shelf commercial equipment.

Our Government Solutions segment provides mission-critical technologies (such as tactical satellite-based networks and ongoing support for complicated communications networks) and high-performance transmission technologies (such as troposcatter systems and solid-state, high-power amplifiers) to large government end-users (including those of foreign countries), large international customers and domestic prime contractors.

25

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our CODM primarily uses a metric that we refer to as Adjusted EBITDA to measure an operating segment’s performance and to make decisions about resources to be allocated. Our Adjusted EBITDA metric for the Commercial Solutions and Government Solutions segments do not consider any allocation of indirect expense, or any of the following: income taxes, interest (income) and other, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangible assets, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, facility exit costs, strategic alternatives analysis expenses and other that relate to our Unallocated segment. These items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results. Any amounts shown in the Adjusted EBITDA calculation for our Commercial Solutions and Government Solutions segments are directly attributable to those segments. Our Adjusted EBITDA is also used by our management in assessing the Company's operating results. Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Credit Facility) utilized for financial covenant calculations and also 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.


26

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Operating segment information, along with a reconciliation of segment net income and consolidated net (loss) income to Adjusted EBITDA is presented in the tables below:

Three months ended January 31, 2021
Commercial Solutions Government Solutions Unallocated Total
Net sales $ 87,825,000  73,467,000  —  $ 161,292,000 
Operating income (loss) $ 9,371,000  5,460,000  (9,429,000) $ 5,402,000 
Net income (loss)
$ 9,283,000  5,695,000  (10,773,000) $ 4,205,000 
     Provision for (benefit from) income taxes
217,000  (286,000) (86,000) (155,000)
     Interest (income) and other
(129,000) 47,000  16,000  (66,000)
     Interest expense —  4,000  1,414,000  1,418,000 
     Amortization of stock-based compensation
—  —  1,287,000  1,287,000 
     Amortization of intangibles
4,286,000  509,000  —  4,795,000 
     Depreciation
1,934,000  443,000  80,000  2,457,000 
     Acquisition plan expenses
—  —  3,357,000  3,357,000 
     Restructuring costs 601,000  —  —  601,000 
     COVID-19 related costs —  160,000  —  160,000 
Adjusted EBITDA
$ 16,192,000  6,572,000  (4,705,000) $ 18,059,000 
Purchases of property, plant and equipment
$ 1,575,000  1,221,000  —  $ 2,796,000 
Total assets at January 31, 2021
$ 672,209,000  240,618,000  33,768,000  $ 946,595,000 

Three months ended January 31, 2020
Commercial Solutions Government Solutions Unallocated Total
Net sales $ 96,122,000  65,532,000  —  $ 161,654,000 
Operating income (loss) $ 12,619,000  5,003,000  (11,388,000) $ 6,234,000 
Net income (loss)
$ 12,702,000  5,016,000  (14,223,000) $ 3,495,000 
     (Benefit from) provision for income taxes (112,000) —  1,229,000  1,117,000 
     Interest (income) and other
20,000  (13,000) (1,000) 6,000 
     Interest expense 9,000  —  1,607,000  1,616,000 
     Amortization of stock-based compensation
—  —  1,238,000  1,238,000 
     Amortization of intangibles
4,362,000  867,000  —  5,229,000 
     Depreciation
2,183,000  312,000  226,000  2,721,000 
     Estimated contract settlement costs (262,000) —  —  (262,000)
     Acquisition plan expenses
—  —  6,025,000  6,025,000 
Adjusted EBITDA
$ 18,902,000  6,182,000  (3,899,000) $ 21,185,000 
Purchases of property, plant and equipment
$ 915,000  201,000  142,000  $ 1,258,000 
Long-lived assets acquired in connection with acquisitions $ —  31,131,000  —  $ 31,131,000 
Total assets at January 31, 2020
$ 672,336,000  233,221,000  44,385,000  $ 949,942,000 

27

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Six months ended January 31, 2021
  Commercial Solutions Government Solutions Unallocated Total
Net sales $ 169,627,000  126,883,000  —  $ 296,510,000 
Operating income (loss) $ 18,121,000  8,045,000  (106,480,000) $ (80,314,000)
Net income (loss)
$ 17,598,000  8,386,000  (107,619,000) $ (81,635,000)
     Provision for (benefit from) income taxes
556,000  (412,000) (2,538,000) (2,394,000)
     Interest (income) and other
(33,000) 7,000  26,000  — 
     Interest expense —  64,000  3,651,000  3,715,000 
     Amortization of stock-based compensation
—  —  1,986,000  1,986,000 
     Amortization of intangibles
8,573,000  1,788,000  —  10,361,000 
     Depreciation
3,930,000  846,000  233,000  5,009,000 
     Acquisition plan expenses
(1,052,000) —  95,592,000  94,540,000 
     Restructuring costs 601,000  —  601,000 
     COVID-19 related costs —  160,000  —  160,000 
Adjusted EBITDA
$ 30,173,000  10,839,000  (8,669,000) $ 32,343,000 
Purchases of property, plant and equipment
$ 1,964,000  1,642,000  80,000  $ 3,686,000 
Total assets at January 31, 2021
$ 672,209,000  240,618,000  33,768,000  $ 946,595,000 

  Six months ended January 31, 2020
  Commercial Solutions Government Solutions