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General | 9 Months Ended
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Apr. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
General | General The accompanying Condensed Consolidated Financial Statements of Comtech Telecommunications Corp. and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three and nine months ended April 30, 2024 and 2023 are unaudited. In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods. Our results of operations for such periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statements, and the reported amounts of net sales and expenses during the reported period. Actual results may differ from those estimates. Our Condensed Consolidated Financial Statements should be read in conjunction with our audited consolidated financial statements, filed with the Securities and Exchange Commission ("SEC"), for the fiscal year ended July 31, 2023 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC. Liquidity and Going Concern The accompanying unaudited Condensed Consolidated Financial Statements have been prepared assuming we will continue as a going concern. The going concern basis of presentation assumes that we will continue in operation one year after the date these unaudited Condensed Consolidated Financial Statements are issued and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business. Pursuant to the requirements of ASC Topic 205-40, "Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern," we are required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern. This evaluation does not take into consideration the potential mitigating effect of our plans that have not been fully implemented or are not within our control as of the date the unaudited Condensed Consolidated Financial Statements are issued. When substantial doubt exists, we evaluate whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of our plans, however, is only considered if both (i) it is probable that the plans will be effectively implemented within one year after the date that the unaudited Condensed Consolidated Financial Statements are issued, and (ii) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the unaudited Condensed Consolidated Financial Statements are issued. As of the date these financial statements were issued (the "issuance date"), we evaluated whether the following conditions or events, considered in the aggregate, raise substantial doubt about the Company's ability to continue as a going concern over the next twelve months beyond the issuance date. Over the past three fiscal years, we incurred operating losses of $14,660,000, $33,752,000, and $68,298,000 in fiscal 2023, 2022 and 2021, respectively. More recently, we recognized an operating loss of $3,470,000 in the three months ended April 30, 2024 and operating income of $1,589,000 in the nine months ended April 30, 2024. In addition, over the past three fiscal years, net cash used in operating activities was $4,433,000 and $40,638,000 in fiscal 2023 and 2021, respectively, and net cash provided by operating activities was $1,997,000 in fiscal 2022. More recently, net cash used in operating activities was $44,998,000 in the nine months ended April 30, 2024. As of April 30, 2024, we were in compliance with all restrictive and financial covenants under our Prior Credit Facility (see Note (10) – “Credit Facility” for defined terms). As of April 30, 2024, our Secured Leverage Ratio was 2.89x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.50x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as of April 30, 2024 was 3.36x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA. Our Minimum Liquidity as of April 30, 2024 was $26,800,000 compared to the Minimum Liquidity requirement of $25,000,000. As discussed in Note (10) – “Credit Facility,” on June 17, 2024, we entered into a $222,000,000 credit facility with a new syndicate of lenders (the “New Credit Facility”), which replaces our Prior Credit Facility and which is expected to fund on or around June 18, 2024. The New Credit Facility matures on July 31, 2028, consists of a committed $162,000,000 term loan (“Term Loan”) and $60,000,000 revolver loan facility (“Revolver”) and is expected to have outstanding borrowings at close of $187,000,000, reflecting $25,000,000 drawn on the Revolver. The New Credit Facility, among other things, requires compliance with new restrictive and financial covenants. Considering the New Credit Facility entered into subsequent to quarter end and our forecasted results over the next twelve months beyond the issuance date, we anticipate in the future that we will be in compliance with all restrictive and financial covenants under our New Credit Facility. As of the issuance date and closing of the New Credit Facility, our available sources of liquidity will approximate $63,000,000, consisting of qualified cash and cash equivalents of approximately $28,000,000 and $35,000,000 of excess availability under the Revolver, both as defined in the New Credit Facility. Our ability to meet our current obligations as they come due may be impacted by our ability to remain compliant with the financial covenants under our New Credit Facility or to obtain waivers or amendments that impact the related financial covenants. If we are unable to satisfy certain covenants and not able to obtain waivers or amendments, such event would constitute an Event of Default and could cause an immediate acceleration and repayment of all outstanding principal, interest and fees due under our New Credit Facility. If there is an Event of Default, there can be no assurances that we will be able to continue as a going concern, which could force us to delay, reduce or discontinue certain aspects of our business strategy. Additionally, our ability to meet future anticipated liquidity needs will largely depend on our ability to generate positive cash inflows from operations and/or secure other sources of outside capital. As it relates to sources of outside capital, we can raise up to $50,000,000 through the issuance of common shares without the consent of the holders of Convertible Preferred Stock. Based on our current business plans, including projected capital expenditures, we believe our current level of cash and cash equivalents, excess availability under our Revolver and liquidity expected to be generated from future cash flows will be sufficient to fund our operations over the next twelve months beyond the issuance date. However, such a determination is dependent on several factors including, but not limited to, general business conditions and our ability to reduce investments in working capital (such as unbilled receivables). If we are unable to maintain our current level of cash and cash equivalents, excess availability under our Revolver or generate sufficient liquidity from future cash flows, our business, financial condition and results of operations could be materially and adversely affected. Our ability to generate cash in the future or have sufficient access to credit from financial institutions and/or financing from public and/or private debt and equity markets on acceptable terms, or at all, (i) is subject to (a) general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control and (b) under certain circumstances, a majority vote consent right of the holders of the Convertible P ref erred Stock (as discussed further in Note (17) – "Convertible Preferred Stock"), and (ii) could (x) dilute the ownership interest of our stockholders, (y) include terms that adversely affect the rights of our common stockholders, or (z) restrict our ability to take specific actions such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. Also, our transition to sustained profitability is dependent upon the successful completion of our ongoing One Comtech transformation and integration of individual businesses into two segments and related restructuring activities to optimize our cost structure and reduce investments in working capital and/or capital expenditures. As a result of the foregoing, although we have successfully refinanced our Prior Credit Facility and significantly enhanced our liquidity position as of the issuance date, we continue to believe that substantial doubt exists regarding our ability to continue as a going concern. This determination considers: (i) the proximity of the refinancing to the issuance date not allowing us adequate time to evaluate our financial performance subsequent to such refinancing, and (ii) those conditions and events as of the issuance date described above that could negatively impact our forecasted results and liquidity, which in turn could result in our inability to comply with the financial covenants contained in our New Credit Facility. Now having completed the refinancing of our Prior Credit Facility as of the issuance date, our other plans to address our ability to continue as a going concern include, among other things: •implementing certain cost savings and restructuring activities to reduce cash used in operations, as discussed further in Note (20) – “Cost Reduction;” •pursuing initiatives to reduce investments in working capital, namely accounts receivable and inventory; •improving process disciplines to attain and maintain profitable operations by entering into more favorable sales or service contracts; •reevaluating our business plans to identify opportunities to further reduce capital expenditures; •seeking opportunities to improve liquidity through any combination of debt and/or equity financing (including possibly restructuring our existi ng Convertible Preferred S tock); and •seeking other strategic transactions and/or measures including, but not limited to, the potential sale or divestiture of assets. While we believe the implementation of some or all of the elements of our plans over the next twelve months beyond the issuance date will be successful, these plans are not all solely within management’s control and, as such, we can provide no assurance our plans are probable of being effectively implemented as of the issuance date. Therefore, those potential adverse c onditions and events described above raise substantial doubt about our ability to continue as a going concern as of the issuance date. We prepared these unaudited condensed consolidated financial statements on a going concern basis, assuming our financial resources will be sufficient to meet our capital needs over the next twelve months and did not include any adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation for the next twelve months. CEO Transition Related On August 9, 2022, our Board of Directors appointed Ken Peterman as our Chairman of the Board, President and Chief Executive Officer ("CEO"). Transition costs related to our former President and CEO, Michael D. Porcelain, pursuant to his separation agreement with the Company, were $7,424,000, of which $3,764,000 related to the acceleration of unamortized stock based compensation, with the remaining $3,660,000 related to his severance payments and benefits upon termination of employment. The cash portion of the transition costs of $3,660,000 was paid to Mr. Porcelain in October 2022. Also, in connection with Mr. Peterman entering into an employment agreement with the Company, effective as of August 9, 2022, we incurred a $1,000,000 expense related to a cash sign-on bonus, which was paid to Mr. Peterman in January 2023. CEO transition costs related to Mr. Porcelain and Mr. Peterman were expensed in our Unallocated segment during the first quarter of fiscal 2023. On March 12, 2024, Mr. Peterman's employment with the Company was terminated for cause and the Board of Directors appointed John Ratigan as interim CEO and Mark Quinlan as Chairman of the Board of Directors. Prior to the changes, Mr. Ratigan served as our Chief Corporate Development Officer and Mr. Quinlan served as a member of our Board of Directors. Upon termination of his employment, Mr. Peterman was deemed to have resigned from his position as Chairman of the Board of Directors and as a director pursuant to his employment contract. CEO transition costs of $2,492,000 incurred during three and nine months ended April 30, 2024 primarily consisted of legal expenses and were expensed in our Unallocated segment.

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