ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview of Business
We are a leading provider of satellite and space communications technologies, terrestrial and wireless network solutions, Next Generation 911 ("NG-911") and emergency services and cloud native capabilities. 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 are designed to 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. Over the long-term, we anticipate future growth in our end markets due to a trend of increasing demand for global voice, video and data usage in recent years, in addition to the growth of emergency communication networks and related applications. We provide our solutions to both commercial and governmental customers.
We manage our business through two reportable operating segments:
•Satellite and Space Communications - is organized into four technology areas: satellite modem and amplifier technologies, troposcatter technologies, cybersecurity training (formerly, known as government services) and space components. This segment offers customers: satellite ground infrastructure technologies, services and system integration that facilitate the transmission of voice, video and data over GEO, MEO and LEO satellite constellations, including traveling wave tube power amplifiers, satellite modems, VSAT platforms and frequency converters; over-the-horizon microwave solutions that can transmit digitized voice, video, and data over distances up to 200 miles using the troposphere and diffraction; advanced cybersecurity training in support of U.S. government and certain commercial and university customers; and procurement and supply chain management of high reliability Electrical, Electronic and Electromechanical ("EEE") parts for satellite, launch vehicle and manned space applications.
•Allerium (formerly, Terrestrial and Wireless Networks) - is organized into three service areas: next generation 911 and call delivery, call handling solutions, and trusted location and messaging solutions. This segment offers customers: SMS text to 911 services; 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 PSAPs; wireless emergency alerts solutions for network operators; and software and equipment for location-based and text messaging services for various applications, including for public safety, commercial and government services.
Our Quarterly Financial Information
Quarterly and period-to-period sales and operating results may be significantly affected by, among other things, short-term or long-term contracts with our customers, allowances for bad debt, impairments of long-lived assets (including goodwill) and changes in the estimated fair value of derivative instruments and warrants. In addition, our gross profit is affected by a variety of factors, including, among other things, the mix of products, systems and services sold, production efficiencies, provisions for excess and obsolete inventories, 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. Our contracts with the U.S. government (or prime contractors to the U.S. government) can be terminated for convenience at any time and orders are subject to unpredictable funding, deployment and technology decisions by our customers. 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.
Please see the "Transformation Plan" section discussed above, as well as disclosures in Item 1A – Risk Factors under Part I of this Form 10-K for more information about risks pertaining to our business and those factors that can influence our future results.
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Critical Accounting Policies
We consider certain accounting policies to be critical due to the estimation process involved in each.
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. See Notes to Consolidated Financial Statements - Note (1)(d) - Revenue Recognition included in Part II - Item 8. Financial Statements and Supplementary Data (which discussion is incorporated herein by reference) and Part II - Item 9A. Controls and Procedures, included in this Form 10-K, for further information.
A cost-to-cost measure of progress 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 in our public safety and location technologies product line within our Allerium segment.
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 and calculates an estimated contract profit based on total estimated contract revenue and cost. 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.
We perform on a broad range of contracts whose revenue is recognized over time, including the development of complex and advanced customized solutions which often require the application of new technologies. Cost estimates on fixed-price development contracts and early stage/low-rate production contracts are inherently more uncertain as to future events than on mature, full-rate production contracts. As a result, for fixed-price development contracts and early stage/low-rate production contracts, there is typically more variability in those estimates and greater financial risk associated with unanticipated cost growth. Risks include, but are not limited to: technical engineering risks related to the underlying technologies being developed; schedule risks related to completing performance obligations timely; and customer risks related to changing specifications.
The estimation of contract revenue, cost and progress toward completion requires the use of judgment, which can be affected by any number of factors over time and which may cause our actual results to differ materially from those estimates, as facts and circumstances change or become known to us. Changes in estimates can occur for a variety of reasons including, but not limited to: changes in the availability, productivity and cost of labor; the effect of change orders on contract scope; the resolution of engineering risks at lower or higher costs than anticipated; the availability and cost of material components and subcontracts, as well as the performance of our subcontractors or suppliers; the impact of unanticipated changes in our customers' schedules; and changes in indirect cost allocations, such as overhead.
The impact of gross favorable and unfavorable changes in contract estimates on reported gross margin is presented in the table below:
Fiscal Years Ended July 31,
Impairment of Long-Lived Assets, Including Goodwill. As of July 31, 2025, total goodwill recorded on our Consolidated Balance Sheet aggregated $204.6 million (of which $30.5 million relates to our Satellite and Space Communications segment and $174.1 million relates to our Allerium segment). Additionally, as of July 31, 2025, net intangibles recorded on our Consolidated Balance Sheet aggregated $173.1 million (of which $41.2 million relates to our Satellite and Space Communications segment and $131.9 million relates to our Allerium segment). For purposes of reviewing impairment and the recoverability of goodwill and other intangible assets, our segments each constitute a reporting unit and we must make various assumptions in determining their estimated fair values. See Notes to Consolidated Financial Statements - Note (15) - Long-lived Assets, including Goodwill and Note (16) - Intangible Assets included in Part II - Item 8. Financial Statements and Supplementary Data (which discussion is incorporated herein by reference), included in this Form 10-K, for further information. Ongoing and future actions supporting our transformation strategy could result in a material impairment of our goodwill and/or intangible assets.
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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.
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, state and local) 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. The U.S. federal government is our most significant income tax jurisdiction.
For tax positions taken or expected to be taken in a tax return, we account for unrecognized tax benefits using a “more-likely-than-not” threshold for financial statement recognition and measurement. 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 in our GAAP results 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. We recognize potential interest and penalties related to uncertain tax positions in income tax expense. In assessing the need for a valuation allowance for deferred tax assets, we consider all positive and negative evidence, including past financial performance, timing and judgments about future taxable income and tax planning strategies. Valuation allowances are established, when necessary, to reduce net deferred tax assets to the amount "more-likely-than-not" expected to be realized. We continuously evaluate additional facts representing positive and negative evidence in determining our ability to realize these deferred tax assets. Significant judgment is required in determining income tax provisions and tax positions. The ultimate outcome of tax 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 U.S. federal income tax returns for fiscal 2022 through 2025 are subject to potential future Internal Revenue Service ("IRS") audit. None of our state and foreign income tax returns prior to fiscal 2021 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.
Capitalized Engineering 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, costs capitalized related to software developed for the purpose of selling to third parties was not material, but could increase in the future.
As it relates to software developed for the purpose of internal-use (e.g., hosted "SaaS" applications within our Allerium segment), costs capitalized primarily consist of direct labor and third-party vendor costs associated with creating the software. Software development projects generally include three stages: the preliminary project stage (all costs are expensed as incurred), the application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-implementation/operation stage (all costs are expensed as incurred). Costs capitalized in the application development stage include costs related to the design and implementation of the selected software components, software build and configuration infrastructure, and software interfaces. Capitalization of costs requires judgment in determining when a project has reached the application development stage, the proportion of time spent in the application development stage, and the period over which we expect to benefit from the use of that software. During fiscal 2025 and 2024, internal-use software costs capitalized were $3.9 million and $3.8 million, respectively. Capitalized internal use software costs are amortized once the software is placed in service on the straight-line method over the estimated useful life of the software, which is generally three years.
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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 restructure or 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. See Notes to Consolidated Financial Statements - Note (1)(f) - Inventories included in Part II - Item 8. Financial Statements and Supplementary Data (which discussion is incorporated herein by reference) and Part II - Item 9A. Controls and Procedures, included in this Form 10-K, for further information (including a discussion of provisions recorded in our first quarter of fiscal 2025 associated with certain discontinued products and operations within our Satellite and Space Communications segment).
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.
We monitor billing events, 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 and high interest rates, we continue to see requests from our customers for higher credit limits and longer payment terms. We have, on a limited basis, approved certain customer requests. Also, we can from time to time experience significant increases in the overall level of contract assets (i.e., unbilled receivables) related to large, long-term contracts with certain U.S. government, domestic and international customers. We continuously monitor our accounts receivable credit portfolio.
Except as discussed in Notes to Consolidated Financial Statements - Note (4) - Accounts Receivable included in Part II - Item 8. Financial Statements and Supplementary Data (which discussion is incorporated herein by reference),included in this Form 10-K, our overall credit losses have historically been within the allowances we established. However, we may not be able to accurately predict our future credit loss experience. 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.
Derivative Instruments and Warrant Liabilities. We evaluate our financial instruments, including our Credit Facility, Subordinated Credit Facility, Convertible Preferred Stock and warrants to issue our common stock pursuant to the terms of such instruments, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Such evaluation considers a qualitative and quantitative assessment of whether the host instrument is more debt or equity-like, and if embedded derivatives should be bifurcated from the host instrument and/or combined for accounting purposes. For derivatives that are accounted for as liabilities, the derivative is initially recorded at its estimated fair value and is then re-valued at each reporting date, with changes in its estimated fair value reported in our Consolidated Financial Statements. To estimate such fair values, with the assistance of a third party valuation expert, we primarily use Monte Carlo simulation models, on a with and without basis, or Black-Scholes option pricing models, each adjusted for instrument-specific terms. Due to the nature of our derivative instruments and warrant liabilities, we must use Level 3 inputs for estimating fair value, which are unobservable inputs developed using the best available information under the circumstances. Level 3 inputs are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect our assumptions related to how market participants would use similar inputs to price the asset or liability. Accordingly, our estimates and assumptions could prove to be inaccurate. Also, changes in such estimates and assumptions from period to period could be material to our results of operations and financial condition. See Notes to Consolidated Financial Statements - Note (1)(j) - Fair Value Measurements and Financial Instruments included in Part II - Item 8. Financial Statements and Supplementary Data (which discussion is incorporated herein by reference), for further information.
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Results of Operations
The following table sets forth, for the periods indicated, certain income and expense items expressed as a percentage of our consolidated net sales:
Fiscal Years Ended July 31,
Selling, general and administrative expenses 28.7 % 22.8 % 21.8 %
Research and development expenses 3.5 % 4.5 % 8.8 %
Amortization of intangibles 4.3 % 3.9 % 3.9 %
Impairment of long-lived assets, including goodwill 15.9 % 11.9 % — %
CEO transition costs 0.4 % 0.5 % 1.7 %
Loss on business divestiture — % 0.2 % — %
Proxy solicitation costs 0.5 % — % — %
Interest expense and other items 3.3 % 3.8 % 2.9 %
Loss before benefit from income taxes (31.1) % (18.6) % (5.6) %
Net loss attributable to common stockholders (40.9) % (25.1) % (6.2) %
Adjusted EBITDA (a Non-GAAP measure) (0.4) % 8.5 % 9.7 %
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 2025 and 2024 - Adjusted EBITDA.
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Fiscal 2025 Results and Business Outlook
Our financial performance for the fiscal year ended July 31, 2025 includes:
•Consolidated net sales of $499.5 million, compared to $540.4 million in fiscal 2024, reflecting: (a) the completion of certain legacy contracts to deliver next-generation troposcatter terminals to the U.S. Marine Corps and Army; (b) the divestiture of our high power solid state amplifiers product line in November 2023; (c) the wind down of our steerable antennas product line in the U.K.; and (d) the discontinuation of certain low-margin orders in our Satellite and Space Communications segment in order to focus on opportunities through which we can provide a more differentiated solution at higher margins; offset, in part, by growth in our: (x) Allerium segment, driven by our next-generation 911 emergency communications solutions; and (y) Satellite and Space Communications satellite ground infrastructure solutions, reflecting the ongoing shift back to higher volume production contracts as certain legacy non-recurring engineering contracts draw nearer to completion;
•Gross margin was 25.6%, compared to 29.1% in fiscal 2024, reflecting, in addition to product mix changes, an $11.4 million non-cash charge in our first quarter of fiscal 2025 related to the write down of certain inventories as a result of restructuring activities within our Satellite and Space Communications segment; our quarterly gross profit, both in dollars and as a percentage of consolidated net sales, improved sequentially throughout fiscal 2025, ultimately achieving a 31.2% gross profit percentage in our fourth quarter;
•GAAP net loss attributable to common stockholders was $204.3 million and included, among other things: a $79.6 million non-cash impairment charge related to long-lived assets, including goodwill; $48.9 million of net non-cash adjustments and paid-in-kind dividends related to our Convertible Preferred Stock; $27.9 million in amortization and write-offs of deferred financing costs, debt discount, accreted interest and interest paid-in-kind related to our senior and subordinated credit facilities; $21.7 million of intangible asset amortization; a $16.1 million non-cash charge to fully reserve for an unbilled receivable contract asset; $15.6 million of restructuring costs; the $11.4 million non-cash inventory charge discussed above; $2.7 million of proxy solicitation costs; and $2.1 million of CEO transition costs; offset, in part, by a $38.5 million non-cash benefit resulting from the remeasurement of warrants and derivatives; our quarterly GAAP net loss attributable to common stockholders improved sequentially throughout fiscal 2025, due primarily to improved operational and financial performance, which ultimately positioned us to achieve positive GAAP operating income in our fourth quarter;
•GAAP EPS loss of $6.95 and Non-GAAP EPS of $2.41;
•Adjusted EBITDA (a Non-GAAP financial measure discussed below) was negative $2.0 million, compared to Adjusted EBITDA of positive $45.7 million in fiscal 2024; we experienced sequential quarterly improvements in Adjusted EBITDA throughout fiscal 2025, with improvements from negative $30.8 million in our first quarter to positive $13.3 million in our fourth quarter;
•New bookings (also referred to as orders) of $372.7 million, resulting in an annual book-to-bill ratio of 0.75x (a measure defined as bookings divided by net sales); bookings in the third quarter included a $36.4 million debooking related to the low margin U.S. Army GFSR contract that was protested by and ultimately awarded to the incumbent in May 2025; as part of our transformation plan, we have refocused and prioritized our sales efforts to target higher margin opportunities in which we have greater differentiation;
•Backlog of $672.1 million as of July 31, 2025, compared to $798.9 million as of July 31, 2024 and $708.1 million as of April 30, 2025; new bookings and backlog do not yet include the $130.0 million plus, multi-year contract extension awarded to us by a U.S. domestic top tier mobile network operator in November 2025;
•Revenue visibility of approximately $1.1 billion as of July 31, 2025. We measure this revenue visibility as the sum of our $672.1 million of funded 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 used in operating activities of $8.3 million, reflecting sequential quarterly improvements throughout fiscal 2025 from negative $21.8 million in our first quarter to positive $11.4 million in our fourth quarter; excluding $23.0 million in aggregate payments for restructuring costs, including severance, proxy solicitation costs and CEO transition costs, fiscal 2025 cash flows provided by operating activities would have been $14.7 million; also, fiscal 2025 operating cash flows include $29.6 million of total cash paid for interest related to debt obligations and income taxes.
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As of the issuance date, we determined that we have alleviated the substantial doubt regarding our ability to continue as a going concern, which was first disclosed in December 2023. As discussed throughout this Form 10-K for the fiscal year ended July 31, 2025, such determination considered: our significantly improved operational and financial performance over recent fiscal quarters; the cumulative amendments to our senior and subordinated credit facilities (which among other things, provide for a long-term financial covenant holiday through January 31, 2027); our enhanced liquidity position; and considering our projections of future operating cash flows.
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 2025 and 2024.
Other Key Business Developments and Updates
Satellite and Space Communications
Our Satellite and Space Communications segment continues to focus on addressing performance, thoughtfully evaluating the product portfolio and implementing initiatives to improve margins and cash flow generation.
During fiscal 2025, we have revamped this segment with new leadership and streamlining; refocused our product portfolio around differentiated technology and solutions; improved accountability and process disciplines, including implementation of robust approval processes; renegotiated customer contract terms and pricing; aligned product management and program management; eliminated legacy products and services that were not contributing meaningfully to related segment net sales and or gross profits and launched new products as this segment transitions from low or no margin non-recurring engineering contracts to higher volume manufacturing orders.
As an update to our recent performance, during the fourth quarter of fiscal 2025, we were awarded a mix of orders which span across multiple product lines and included, among others:
•additional funding of approximately $10.3 million from a major U.S. prime contractor in support of NASA's Orion Production and Operations Contract ("OPOC"), commonly known as the Artemis project;
•incremental funding of approximately $7.4 million for continued, ongoing training and support of complex cybersecurity operations for U.S. government customers;
•$2.8 million in funded orders calling for the supply of Very Small Aperture Terminal (“VSAT”) equipment and related services for the U.S. Army (given the award of the follow on "VSAT IV" contract to a competitor, we do not expect material contributions from our legacy contract going forward);
•over $2.0 million in funded orders for high power Ka band traveling wave tube amplifiers for use in a satellite constellation designed to provide high speed internet access to rural areas of the U.S.;
•approximately $2.0 million in funded orders from a long-term, existing international customer for the procurement of EEE space parts and services;
•approximately $2.0 million in funded orders from the U.S. Navy for satellite ground infrastructure solutions;
•over $1.0 million in funded orders related to an international customer's replacement of an existing air traffic control network; and
•over $1.0 million in funded orders for satellite ground infrastructure solutions intended for use in the SES mPower satellite constellation.
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In fiscal 2024, we won a highly competitive $48.6 million contract to deliver next-generation Enterprise Digital Intermediate Frequency Multi-Carrier (“EDIM”) modems for the U.S. Army's satellite communications ("SATCOM") digitization and modernization programs. The advanced, software defined EDIM modem is intended to: support multiple satellite providers; become one of the primary modems used for U.S. military SATCOM, eventually replacing the Enhanced Bandwidth Efficient Modem ("EBEM"); and provide the U.S. Army, Navy and Air Force with a digitized, hybrid satellite network architecture. We are progressing with our efforts on this contract and pleased to have recently secured incremental funding from the customer for additional work, as well as funding for initial production quantities to be delivered following the completion of final acceptance testing, currently anticipated in fiscal 2026.
During fiscal 2025, we began deliveries of initial production units to our prime contractor in support of a next-generation satellite modem contract and will be moving into full production during fiscal 2026, as the program transitions from a multi-year development period into a production-oriented stage. A second next-generation product with the same prime contractor has also significantly progressed in development and is also expected to begin production deliveries in fiscal 2026. These are important milestones for the S&S segment, as they address the long-awaited migration from low-margin nonrecurring engineering efforts to higher volume production with improved operating margins and faster cash conversion cycles.
In our troposcatter product line, throughout most of fiscal 2024, we experienced elevated levels of receivables due to the timing of our performance on and billings and collections related to certain large U.S. government and international customer contracts. During principally the first half of fiscal 2025, we maintained deliveries of next-generation troposcatter terminals related to our U.S. Marine Corps and Army end user contracts, contributing to a 26% year-over-year reduction in our consolidated receivables, net as of July 31, 2025. In December 2024, however, we received notice from our prime contractor to stop work associated with the U.S. Marine Corps contract. Such contract was subsequently terminated. We have initiated litigation against the prime contractor in order to enforce our rights and recover $15.7 million of total receivables related to this contract as of July 31, 2025. While we believe that we have meritorious claims, some or all of such receivables could be at risk of not being collected. Future results of operations related to our troposcatter solutions product line depend, in part, on the nature, timing and amount associated with resolving this matter.
In September 2025, as part of our cost savings plans, we made the decision to migrate certain production capabilities and operational functions to our manufacturing operations in Chandler, Arizona. Such initiative is expected to be completed in fiscal 2026, result in increased manufacturing efficiencies, allow us to further optimize our facilities footprint and result in recurring annualized cost savings of approximately $3.0 million.
Allerium
With strategic wins in the U.S., Canada and Australia, we believe Comtech's position as a trusted leader in 911, NG-911 and public safety applications positions us increasingly well when it comes to delivering similarly sophisticated solutions for other types of emergencies. New emergency requesting devices, such as "wearables," vehicles, smart speakers and AI capable cameras, and new delivery methods, such as through satellite networks, are expected to drive innovation and growth within the public safety market over time.
As an update to our recent performance, during the fourth quarter of fiscal 2025, we were awarded a mix of orders which span across multiple product lines and included, among others:
•over $20.0 million of incremental, multi-year funding related to the continued deployment of NG-911 solutions for the State of Ohio;
•more than $4.5 million of initial funding related to the deployment of our NG-911 call handling solutions for a new customer in South Australia;
•over $3.5 million of incremental funding to migrate additional counties onto our NG-911 solutions deployed in the State of South Carolina;
•in excess of $2.0 million of funding to provide emergency location-based solutions to a mobile network operator located in Canada;
•approximately $2.0 million of incremental funding in support of an NG-911 emergency communications platform in the Northeastern region of the U.S.;
•various funded orders, aggregating approximately $2.0 million, to provide new features and security enhancements for wireless emergency alert and other location-based solutions provided to a top tier mobile network operator; and
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•over $1.5 million of incremental funding from a NG-911 customer in the Southeastern region of the U.S.
Subsequent to year end, in November 2025, Allerium secured a multi-year contract extension from its largest customer – a leading telecommunications company in the U.S. known for its network reliability and security. This contract award is valued in excess of $130.0 million and is for a scalable service. The agreement reinforces Allerium's commitment to helping carriers and public safety organizations modernize critical infrastructure and optimize service reliability with confidence.
During fiscal 2025, we launched the rebranding of our Terrestrial and Wireless Networks segment to "Allerium," a fusion of “all” and “continuum.” Allerium is a name we believe symbolizes the seamless connection, collaboration, reliability and empowerment that we are focused on delivering to public safety professionals and essential service providers. Allerium reflects a brand rooted in experience, driven by innovation and built for those who protect our communities. This rebrand serves to clarify our go-to-market strategy under a single identity, which we believe reaffirms our commitment to delivering successful outcomes when it matters most. The rebrand strengthens market recognition, enhances customer trust and positions the business for sustained growth. Allerium underscores our focus on long-term value creation by improving brand equity, expanding customer reach and enabling more efficient go-to-market execution. It also increases visibility within key public safety and network markets, sectors defined by trust, reliability and innovation. While the rebrand has changed, our mission has not: to serve those who protect our communities, with technology that performs when every connection counts.
Unallocated and Other Matters, Including an Update on Comtech's Improved Capital Structure
On July 21, 2025, we entered into the third amendment to the Credit Facility which, among other things: (i) suspends, until the four-quarter period ending January 31, 2027, testing of the Net Leverage Ratio, the Fixed Charge Coverage Ratio and the Minimum EBITDA covenants; (ii) altered the interest rate margins applicable to Term Loans; (iii) delayed the scheduled repayment of a portion of the principal of the Term Loans; (iv) delayed the scheduled repayment of fees due pursuant to the second amendment to the Credit Facility; (v) reduced the Minimum EBITDA requirements; (vi) reduced the minimum quarterly Average Liquidity requirement (from $17.5 million to $15.0 million); (vii) permits us to engage in the sale or disposition of certain properties and assets (the “Specified Permitted Individual Disposition”) approved by the administrative agent, subject to the conditions to use net cash proceeds from such sale to repay outstanding principal amounts of the obligations under our credit facilities; (viii) permitted partial repayments, without premium, of approximately $28.5 million of the outstanding Term Loans and $5.8 million of the outstanding Revolver Loans; (ix) permanently reduced commitments under the Revolver Loan Facility by $2.1 million; and (x) required us to adopt management incentive and retention arrangements for key personnel in connection with the contemplation of our strategic alternatives.
We also amended the Subordinated Credit Agreement on July 21, 2025, which, among other things: (i) provided for the incurrence of a $35.0 million incremental facility, the net proceeds of which were used to pay certain transaction costs, fees and expenses incurred in connection with amendments to our credit facilities and to prepay, without premium, portions of the outstanding Term Loans and Revolver Loan under the Credit Facility, as discussed above; (ii) suspends, until the four-quarter period ending January 31, 2027, testing of the Net Leverage ratio, the Fixed Charge Coverage ratio and the Minimum EBITDA covenants; (iii) modified the interest rate applicable to the subordinated term loans; (iv) reduced the Minimum EBITDA requirements, (v) reduced the minimum quarterly Average Liquidity requirement (from $17.5 million to $15.0 million); (vi) permits us to engage in the Specified Permitted Individual Disposition approved by the subordinated agent (subject to the same requirement with respect to the application of net cash proceeds from such Specified Permitted Individual Disposition as discussed above under the third amendment to the Credit Facility); and (vi) required us to adopt management incentive and retention arrangements for key personnel in connection with the contemplation of our strategic alternatives (also as discussed above under the third amendment to the Credit Facility). Interest on the $35.0 million shall be paid-in-kind quarterly, in arrears, by capitalizing and adding the unpaid and accrued amount of such interest to the aggregate outstanding principal amount of the incremental priority subordinated credit facility on the last business day of each quarter. Unlike the existing subordinated term loans, the incremental priority subordinated credit facility is not subject to any make-whole premium.
Collectively, we believe these actions provide us with enhanced financial flexibility, as we continue to transform our Company and pursue strategic alternatives. See Part II. - Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note (8) - Credit Facility, Note (9) - Subordinated Credit Facility and Note (17) - Convertible Preferred Stock for further information.
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In August 2025, as part of our ongoing board refreshment initiatives, our Board of Directors (the “Board”) appointed Mr. Lloyd A. Sprung as an independent director. Mr. Sprung’s extensive corporate finance, capital markets and restructuring experience qualifies him to serve on the Board. Mr. Sprung’s appointment also satisfies our obligation to appoint an independent director mutually agreed to by us and our lenders under the Credit Facility.
Business Outlook
While business conditions and our operational and financial performance have improved over the past several quarters, the operating environment remains largely unpredictable due to many factors, including but not limited to our ongoing transformation plan and the actions we may take, as well as those other matters as discussed throughout this Form 10-K, in our Note About Forward-Looking Statements in this Form 10-K and in Part 1, Item 1A. Risk Factors. Such conditions and factors have caused and could cause variability in our financial results from period to period.
Additional information related to our Fiscal 2025 Results and Business Outlook 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 2025 and 2024.
Comparison of Fiscal 2025 and 2024
Net Sales. Consolidated net sales were $499.5 million and $540.4 million for fiscal 2025 and 2024, respectively, representing a decrease of $40.9 million, or 7.6%. The decrease reflects significantly lower net sales in our Satellite and Space Communications segment offset, in part, by higher net sales in our Allerium segment, as further discussed below.
Satellite and Space Communications
Net sales in our Satellite and Space Communications segment were $269.3 million for fiscal 2025, as compared to $324.1 million for fiscal 2024, a decrease of $54.8 million, or 16.9%. Related segment net sales in fiscal 2025 primarily reflect the anticipated lower net sales of our troposcatter solutions (in particular, next-generation troposcatter terminals to the U.S. Marine Corps and Army and COMET terminals to an international customer), EEE space components and antennas (including those related to the CGC Divestiture initiated in our fourth quarter of fiscal 2024) and high-power solid state amplifiers related to the PST Divestiture (which was completed in November 2023), offset, in part, by higher net sales of our SATCOM solutions (primarily satellite ground infrastructure solutions and VSAT and similar equipment sales to the U.S. Army). More broadly, net sales in this segment reflect a favorable change in the mix of products and services sold relative to the prior year period. Net sales in fiscal 2025 reflect the discontinuation of certain low-margin business in order to focus on opportunities in which we can provide a more differentiated solution at higher margins, as well as an ongoing shift back to higher volume production orders in our satellite ground infrastructure solutions product line, as certain legacy low or no margin non-recurring engineering contracts draw nearer to completion. Our Satellite and Space Communications segment represented 53.9% of consolidated net sales for fiscal 2025, as compared to 60.0% for fiscal 2024. Our book-to-bill ratio (a measure defined as bookings divided by net sales) in this segment for fiscal 2025 was 0.62x, which includes a $36.4 million debooking associated with the U.S. Army GFSR contract that was protested and ultimately awarded to the incumbent (see Fiscal 2025 Highlights and Business Outlook above for further information).
Allerium
Net sales in our Allerium segment were $230.3 million for fiscal 2025, as compared to $216.3 million for fiscal 2024, an increase of $14.0 million, or 6.5%. Related segment net sales for fiscal 2025 reflect higher sales of our NG-911 emergency communication, call handling and location-based solutions. Our Allerium segment represented 46.1% of consolidated net sales for fiscal 2025, as compared to 40.0% for fiscal 2024. Our book-to-bill ratio in this segment for fiscal 2025 was 0.89x. Subsequent to year end, in November 2025, we were awarded a large, multi-year contract extension from a U.S. domestic mobile network operator, valued in excess of $130.0 million.
Bookings, sales and profitability in both segments can fluctuate from period-to-period due to many factors, including unpredictable funding, deployment and technology decisions by our customers and changes in the general business environment. Period-to-period fluctuations in bookings are normal for our segments. As such, period-to-period comparisons of our results may not be indicative of a trend or future performance. Also, we announced that we are exploring strategic alternatives for our businesses. Accordingly, future results of operations can be impacted by the timing and outcome of such initiatives. There can be no assurance that the exploration of strategic alternatives will result in a transaction or other strategic changes or outcomes.
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Geography and Customer Type
Sales by geography and customer type, as a percentage of related sales, for the fiscal years ended July 31, 2025 and 2024 are as follows:
Fiscal Years Ended July 31,
Satellite and Space Communications Allerium Consolidated
Sales to U.S. government customers include sales to the U.S. 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. For fiscal 2025 and 2024, except for the U.S. government, there were no customers that represented more than 10% of consolidated net sales. International sales for fiscal 2025 and 2024 (which include sales to U.S. domestic companies for inclusion in products that are sold to international customers) were $105.1 million and $115.9 million, respectively. 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% of consolidated net sales for fiscal 2025 and 2024.
Gross Profit. Gross profit was $127.9 million and $157.2 million for fiscal 2025 and 2024, respectively, a decrease of $29.3 million. Gross profit, as a percentage of consolidated net sales, for fiscal 2025 was 25.6%, as compared to 29.1% for fiscal 2024. Our gross profit (both in dollars and as a percentage of consolidated net sales) reflects: (i) overall product mix changes, as discussed above; (ii) a non-cash charge of $11.4 million related to the write down of certain inventories as a result of restructuring activities within our Satellite and Space Communications segment; (iii) higher expected costs at completion, as we advanced a non-recurring engineering related project in our Satellite and Space Communications segment (and with an international customer) through development and toward production; and (iv) the expensing of work in process inventory related to certain loss contracts in our satellite ground infrastructure product line. Excluding the non-cash inventory-related charge, our gross profit, as a percentage of consolidated net sales, for fiscal 2025 would have been 27.9%, a decrease from the 29.1% reported in fiscal 2024. In the second half of fiscal 2025, we experienced sequential improvements in our margins (both in dollars and as a percentage of consolidated net sales), with gross profit for each of the third and fourth quarters exceeding 30.0% of net sales. Also, gross profit (both in dollars and as a percentage of consolidated net sales) in fiscal 2024 was influenced by a large, high margin sale of COMET terminals to an international customer, which did not repeat in fiscal 2025. Gross profit, as a percentage of related segment net sales, is further discussed below.
Our Satellite and Space Communications segment's gross profit, both in dollars and as a percentage of related segment net sales, for fiscal 2025 decreased significantly in comparison to fiscal 2024. The gross profit percentage in the more recent period reflects changes in products and services mix, as well as other segment related items, as discussed above.
During fiscal 2025, we have revamped this segment with new leadership and streamlining; refocused our product portfolio around differentiated technology and solutions; improved accountability and process disciplines, including implementation of robust approval processes; renegotiated customer contracts terms and pricing; aligned product management and program management; eliminated legacy products and services that were not contributing meaningfully to related segment net sales and or gross profits and launched new products as this segment transitions from low or no margin non-recurring engineering contracts to higher volume manufacturing orders. As evidenced by the improvement in our gross profit percentage for this segment in the second half of fiscal 2025, we believe our margins in this segment will continue to benefit from these initiatives, and other actions we may take, over time.
Our Allerium segment's gross profit, both in dollars and as a percentage of related segment net sales, for fiscal 2025 increased in comparison to fiscal 2024. The gross profit percentage in the more recent period reflects changes in products and services mix, as discussed above. Such gross margins also reflect the continued adoption of our solutions by new customers, as well as the migration of more PSAPs onto our NG-911 core services and platforms, as we progress through initial deployments of our solutions to monthly recurring revenue streams.
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Included in consolidated cost of sales are provisions for excess and obsolete inventory of $16.2 million and $2.8 million, for fiscal 2025 and 2024, 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. As discussed above and in Notes to Consolidated Financial Statements - Note (5) - Inventories included in Part II - Item 8. Financial Statements and Supplementary Data, in connection with our initiatives to transform our Company, during the first quarter of fiscal 2025, we recorded a non-cash charge of $11.4 million within Cost of Sales on our Consolidated Statement of Operations related to the write down of inventory associated with approximately 70 products within our satellite ground infrastructure product line that were discontinued. Such non-cash charge also included the write down of inventory associated with the CGC Divestiture that was no longer considered salable during the period.
Our consolidated gross profit, as a percentage of consolidated net sales, depends on the volume of sales, sales mix and related gross profit for each segment, and therefore is inherently difficult to forecast. Our consolidated gross profit, as a percentage of consolidated net sales, may also be impacted by the timing and outcome of actions we may take related to our transformation strategy.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $143.5 million and $123.2 million for fiscal 2025 and 2024, respectively. As a percentage of consolidated net sales, selling, general and administrative expenses were 28.7% and 22.8% for fiscal 2025 and 2024, respectively. Although higher on a year-over-year basis, in fiscal 2025, we implemented actions to reduce overall spending on general and administrative activities, primarily in our Satellite and Space Communications and Unallocated segments. As a result, throughout fiscal 2025, we achieved sequential reductions in our consolidated selling, general and administrative expenses each quarter.
During fiscal 2025, we determined that an unbilled receivable contract asset related to an international customer and reseller of our troposcatter technologies was at risk of not being invoiced or collected, principally due to the customer's near-term ability to secure certain opportunities in its pipeline. As a result and considering that we offered a price concession (i.e., variable consideration) to our customer in the first quarter of fiscal 2025, we reversed $1.6 million of cumulative revenue and associated unbilled receivable contract assets related to this transaction, and recorded a non-cash charge to fully reserve for the remaining $16.1 million unbilled receivable contract asset within our allowance for doubtful accounts.
Also, during fiscal 2025 and 2024, we incurred $15.6 million and $12.5 million, respectively, of restructuring costs within selling, general and administrative expenses, primarily to streamline our operations and improving efficiency (including costs related to legal and professional fees associated with our pursuit of strategic alternatives, the wind down of our steerable antenna product line in the U.K. initiated in our fourth quarter of fiscal 2024 and severance costs).
Excluding such provision for doubtful accounts and restructuring costs, selling, general and administrative expenses for fiscal 2025 and 2024 would have been $111.8 million or 22.3% and $110.7 million or 20.5%, respectively, of consolidated net sales. The increase in our selling, general and administrative expenses, in dollars and as a percentage of consolidated net sales, excluding such items is primarily due to significantly lower consolidated net sales and higher legal and professional fees and cash-based incentive compensation, offset in part by recent divestitures (i.e., PST and CGC) and lower stock-based compensation, as discussed below.
Amortization of stock-based compensation expense recorded as selling, general and administrative expenses was $2.5 million in fiscal 2025, as compared to $4.8 million in fiscal 2024. During fiscal 2025, we reversed a portion of our stock-based compensation expense related to performance shares due to lower-than-estimated achievement of fiscal 2022 and 2023 performance share goals. Stock-based compensation expense for the more recent period also reflects the forfeiture of awards related to our former Chief Operating Officer and former Chief Executive Officer, whose employment were both terminated during the more recent period. Additionally, with respect to stock-based compensation expense reported in the prior year period, we had determined to settle fiscal 2024 non-equity annual incentive awards accrued during such period with stock-based awards in lieu of cash. Amortization of stock-based compensation is not allocated to our two reportable operating segments.
Research and Development Expenses.Research and development expenses were $17.4 million and $24.1 million for fiscal 2025 and 2024, respectively, representing a decrease of $6.7 million, or 27.8%. As a percentage of consolidated net sales, research and development expenses were 3.5% and 4.5% for fiscal 2025 and 2024, respectively.
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For fiscal 2025 and 2024, research and development expenses of $5.6 million and $12.9 million, respectively, related to our Satellite and Space Communications segment, and $11.6 million and $10.6 million, respectively, related to our Allerium segment. The remaining research and development expenses of $0.2 million and $0.6 million in fiscal 2025 and 2024, respectively, related to the amortization of stock-based compensation expense.
Whenever possible, we seek customer funding for research and development to adapt our products to specialized customer requirements. During fiscal 2025 and 2024, customers reimbursed us $22.8 million and $23.0 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.
In addition to increases in customer-funded research and development activities in recent years, in fiscal 2025 and 2024, we also experienced an increase in engineering efforts related to cost to fulfill contract assets and internal use software, for which we capitalized $6.8 million and $6.7 million, respectively. As a result of these trends, a more focused prioritization of resources across various programs and the impact of prior reductions in force announced in fiscal 2023, our internal research and development expenses for financial reporting purposes has significantly decreased more recently as compared to historical periods.
During fiscal 2025 and 2024, we incurred $0.3 million and $4.1 million, respectively, of strategic emerging technology costs in our Satellite and Space Communications segment for next-generation satellite technology to advance our solutions offerings to be used with newer broadband satellite constellations. As a result of our decision to cease operations related to our steerable antenna product line in the U.K., we do not expect to incur similar strategic emerging technology costs in the future.
Amortization of Intangibles. Amortization relating to intangible assets with finite lives was $21.7 million for fiscal 2025 (of which $7.2 million was for the Satellite and Space Communications segment and $14.5 million was for the Allerium segment) and $21.2 million for fiscal 2024 (of which $6.7 million was for the Satellite and Space Communications segment and $14.5 million was for the Allerium segment). The increase in our Satellite and Space Communications segment's amortization during the more recent period reflects the impact of our decision to wind down our steerable antenna product line in the U.K.
Impairment of Long-lived Assets, including Goodwill. Based on lower-than-expected financial performance during the first quarter of fiscal 2025 within our Satellite and Space Communications segment, and other factors, we determined that we were required to perform an interim quantitative goodwill impairment test as of October 31, 2024. Based on our quantitative evaluation, we determined that our Satellite and Space Communications reporting unit had an estimated fair value below its carrying value and concluded that our goodwill in this reporting unit was impaired. As a result, in the first quarter of fiscal 2025, we recognized a $79.6 million non-cash goodwill impairment charge in our Satellite and Space Communications reporting unit. In addition to testing goodwill for impairment, we also assessed the recoverability of the carrying values of our other long-lived assets in this segment, including identifiable intangible assets with finite useful lives. Based on our evaluation, we determined that the fair values of such assets were not impaired. We performed our next quantitative goodwill impairment test as of August 1, 2025 (i.e., the start of our fiscal 2026) and determined that our Satellite and Space Communications and Allerium reporting units had estimated fair values in excess of their carrying values and concluded that our goodwill as of such date was not impaired. See Notes to Consolidated Financial Statements included in Part II - Item 8. Financial Statements and Supplementary Data included in this Form 10-K for further information.
Proxy Solicitation Costs. During fiscal 2025, we incurred $2.7 million of proxy solicitation costs (including legal and advisory fees) in our Unallocated segment as a result of a now-settled proxy contest. There were no similar costs in fiscal 2024.
CEO Transition Costs. During fiscal 2025 and 2024, we recorded $2.1 million and $2.9 million, respectively, related to CEO transition costs. Such Unallocated expenses primarily represent legal expenses related to a former CEO, severance related to another former CEO, third party CEO search firm expenses and expenses related to a sign on bonus for our current CEO.
Loss on Business Divestiture. In connection with the PST Divestiture, during fiscal 2024, we recorded a $1.2 million loss in our Unallocated segment due to the acquirer not achieving certain post-divestiture earn-out criteria. Although a loss for GAAP purposes, the PST Divestiture resulted in a gain for tax purposes. However, we completed the PST Divestiture in a tax efficient manner as we utilized a portion of our capital loss carryforward which is set to expire in 2026.
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Operating (Loss) Income. Operating loss for fiscal 2025 and 2024 was $139.1 million and $79.9 million, respectively. Operating (loss) income by reportable segment is shown in the table below:
Fiscal Years Ended July 31,
Percentage of related net sales NA NA 10.5 % 10.0 % NA NA NA NA
Our GAAP operating loss of $139.1 million for fiscal 2025 reflects: (i) a non-cash goodwill impairment charge of $79.6 million; (ii) $21.7 million of amortization of intangibles; (iii) $15.6 million of restructuring costs (of which $5.5 million, $0.6 million and $9.5 million related to our Satellite and Space Communications, Allerium and Unallocated segments, respectively); (iv) $3.1 million of amortization of stock-based compensation; (v) $2.7 million of proxy solicitation costs; (vi) $2.1 million of CEO transition costs; (vii) $0.3 million of strategic emerging technology costs; and (viii) $0.3 million of amortization of cost to fulfill assets, as discussed above. Excluding such items, our consolidated operating loss for fiscal 2025 would have been $13.8 million.
Our GAAP operating loss of $79.9 million for fiscal 2024 reflects: (i) a non-cash goodwill impairment charge of $64.5 million; (ii) $21.2 million of amortization of intangibles; (iii) $12.5 million of restructuring costs (of which $3.8 million, $0.6 million and $8.1 million related to our Satellite and Space Communications, Allerium and Unallocated segments, respectively); (iv) $6.1 million of amortization of stock-based compensation; (v) $4.1 million of strategic emerging technology costs; (vi) $2.9 million of CEO transition costs; (vii) a $1.2 million loss on the PST Divestiture reported in our Unallocated segment; and (viii) $1.0 million of amortization of cost to fulfill assets, as discussed above. Excluding such items, our consolidated operating income for fiscal 2024 would have been $33.5 million.
The decrease, excluding the above items, from $33.5 million of operating income to $13.8 million of operating loss for the more recent period primarily reflects lower consolidated net sales and gross profit (both in dollars and as a percentage of consolidated net sales) and higher selling, general and administrative expenses, offset in part by lower research and development expenses, as discussed above. Operating income (loss) by reportable segment is further discussed below.
The fiscal 2025 operating loss for our Satellite and Space Communications segment was significantly impacted by the $79.6 million non-cash goodwill impairment charge in the first quarter of fiscal 2025. The decrease in our Satellite and Space Communications segment operating income for fiscal 2025 also reflects significantly lower net sales and gross profit, both in dollars and as a percentage of related segment net sales (including an $11.4 million non-cash charge related to the write down of certain inventory and impact of the PST and CGC divestitures), an incremental year-over-year non-cash goodwill impairment charge, higher selling, general and administrative expenses (driven by a $16.1 million non-cash charge related to an allowance for doubtful accounts, offset in part by cost savings initiatives) and higher amortization of intangibles, offset in part by lower research and development expenses, as discussed above.
The increase in our Allerium segment operating income, both in dollars and as a percentage of the related segment net sales, for fiscal 2025 reflects higher net sales and gross profit, offset in part by higher selling, general and administrative expenses and research and development expenses, as discussed above.
Excluding the loss on the PST Divestiture, proxy solicitation costs, CEO transition costs and its respective portion of restructuring charges in each period, Unallocated expenses for fiscal 2025 would have been $37.3 million, as compared to $35.3 million for fiscal 2024. The increase in Unallocated expenses, excluding such items, was primarily due to higher selling, general and administrative expenses, as discussed above.
Interest Expense and Other. Interest expense was $45.7 million and $22.2 million for fiscal 2025 and 2024, respectively. The increase during fiscal 2025 is primarily due to: higher interest rates and fees and average debt balance outstanding during the more recent period related to our Credit Facility; accreted interest related to our Subordinated Credit Facility; the amortization of deferred financing costs and debt discounts related to both credit facilities; and the immediate expensing of certain financing fees related to refinancing and or amending our credit facilities, as discussed further in Notes to Consolidated Financial Statements - Note (8) - Credit Facility and Note (9) - Subordinated Credit Facility included in Part II - Item 8. Financial Statements and Supplementary Data. Our effective interest rate in fiscal 2025 was approximately 19.6% as compared to 12.3% in fiscal 2024. Our current cash borrowing rate under our Credit Facility is approximately 13.9%, which reflects the benefit of recent amendments to the Credit Facility and lower interest rates, as compared to 14.8% in the corresponding prior year period.
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Interest (Income) and Other. Interest (income) and other for both fiscal 2025 and 2024 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.
Write-off of Deferred Financing Costs and Debt Discounts. In connection with the October 17, 2024, March 3, 2025 and July 21, 2025 amendments to the Credit Facility and Subordinated Credit Facility, and in particular, the prepayments of Term Loan principal and reduced commitments under the Credit Facility, $9.0 million of deferred financing fees and debt discounts were immediately expensed during fiscal 2025. During fiscal 2024, in connection with the June 17, 2024 refinancing and extinguishment of the prior credit facility, we fully expensed all $1.8 million of the remaining deferred financing costs related to such credit facility.
Change in Fair Value of Warrants and Derivatives. During fiscal 2025 and 2024, we recorded a $38.5 million and $4.3 million non-cash benefit, respectively, due to the remeasurement of warrants and derivatives related to our Credit Facility, Subordinated Credit Facility and Convertible Preferred Stock. The remeasurement and resulting non-cash benefit for fiscal 2025 primarily reflects a decrease in the estimated probability of events that could result in additional and/or accelerated payments to holders of our Convertible Preferred Stock and lenders under our Subordinated Credit Facility. The remeasurement and resulting non-cash benefit for fiscal 2024 was driven by the impact of a lower market price of our common stock after the issuance of the warrants to the holders of our Convertible Preferred Stock in January 2024, offset in part by a higher market price of our common stock after the issuance of warrants to certain lenders under our Credit Facility in June 2024. See Notes to Consolidated Financial Statements - Note (8) - Credit Facility,Note (9) - Subordinated Credit Facility and Note (17) - Convertible Preferred Stock included in Part II - Item 8. Financial Statements and Supplementary Data for more information.
Benefit from Income Taxes. For fiscal 2025 and 2024, we recorded nominal tax benefits. Our effective tax rate (excluding discrete tax items) for fiscal 2025 was (0.47)%, as compared to 8.1% for fiscal 2024. The decrease in the rate is primarily due to changes in expected product and geographical mix and not providing for tax benefits on U.S. and U.K. related deferred tax assets in the more recent period. For purposes of determining our (0.47)% effective tax rate for fiscal 2025, the impairment of goodwill, the change in fair value of warrants and derivatives, proxy solicitation costs and CEO transition costs are considered significant, unusual or infrequently occurring discrete tax items and excluded from the computation of our effective tax rate.
During fiscal 2025, we recorded a net discrete tax benefit of $0.6 million primarily related to the reversal of tax contingencies no longer required due to the expiration of applicable statute of limitations and proxy solicitation costs. During fiscal 2024, we recorded a net discrete tax expense of $2.7 million, primarily related to stock-based awards and the establishment of a valuation allowance on U.S. net deferred tax assets, partially offset by the reversal of tax contingencies no longer required due to the expiration of applicable statute of limitations.
Our U.S. federal income tax returns for fiscal 2022 through 2025 are subject to potential future IRS audit. None of our state and foreign income tax returns prior to fiscal 2021 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 Stockholders. During fiscal 2025 and 2024, consolidated net loss attributable to common stockholders was $204.3 million and $135.4 million, respectively. In addition to those items discussed above: (i) fiscal 2025 includes $100.1 million of net dividends related to our Convertible Preferred Stock, offset, in part, by a $51.2 million gain related to the exchange of our Series B-1 Convertible Preferred Stock for Series B-2 Convertible Preferred Stock on October 17, 2024; and (ii) fiscal 2024 includes: (a) $19.6 million of losses related to the exchange of our Series A-1 Convertible Preferred Stock for Series B Convertible Preferred Stock on January 22, 2024 (inclusive of the initial fair value of warrants issued to such holders) and the exchange of our Series B Convertible Preferred Stock for Series B-1 Convertible Preferred Stock on June 17, 2024; (b) $11.6 million of dividends related to our Convertible Preferred Stock; and (c) $4.3 million of Series B Convertible Preferred Stock issuance costs (consisting of third party financial advisor, legal and professional fees). For GAAP purposes, net dividends related to our Convertible Preferred Stock reflect dividends paid in kind and dividends accrued at the stated rate, as well as changes in the carrying value of such Convertible Preferred Stock due to changes in the fair value of derivatives embedded in the instrument.
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Adjusted EBITDA. Adjusted EBITDA (both in dollars and as a percentage of related net sales) for both fiscal 2025 and 2024 are shown in the table below (numbers in the table may not foot due to rounding):
Fiscal Years Ended July 31,
Amortization of stock-based compensation — — — — 3.1 6.1 3.1 6.1
Impairment of long-lived assets, including goodwill 79.6 64.5 — — — — 79.6 64.5
Amortization of cost to fulfill assets 0.3 1.0 — — — — 0.3 1.0
Strategic emerging technology costs 0.3 4.1 — — — — 0.3 4.1
Proxy solicitation costs — — — — 2.7 — 2.7 —
CEO transition costs — — — — 2.1 2.9 2.1 2.9
Loss on business divestiture — — — — — 1.2 — 1.2
Percentage of related net sales:
Operating income NA NA 10.5 % 10.0 % NA NA NA NA
Adjusted EBITDA NA 9.2 % 20.7 % 20.6 % NA NA NA 8.5 %
The decrease in consolidated Adjusted EBITDA, both in dollars and as a percentage of consolidated net sales, for fiscal 2025 as compared to fiscal 2024 primarily reflects lower consolidated net sales and gross profit (both in dollars and as a percentage of consolidated net sales, and including an $11.4 million non-cash charge related to a write down of inventory) and higher selling, general and administrative expenses (driven by a $16.1 million non-cash charge related to an allowance for doubtful accounts), offset in part by lower research and development expenses, as discussed above.
The decrease in our Satellite and Space Communications segment's Adjusted EBITDA reflects significantly lower net sales and gross profit (both in dollars and as a percentage of related segment net sales, and including an $11.4 million non-cash charge related to inventory) and higher selling, general and administrative expenses (driven by a $16.1 million non-cash charge related to an allowance for doubtful accounts), offset in part by lower research and development expenses, as discussed above.
The increase in our Allerium segment's Adjusted EBITDA, both in dollars and as a percentage of related segment net sales, reflects higher gross profit (both in dollars and as a percentage of related segment net sales), offset by higher selling, general and administrative expenses and higher research and development expenses, as discussed above.
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Reconciliations of our GAAP consolidated results to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding). Non-GAAP results reflect Non-GAAP provisions for (benefits from) income taxes based on year-to-date 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 net income per diluted common share for fiscal 2024 was computed using weighted average diluted shares outstanding of 29,132,000, respectively.
Reconciliation of GAAP to Non-GAAP Earnings:
Change in fair value of warrants and derivatives — (38.5) (1.32)
Gain on extinguishment of convertible preferred stock — (51.2) (1.74)
Impairment of long-lived assets, including goodwill 79.6 79.6 2.71
Amortization of stock-based compensation 3.1 3.1 0.11
Proxy solicitation costs 2.7 2.5 0.09
Strategic emerging technology costs 0.3 0.3 0.01
Amortization of cost to fulfill assets 0.3 0.3 0.01
Net discrete tax benefit — (0.3) (0.01)
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported $ (79.9) $ (135.4) $ (4.70)
Loss on extinguishment of convertible preferred stock — 19.6 0.68
Change in fair value of warrants and derivatives — (4.3) (0.15)
Impairment of long-lived assets, including goodwill 64.5 63.8 2.21
Amortization of stock-based compensation 6.1 4.8 0.17
Strategic emerging technology costs 4.1 3.8 0.13
Loss on business divestiture 1.2 1.2 0.04
Amortization of cost to fulfill assets 1.0 1.0 0.03
Net discrete tax expense — 4.1 0.14
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Our Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before interest, income taxes, depreciation, amortization of intangibles, impairment of long-lived assets, including goodwill, amortization of cost to fulfill assets, amortization of stock-based compensation, CEO transition costs, change in fair value of warrants and derivatives, proxy solicitation costs, restructuring costs, strategic emerging technology costs (for next-generation satellite technology) and write-off of deferred financing costs and debt discounts, and in the recent past, acquisition plan expenses, change in fair value of the convertible preferred stock purchase option liability, COVID-19 related costs, facility exit costs, strategic alternatives expenses and other and loss on business divestiture. 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. Although closely aligned, our definition of Adjusted EBITDA is different than EBITDA (as such term is defined in our Credit Facility and Subordinated 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.
Adjusted EBITDA, as well as adjusted operating income (loss), net income (loss) attributable to common shareholders and net income (loss) per diluted common share, as presented in the above tables, are non-GAAP measures. These Non-GAAP measures are frequently requested by investors and analysts. We believe that investors and analysts may use these Non-GAAP measures along with other information contained in our SEC filings, including GAAP measures, 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 measures 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 our SEC filings. As we have not provided future Non-GAAP financial guidance or targets, there is no need to reconcile our business outlook to the most directly comparable GAAP measures. Furthermore, even if guidance or targets had been provided, items such as stock-based compensation, adjustments to the provision for income taxes, amortization of intangibles and interest expense, which are specific items that impact these measures, have not yet occurred, are out of our control, or cannot be predicted at this time. For example, quantification of stock-based compensation expense requires inputs such as the number of shares granted and market price that are not currently ascertainable. Accordingly, reconciliations to the Non-GAAP forward looking metrics would not be available without unreasonable effort and such unavailable reconciling items could significantly impact our financial results.
Comparison of Fiscal 2024 and 2023
A detailed discussion of fiscal 2024 items and year-over-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Fiscal 2024 and 2023 in our Annual Report on Form 10-K for the year ended July 31, 2024.
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Liquidity and Capital Resources
Our cash and cash equivalents were $40.0 million and $32.4 million at July 31, 2025 and 2024, respectively. For fiscal 2025, our cash flows reflect the following:
•Net cash used in operating activities was $8.3 million and $54.5 million for fiscal 2025 and 2024, respectively. The significant period-over-period improvement reflects favorable changes in net working capital requirements, due primarily to improved accountability and process disciplines, as well as the timing of and progress toward completion on contracts accounted for over time, including related shipments, billings and collections. These activities allowed us to reduce billed receivables, contract assets (i.e., unbilled receivables) and inventory levels in fiscal 2025. Also, as a result of our enhanced liquidity, driven by our improved operational and financial performance over the course of fiscal 2025 and recent amendments to our credit facilities, operating cash flows in the more recent period reflect our concerted efforts to reduce accounts payable in order to improve vendor relations and position ourselves to negotiate more favorable payment terms.
Operating cash flows include cash payments for interest and taxes of $27.7 million and $1.9 million, respectively, for fiscal 2025, and $18.1 million and $4.9 million, respectively, for fiscal 2024.
Operating cash flows in fiscal 2025 and 2024 also include $23.0 million and $16.0 million, respectively, in aggregate payments for restructuring costs, including severance, proxy solicitation costs, CEO transition costs and strategic emerging technology costs for next-generation satellite technology.
•Net cash used in investing activities in fiscal 2025 was $8.6 million and primarily reflects capital expenditures in our Allerium segment to build-out cloud-based computer networks and internal use software applications, as well as capital investments and building improvements in connection with our leased facilities. Net cash provided by investing activities in fiscal 2024 was $20.1 million and includes $33.2 million of net cash proceeds from the PST Divestiture.
•Net cash provided by financing activities was $24.4 million and $47.8 million for fiscal 2025 and 2024, respectively and primarily reflects the following:
•During fiscal 2025 we: (i) entered into a Subordinated Credit Facility agreement, as amended, with existing holders of our Convertible Preferred Stock and received proceeds of $100.0 million; (ii) made partial term loan repayments of $56.7 million and net revolving loan repayments of $14.9 million under our Credit Facility; and (iii) paid $4.5 million in deferred financing costs and debt discounts.
•During fiscal 2024, we: (i) entered into the Credit Facility agreement, as amended, received term loan proceeds of $157.1 million and repaid in full the outstanding borrowings under our prior credit facility; (ii) made $48.8 million in total term loan repayments; (iii) made revolving loan net repayments of $85.3 million; (iv) paid financing costs of $10.3 million in connection with our credit facilities; (v) received an aggregate of $43.2 million in net proceeds related to the issuance of our Series B Convertible Preferred Stock; (vi) and paid $4.3 million in related issuance costs (consisting of third party financial advisor, legal and professional fees).
•During fiscal 2025, we also received $2.8 million from the City of Gatineau, a province in Quebec, Canada, to fund the relocation of our existing leased facility to a new location.
The Credit Facility, Subordinated Credit Facility and Convertible Preferred Stock are discussed below and in Notes to Consolidated Financial Statements - Note (8) – Credit Facility, Note (9) - Subordinated Credit Facility and Note (17) – 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).
Liquidity
In fiscal 2025, 2024 and 2023, we reported operating losses of $139.1 million, $79.9 million and $14.7 million, respectively, and net cash used in operating activities of $8.3 million, $54.5 million and $4.4 million, respectively. At July 31, 2025 and November 7, 2025 (the date closest to the issuance date), total outstanding borrowings under our Credit Facility was $133.9 million and $135.0 million, respectively. Of such amounts, $17.6 million was drawn on the Revolver Loan at both dates.
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At July 31, 2025, October 31, 2025 and November 7, 2025, our available sources of liquidity totaled $47.0 million, $51.0 million and $50.3 million, respectively, which includes qualified cash and cash equivalents of $37.4 million, $41.4 million and $40.7 million, respectively, and the remaining available portion of the Revolver Loan of $9.6 million as of each such date.
As of the issuance date, we expect cash and cash equivalents and cash flows from both operating and financing activities to be our principal sources of liquidity. We also believe these sources of liquidity will be sufficient to fund our operating and cash commitments for investing and financing activities over the next year beyond the issuance date.
During fiscal 2025 and through the issuance date, we have taken the following actions, and implemented the following plans, to improve our operational and financial performance, enhance our liquidity and financial condition and ability to meet our financial covenants contained in our credit facilities:
•Engaged in portfolio-shaping opportunities to enhance profitability, efficiency and focus, including the elimination of legacy solutions that were not contributing meaningfully to net sales and or gross profits;
•Prioritized efforts to complete low or no margin non-recurring engineering contracts in order to accelerate our migration to higher volume and higher margin manufacturing related orders with improved cash conversion cycles;
•Developed and launched new products and services around differentiated technology and solutions;
•Improved operating profitability by entering into, or renegotiating, sales or service contracts with more favorable pricing and payment terms;
•Reduced our cost structure to better align operating expenses with revenue expectations, including facility and headcount rationalization and optimization;
•Through new leadership and improved accountability and process disciplines implemented throughout the organization, reduced our investments in working capital (e.g., accounts receivable and inventory), as well as capital expenditures; and
•Through a series of capital injections, aggregating $100.0 million in the form of subordinated debt, and amendments to our credit facilities: (i) significantly reduced senior debt and related cash interest payments due under our Credit Facility; (ii) increased the available portion of our Revolver Loan; (iii) deferred the scheduled repayment of a portion of the Term Loan and the scheduled payment of certain fees due under the Credit Facility; (iv) suspended testing of our Net Leverage Ratio, Fixed Charge Coverage Ratio and Minimum EBITDA covenants under our credit facilities until January 31, 2027; and (v) reduced the minimum quarterly average liquidity requirement under our credit facilities.
Our ability to meet future anticipated liquidity needs over the next year beyond the issuance date will largely depend on our ability to execute on our operational strategy, generate positive cash inflows from operations, maximize our borrowing capacity under our Credit Facility and or secure outside capital. Our ability to do so may also be affected by general economic, financial and other factors which are beyond our control.
Based on the foregoing, over the next year beyond the issuance date, we believe that we will: (i) be able to generate sufficient positive cash inflows and maximize our borrowing capacity under our Credit Facility to continue as a going concern, and (ii) comply with the covenants contained in our credit facilities.
Our material cash requirements are for working capital, debt service (including interest), capital expenditures, tax payments, facilities lease payments and dividends related to our Convertible Preferred Stock, which are payable in kind or in cash under certain circumstances.
Our material cash requirements could increase beyond our current expectations due to factors such as: (i) an inability to meet our current obligations under our credit facilities as they become due, or to obtain future waivers or amendments from the lenders in the event compliance is not maintained; (ii) general economic conditions; (iii) a change in the timing or amounts of government spending priorities and or contracting decisions; (iv) larger than usual customer orders; (v) a future redemption by the holders of our Convertible Preferred Stock; or (vi) actions we may take related to our transformation plan.
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Also, in light of our transformation plan initiatives, we continue to review and evaluate our capital allocation plans. Furthermore, 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.
In addition to making capital investments for our high-volume manufacturing center in our Satellite and Space Communications segment, we have also been making significant capital expenditures and building out cloud-based computer networks and internal use software applications to support customers in our Allerium segment. We expect capital investments for these and other initiatives to continue in fiscal 2026.
Our investment policy relating to our cash and cash equivalents is intended to minimize principal loss while at the same time maximize the income we receive without significantly increasing risk. To minimize risk, we generally invest excess cash and cash equivalents in money market mutual funds (both government and commercial), certificates of deposit, bank deposits, and U.S. Treasury securities. Money market mutual funds we invest in are direct obligations of the U.S. government, bank securities guaranteed by the Federal 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.
On September 29, 2020, our Board of Directors authorized a $100.0 million stock repurchase program, which replaced our prior program. The $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 and the terms of our Credit Facility. There were no repurchases of our common stock during fiscal 2025 and 2024.
In fiscal 2023, we adjusted our capital allocation plans and determined to forgo a common stock dividend. Future common stock dividends, if any, remain subject to compliance with financial covenants under our Credit Facility and Subordinated Credit Facility, as well as Board approval and certain voting rights of holders of our Convertible Preferred Stock.
At July 31, 2025, we had $0.1 million of cash deposited as collateral in connection with outstanding standby letters of credit to guarantee future performance on certain customer contracts and no commercial letters of credit outstanding.
Commitments
In the normal course of business, other than as discussed below, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment. We do not expect that these commitments, as of July 31, 2025, will materially adversely affect our liquidity. At July 31, 2025, cash payments due under contractual obligations (including estimated interest expense on our Credit Facility), excluding purchase orders that we entered into in our normal course of business, are as follows:
($ in thousands) Total Due Within 1 Year
Credit Facility - principal payments $ 133,901 4,050
Credit Facility - estimated interest payments 46,627 18,316
Subordinated Credit Facility 100,144 —
Subordinated Credit Facility Make-Whole Amount 25,700 —
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As stated above, the amounts in the above table represent cash payments due under contractual obligations. Interest payments related to our Credit Facility were calculated based the outstanding borrowings at July 31, 2025. Interest related to the Credit Facility was calculated based on the SOFR forward curve, plus the applicable margin, and does not assume any interest paid-in-kind. The Subordinated Credit Facility amount includes paid-in-kind interest through July 31, 2025 on the $35.0 million Subordinated Credit Facility Amendment No. 2 Priority Term Loan. The Subordinated Credit Facility Make-Whole Amount represents $65.0 million of the outstanding Subordinated Credit Facility principal amount, multiplied by the applicable make-whole rate for each applicable tranche as of July 31, 2025. The Subordinated Credit Facility and Make-Whole Amount are not included in the total due within one year column given the timing of such payment is subject to the timing of certain repayments, prepayments and maturity date associated with the Credit Facility. See Part II - Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note (8) - Credit Facility and Note (9) - Subordinated Credit Facility for additional discussion related to the commitments under our Credit Facility and Subordinated Credit Facility, respectively (which discussion is incorporated herein by reference), and Note (10) - Leases for additional information on our lease commitments.
As discussed further in Notes to Consolidated Financial Statements - Note (17) - Convertible Preferred Stock, included in Part II - Item 8. Financial Statements and Supplementary Data (which discussion is incorporated herein by reference), included in this Form 10-K, the holders of the Convertible Preferred Stock have the option to redeem such shares for cash: (i) in the event of the occurrence of an asset sale meeting certain criteria; (ii) on or after April 30, 2027 in the event of a satisfaction of the existing Credit Facility; and (iii) in all other cases, October 31, 2028. 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 toConsolidated Financial Statements - Note (14) - 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 entered into employment and/or change of 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 the Company or termination of the employee.
As further discussed in Notes to Consolidated Financial Statements - Note (11) - 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 at July 31, 2025 includes total liabilities of $8.1 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.
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Recent Accounting Pronouncements
We are required to prepare our 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 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, (which discussion is incorporated herein by reference), during fiscal 2025 we adopted:
•FASB ASU No. 2023-07, which requires the disclosure of significant segment expenses, by reportable segment, regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. Our adoption of this ASU impacted our disclosures only through the retrospective application to all prior periods presented. See Notes to Consolidated Financial Statements - Note (13) Segment Information included in Part II - Item 8. Financial Statements and Supplementary Data.
In addition, the following FASB ASUs have been issued and incorporated into the FASB ASC and have not yet been adopted by us as of July 31, 2025:
•FASB ASU No. 2023-09, which among other things, enhances and establishes new income tax disclosure requirements, in addition to modifying and eliminating certain existing requirements. Most notably, this ASU requires greater disaggregation of information in the effective tax rate reconciliation, including the inclusion of both percentages and amounts, specific categories and additional information for reconciling items meeting a quantitative threshold defined by the guidance. Additionally, disclosures of income taxes paid and income tax expense must be disaggregated by federal, state and foreign taxes, with income taxes paid further disaggregated for individual jurisdictions that represent 5 percent or more of total income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 (our fiscal year beginning on August 1, 2025), with early adoption permitted. We are evaluating the impact of this ASU on our consolidated financial statements and disclosures.
•FASB ASU No. 2024-03, which among other things, requires more detailed disclosures of certain categories of expenses (including purchases of inventory, employee compensation, depreciation, and amortization) that are components of existing expense captions presented on the face of the income statement. All entities are required to apply the guidance prospectively with an option for retrospective application. This ASU is effective for annual reporting periods beginning after December 15, 2026 (our fiscal year beginning on August 1, 2027), and interim periods within annual reporting periods beginning after December 15, 2027 (our interim period beginning on August 1, 2028), with early adoption permitted, as clarified in ASU No. 2025-01 issued January 6, 2025. The adoption of this guidance will impact our disclosures only and we do not expect it to have a material impact on our Consolidated Financial Statements.
•FASB ASU No. 2025-05, which among other things, provides all entities with a practical expedient that allows for the assumption that current conditions as of the balance sheet date do not change for the remaining life of the asset when estimating credit losses for such assets. This ASU is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual periods (our fiscal year beginning on August 1, 2026), with early adoption permitted. We are evaluating the impact of this ASU on our consolidated financial statements and disclosures.
•FASB ASU 2025-06, which among other things, amends the criteria for recognizing and capitalizing costs related to internal-use software by replacing the previous project stage model with a principles-based framework. Under this ASU, costs are capitalized when management has authorized and committed to funding a software project, and it is probable that the project will be completed and the software used as intended. This ASU is effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual periods (our fiscal year beginning on August 1, 2028), on either a prospective, retrospective or modified prospective transition method. We are evaluating the impact of this ASU on our consolidated financial statements and disclosures.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from borrowings under our credit facilities. Based on the amount of outstanding debt under our credit facilities, a hypothetical change in interest rates by 10% would change interest expense by approximately $2.4 million over a one-year period. Although we do not currently use interest rate derivative instruments to manage exposure to interest rate changes, we may choose to do so in the future in connection with our credit facilities.
Our earnings and cash flows are also subject to fluctuations due to changes in interest rates on our investment of available cash balances. As of July 31, 2025, we had total cash and cash equivalents of $40.0 million, which consisted of cash and highly-liquid money market deposit accounts. Many of these investments are subject to fluctuations in interest rates, which could impact our results. Based on our investment portfolio balance as of July 31, 2025, a hypothetical change in interest rates of 10% would have a nominal impact on interest income over a one-year period. Ultimately, the availability of our cash and cash equivalents is dependent on a well-functioning liquid market.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reports of Independent Registered Public Accounting Firm, Consolidated Financial Statements, Notes to Consolidated Financial Statements and Related Financial Schedule are listed in the Index to Consolidated Financial Statements and Schedule annexed hereto and are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")), which have been designed to provide reasonable assurance that the information required to be disclosed by us, in reports filed under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, carried out by us under the supervision of our Chief Executive Officer and Chief Financial Officer, and with the participation of our management, we concluded that our disclosure controls and procedures were not effective, as of July 31, 2025, as a result of the material weaknesses in our internal control over financial reporting discussed below.
Notwithstanding our material weaknesses, we have concluded that the consolidated financial statements and other financial information included in this Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the U.S. ("U.S. GAAP").
A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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Management’s Report on Internal Control Over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2025. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control – Integrated Framework (2013) (the "COSO framework"). Based on our assessment, we determined that, as of July 31, 2025, our internal control over financial reporting was not effective based on those criteria as a result of material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
We did not design and maintain an effective control environment commensurate with our financial reporting requirements based on the criteria in the COSO framework, as we lacked a sufficient complement of resources with an appropriate level of knowledge and experience to establish effective processes and controls. The control environment material weakness contributed to other material weaknesses within our system of internal control over financial reporting at the control activity level, where we did not design and implement effective control activities, including controls related to: revenue, inventory, other assets, contract liabilities and complex accounting matters and transactions (including debt, convertible preferred stock and related embedded derivatives). Deficiencies in control activities contributed to misstatements and the potential for there to have been material misstatements within these areas.
An international component of our Allerium segment had ineffective controls. Specifically, we did not design and maintain effective general information technology controls (“GITCs”) and business process controls in the following areas: (i) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to financial applications, programs and data to appropriate company personnel; (ii) program change management controls to ensure that changes to information technology (“IT”) programs and data affecting financial applications and underlying accounting records are properly identified, tested, authorized and implemented with appropriate segregation of duties; and (iii) business process controls to ensure that journal entries were not amended prior to posting, as the enterprise resource planning (“ERP”) system which the international component operates does not restrict approvers from changing journal entries prior to posting. While no material misstatements were identified with respect to this international component in fiscal 2025, these deficiencies impact control activities over all financial statement account balances, classes of transactions and disclosures and contributed to the potential for there to have been material misstatements within the international component.
Deloitte and Touche LLP, our independent registered public accounting firm, has performed an audit of our internal control over financial reporting as of July 31, 2025. Deloitte’s audit reports appear on pages F-2 and F-3 of this annual report.
Changes In Internal Control Over Financial Reporting
Other than for the material weakness related to our international component described above, which accounted for 5.7%, 4.1% and 3.3% of our consolidated total assets and 7.6%, 5.9% and 4.6% of our consolidated net sales as of and for the three fiscal years ended July 31, 2025, 2024 and 2023, respectively, and for the on-going remediation efforts described below, there have been no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our fiscal quarter ended July 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Remediation Plan
Our remediation efforts are ongoing and we will continue our initiatives to hire and engage additional skilled resources in program management and accounting and finance related functions, and implement and document policies, procedures and internal controls. Management is committed to the remediation of the material weaknesses described above.
To date, management has undertaken the following remedial actions in conjunction with its remediation plan:
•Reorganized and reassigned responsibilities for executing specific internal controls over financial reporting to staff within the finance organization whose experience aligns more closely with these responsibilities;
•Hired more qualified staff with sufficient knowledge and experience to strengthen our financial reporting;
•Engaged third-party consultants to perform a comprehensive review of our accounting and reporting functions to assist in designing our remediation plan;
•Designed and began implementing a comprehensive remediation plan to enhance our internal control environment that was approved by the Audit Committee;
•Initiated and will continue the process to document, implement and redesign controls, policies, and procedures with an appropriate level of precision to detect a material misstatement, and to retain sufficient documentation to support the operating effectiveness of controls over revenue, inventory, other assets, contract liabilities, debt, convertible preferred stock and related embedded derivatives;
•While management has made significant progress in remediating controls relating to complex accounting matters and transactions by engaging a third-party specialist with the requisite knowledge, experience and resources, the material weakness will not be considered remediated until the implemented controls operate for a sufficient period of time and management had concluded, through testing, that the related controls are effective;
•We engaged a third-party specialist with sufficient knowledge and experience to oversee our internal audit function; such individual is independent of management and reports directly to the Audit Committee; and
•With respect to our international component's operations, accounting and financial reporting, management initiated and will continue to implement proper segregation of duties and enhance control activities over GITCs.
We will continue to monitor the effectiveness of our remediation plan and refine the remediation plan as appropriate. These actions represent significant progress in addressing the material weaknesses. However, they do not represent the full suite of improvements that we plan to make in order to strengthen our internal control over financial reporting. Additional components of our remediation plan include:
•Conducting training sessions for all control owners and relevant personnel to improve documentation that supports effective control activities, including evidence of the completeness and accuracy of information used in controls;
•For those employees involved in the estimate at completion (“EAC”) process, conducting specialized training sessions related to newly designed or enhanced control activities that were put in place for preparing and reviewing an EAC and its impact on the accuracy of financial reporting; and
•With respect to our international component's operations, accounting and financial reporting, updating and documenting its policies and procedures, including IT policies and procedures and the enhancement of certain control activities over user access, change management and the review of third-party services organization reports.
Remediation of the identified material weaknesses and strengthening of our internal control environment will require a substantial effort throughout fiscal 2026 and beyond, as necessary. We will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
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ITEM 9B. OTHER INFORMATION
Securities Trading Plans of Directors and Officers
During the three months ended July 31, 2025, none of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408(a) of Regulation S-K).
Transaction Bonus Agreements and Restricted Stock Awards
On November 7, 2025, the Company approved transaction bonuses for several employees, including certain of its named executive officers, pursuant to which such recipients will be eligible to receive a cash bonus equal to a specified percentage of Transaction Proceeds in connection with a Qualifying Transaction. The percentages of Transaction Proceeds payable to each named executive officer are as follows: Mr. Bondi – 0.19%, Mr. Walther – 0.19%, Mr. Robertson – 0.216%, and Mr. Traub – 0.739%. The bonuses will be paid on the first scheduled payroll date following the closing of the Qualifying Transaction, subject to applicable tax withholdings and other authorized deductions; provided that any portion of a bonus attributable to certain contingent proceeds will be paid on the same schedule and under the same terms and conditions as apply to such contingent proceeds (but in no event later than the fifth anniversary of the closing of the Qualifying Transaction). Each recipient must remain in continued employment with the Company through the closing of a Qualifying Transaction in order to receive the bonus, and will forfeit the bonus if (i) the recipient resigns for any reason or is terminated for cause prior to the Qualifying Transaction or (ii) the Company terminates the recipient’s employment without cause more than three months prior to the Qualifying Transaction; except, that if the Company terminates a recipient’s employment without cause within three months prior to the Qualifying Transaction, the recipient will remain eligible to receive the bonus. In addition, Mr. Traub’s agreement provides that if the Company terminates his employment without Cause or he resigns for Good Reason on or prior to first anniversary of the closing of the Qualifying Transaction, in lieu of the lump sum cash severance payment that he would otherwise be entitled to under his employment agreement, he will be entitled to a cash amount equal to one and a half (1.5) times the sum of his base salary and target bonus. For purposes of the bonus, (a) "Qualifying Transaction" means the consummation of a Specified Permitted Individual Disposition (as defined in the Company’s Credit Facility as in effect as of November 7, 2025) on or prior to December 31, 2026, and (b) “Transaction Proceeds” means the aggregate cash and non-cash consideration received by the Company in connection with the Qualifying Transaction (before deducting any transaction expenses, indebtedness or similar purchase price reductions set forth in the definitive agreement for such Qualifying Transaction).
In addition, on November 7, 2025, the Company approved grants of restricted stock unit awards under the 2023 Plan for the fiscal year 2026, including to its named executive officers, pursuant to a form of restricted stock unit award agreement which provides that the recipients will receive pro-rated vesting upon a termination without Cause (as defined in the 2023 Plan); provided, however, that if the recipient is terminated without Cause (as defined in the 2023 Plan) at or within 12 months following a Qualifying Transaction (as defined above) and prior to the vesting of the first vesting tranche of such award, the recipient will instead receive vesting acceleration with respect to the first vesting tranche of the award.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information concerning directors and officers is incorporated by reference to our Proxy Statement for the Annual Meeting of Stockholders (the "Proxy Statement") which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.
85
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding securities authorized for issuance under equity compensation plans and certain information regarding security ownership of certain beneficial owners and management is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding principal accountant fees and services is incorporated by reference to the Proxy Statement, which will be filed with the Securities and Exchange Commission no more than 120 days after the close of our fiscal year.
86
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) The Registrant’s financial statements together with a separate index are annexed hereto.
(2) The Financial Statement Schedule listed in a separate index is annexed hereto.
(3) Exhibits required by Item 601 of Regulation S-K are listed below.
ExhibitNumber Description of Exhibit Incorporated ByReference to Exhibit
87
ExhibitNumber Description of Exhibit Incorporated ByReference to Exhibit
88
ExhibitNumber Description of Exhibit Incorporated ByReference to Exhibit
89
ExhibitNumber Description of Exhibit Incorporated ByReference to Exhibit
90
ExhibitNumber Description of Exhibit Incorporated ByReference to Exhibit
21 Subsidiaries of the Registrant
23.1 Consent of Independent Registered Public Accounting Firm
97 Clawback Policy of the Company Exhibit 97 to the Registrant's 2024 Form 10-K
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
* Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COMTECH TELECOMMUNICATIONS CORP.
November 10, 2025 By: /s/Kenneth H. Traub
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title
November 10, 2025 /s/Kenneth H. Traub Chairman of the Board
(Date) Kenneth H. Traub President and Chief Executive Officer
(Principal Executive Officer)
November 10, 2025 /s/Michael A. Bondi Chief Financial Officer
(Date) Michael A. Bondi (Principal Financial and Accounting Officer)
November 10, 2025 /s/Wendi Carpenter Director
(Date) Wendi Carpenter
November 10, 2025 /s/Bruce T. Crawford Director
(Date) Bruce T. Crawford
November 10, 2025 /s/Michael J. Hildebrandt Director
(Date) Michael J. Hildebrandt
November 10, 2025 /s/Mark Quinlan Director
(Date) Mark Quinlan
November 10, 2025 /s/Lloyd A. Sprung Director
(Date) Lloyd A. Sprung
November 10, 2025 /s/Lawrence J. Waldman Director
(Date) Lawrence J. Waldman
92
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 34) F-2
Consolidated Financial Statements:
Notes to Consolidated Financial Statements F-14
Additional Financial Information Pursuant to the Requirements of Form 10-K:
Schedule II – Valuation and Qualifying Accounts and Reserves S-1
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Comtech Telecommunications Corp.
Chandler, Arizona
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Comtech Telecommunications Corp. and subsidiaries (the "Company") as of July 31, 2025 and 2024, the related consolidated statements of operations, convertible preferred stock and stockholders’ equity, and cash flows, for each of the three years in the period ended July 31, 2025, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 10, 2025, expressed an adverse opinion on the Company’s internal control over financial reporting because of material weaknesses.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Net Sales – Over Time Accounting Using the Cost-to-Cost Measure for Specific Identified Material Contracts — Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company’s determination of revenue recognition for specific identified material contracts accounted for over time involves estimating the total costs needed to complete the specific identified contracts and updating those estimates throughout the life of those specific identified contracts. This requires management to make significant estimates related to forecasts of future costs for the identified specific contracts. Changes in these estimates for the identified specific contracts could have a significant impact on the Company’s results of operations.
Given the significant judgment and estimates used in management’s projections, auditing the Company’s estimates at completion and estimates to completion involved especially subjective judgment.
F - 2
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s determination of revenue recognition for specific identified material contracts accounted for over time included the following, among others:
•We tested the effectiveness of the controls over the development of the initial contract cost to complete estimate and monitoring of estimates at completion and estimates to completion.
•For each specific identified material contract selected, we performed the following:
▪Evaluated whether the contract was properly included in management’s calculation of over time revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation.
▪Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.
▪Confirmed certain items with the customer, such as contract amount, approved change orders, invoices received, payments made, liquidated damages, if any, and amounts owed to the Company.
▪Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated.
▪Evaluated the estimates of total cost and profit for the performance obligation by:
•Performing a retrospective review by comparing the estimated margins at contract inception to the actual margins as of year-end in order to assess management’s ability to accurately estimate costs.
•Inquiring and corroborating the estimates to complete and the estimates at completion with the Project Manager (i.e., someone outside of Finance/Accounting) to understand significant variances in costs and completeness of the estimates at completion and estimates to completion.
•Testing the estimates to complete through a combination of tests of details, in which we selected individual costs within the estimate to complete and obtained supporting documentation, and where we developed an expectation of the estimate to complete and compared it to the recorded balance.
▪Tested the accuracy and completeness of costs incurred during the current fiscal year. This testing included agreeing labor costs to employee timesheets and agreeing the labor rate to either rates agreed upon with the customer in the contract or rates from the Company’s payroll records.
•Tested the mathematical accuracy of management’s calculation of revenue for the performance obligation.
Goodwill - Refer to Note 15 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company used a combination of a market approach and the income approach, also known as the discounted cash flow ("DCF") method, to determine the present value of cash flows to estimate fair value. In the DCF, the future cash flows for the Company’s reporting units were projected based on their estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures). Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. Given the Satellite and Space Communications segment's financial performance in the first quarter of fiscal 2025, and considering triggering events within this segment prior to the issuance of the first quarter fiscal 2025 financial statements, the Company determined that they were required to perform another quantitative impairment test on an interim basis as of October 31, 2024. Following the same approach as outlined above, ultimately, based on the quantitative evaluations, the Company determined that the carrying value of the Satellite and Space Communications reporting unit exceeded its fair value and recognized a goodwill impairment loss of $79.6 million in the first quarter of fiscal 2025. The goodwill balance was $204.6 million as of July 31, 2025, of which $174.1 million was allocated to the Allerium Reporting Unit (formerly, Terrestrial and Wireless Networks) and $30.5 million was allocated to the Satellite and Space Communications Reporting Unit (“Satellite and Space Communications”). The fair value of Allerium exceeded its carrying value by 7.3% as of the measurement date and, therefore, no impairment was recognized. The fair value of the Satellite and Space Communications reporting unit exceeded its carrying value by 19.9% as of the measurement date and, therefore, no impairment was recognized.
F - 3
We identified goodwill for Allerium and Satellite and Space Communications as a critical audit matter because of the significant judgments made by management to estimate the fair value of the reporting unit and the differences between their fair value and carrying value. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and operating margins.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the discount rate and forecasts of future revenue and operating margins used by management to estimate the fair value of Allerium and Satellite and Space Communications included the following, among others:
•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the reporting units, such as controls related to management’s selection of the discount rate and forecasts of future revenue and operating margins.
•We evaluated management’s ability to accurately forecast future revenues and operating margins by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s revenue forecasts and forecasts of operating margins by comparing the forecasts to:
•Historical revenues and operating margins.
•Internal communications to management and the Board of Directors.
•Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by:
•Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.
•Developing a range of independent estimates and comparing those to the discount rate selected by management.
•Assessing the concluded fair value of the sum of the aggregate reporting units relative to the business enterprise as a whole based on market prices as of the impairment assessment date.
Debt - Refer to Notes 8 and 9 to the Financial Statements
Critical Audit Matter Description
The Company has current and long-term debt of $4.1 million and $210.0 million, respectively, as of July 31, 2025. Debt is recorded at initial fair value, which normally reflects the proceeds received by the Company, net of debt issuance costs. Debt is subsequently stated at amortized cost. Debt issuance costs, discounts and premiums are generally amortized to interest expense using the effective interest method, over the term of the debt. Debt issuance costs related to a recognized debt liability are presented as a direct deduction of the carrying amount of that debt, consistent with debt discounts. Debt issuance costs related to the Company's revolving facility are deferred and recorded as an asset. Debt issuance costs paid to lenders related to a recognized debt liability are netted against the proceeds from the related debt while debt issuance costs paid to third parties are expensed as incurred. Debt instruments are also evaluated by the Company for the existence of features that must be separated and accounted for as a derivative. During the year ended July 31, 2025, the Company entered into various debt transactions that involved issuance of new debt and modification of existing debt.
We identified the accounting for debt and the related debt transactions, as a critical audit matter because of the complexity involved in (i) evaluating the accounting for the new debt agreements or debt amendments including whether such transactions resulted in a debt modification or extinguishment and the associated impact on debt issuance costs, and (ii) evaluating the existence of and accounting for features embedded in new or amended debt agreements that must be separated and accounted for as a derivative. This required an increased extent of effort due to the potential magnitude and complexity of the debt transactions, including the assistance of our professionals with specialized knowledge and skills in the relevant technical accounting guidance required when performing audit procedures to address these matters.
F - 4
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for debt and related debt transactions included the following, among others:
•We tested the effectiveness of controls over debt including those over the application of relevant technical accounting guidance to complex and significant debt transactions.
•We evaluated and tested management's debt modification or extinguishment analysis by:
▪Testing the accuracy and completeness, including mathematical accuracy, of management's analysis.
▪Evaluating management's analysis over whether the debt transactions met the conditions to be treated as a debt modification or extinguishment by evaluating it against the relevant technical accounting guidance.
•We evaluated the conclusions reached by management on its analysis of the terms in the new or amended debt agreements to evaluate the existence of features in the new or amended debt agreements that must be separated and accounted for as a derivative by:
▪Reading the terms for all debt agreements to evaluate the existence of features in the new or amended debt agreements that must be separated and accounted for as a derivative.
▪Evaluating management's analysis identifying the existence of and accounting for the features in the new or amended debt agreements that must be separated and accounted for as a derivative by evaluating it against the relevant technical accounting guidance.
Liquidity - Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company’s ability to meet future anticipated liquidity needs over the next year beyond the issuance date of the financial statements will largely depend on their ability to execute on their operational strategy, generate positive cash inflows from operations, maximize the Company’s borrowing capacity under the Credit Facility. The Company’s ability to do so may also be affected by general economic, financial and other factors which are beyond their control. Based on the foregoing, over the next year beyond the issuance date of the financial statements, the Company believes that they will: (i) be able to generate sufficient positive cash inflows, maximize their borrowing capacity to continue as a going concern, and (ii) comply with the covenants contained in their credit facilities.
To assess the Company's ability to meet obligations as they come due and assess future compliance with debt covenants for at least twelve months from the issuance date of the financial statements, the Company has forecasted future financial results which requires significant judgment and estimation.
Auditing management's disclosure regarding liquidity and going concern, specifically the judgments and estimates in the Company's forecasted financial results involved especially subjective judgment and significant audit effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company's evaluation and disclosure of liquidity and going concern included the following, among others:
•We tested the effectiveness of internal controls over the Company's going concern evaluation, including the inputs, estimates and assumptions used in their forecasted financial results.
•We evaluated the Company's forecasted financial results and ability to meet obligations as they come due for at least twelve months from the issuance date of the financial statements by:
▪Testing management's key assumptions, including ability to achieve forecasted results through executing on the Company's operational strategy.
▪Obtaining the Company's amended debt agreements and assessing whether the terms were appropriately considered when concluding on the Company's debt covenant compliance.
▪Comparing the Company's forecasted future financial results to (1) historical results and previous forecasts, (2) internal communications to management and the Board of Directors, (3) historical variances in forecasted balances against actual results including for the first two months of fiscal year 2026 and (4) macroeconomic factors.
F - 5
•We evaluated the completeness of the Company's future obligations, including whether such obligations were consistent with evidence obtained in other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
November 10, 2025
We have served as the Company’s auditor since 2015.
F - 6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Comtech Telecommunications Corp.
Chandler, Arizona
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Comtech Telecommunications Corp. and subsidiaries (the "Company") as of July 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of July 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended July 31, 2025, of the Company and our report dated November 10, 2025, expressed an unqualified opinion on those financial statements and financial statement schedule.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
F - 7
The following material weaknesses have been identified and included in management's assessment:
The Company did not design and maintain an effective control environment commensurate with their financial reporting requirements based on the criteria in the COSO framework, as the Company lacked a sufficient complement of resources with an appropriate level of knowledge and experience to establish effective process and controls. The control environment material weakness contributed to other material weaknesses within the Company’s system of internal control over financial reporting at the control activity level, where the Company did not design and implement effective control activities, including controls related to revenue, inventory, other assets, contract liabilities, and complex accounting matters and transactions (including debt, convertible preferred stock and related embedded derivatives).
An international component of the Allerium segment (the “international component”) had ineffective controls. Specifically, the Company did not design and maintain effective general information technology controls (“GITCs”) and business process controls in the following areas: (i) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to financial applications, programs and data to appropriate company personnel; (ii) program change management controls to ensure that changes to information technology (“IT”) programs and data affecting financial applications and underlying accounting records are properly identified, tested, authorized and implemented with appropriate segregation of duties; and (iii) business process controls to ensure that journal entries were not amended prior to posting, as the enterprise resource planning (“ERP”) system which the international component operates does not restrict approvers from changing journal entries prior to posting. These deficiencies impact control activities over all financial statement account balances, classes of transactions, and disclosures within the international component.
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements, and financial statement schedule, as of and for the year ended July 31, 2025, of the Company, and this report does not affect our report on such financial statements.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
November 10, 2025
F - 8
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of July 31, 2025 and 2024
Current assets:
Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current liabilities:
Non-current portion of subordinated credit facility, net 95,588,000 —
Commitments and contingencies (See Note 14)
Stockholders’ equity:
Less:
See accompanying notes to consolidated financial statements.
F - 9
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended July 31, 2025, 2024 and 2023
Expenses:
Proxy solicitation costs 2,682,000 — —
Loss on business divestiture — 1,199,000 —
Other expenses (income):