COMTECH TELECOMMUNICATIONS CORP /DE/ Q4 FY2024 earnings call

• New approach to earnings calls, focusing more on Q&A rather than prepared remarks. - Board and leadership team developing and executing a transformation strategy, including identifying strategic alternatives for terrestrial and wireless networks business. - Financial performance in Q4 was below expectations due to margin headwinds from development projects, balance sheet issues, and a delayed foreign military sales order. - Announced wind down of Basingstoke facility, which is tracking nicely according to plan.

Both businesses performed roughly in line with revenue expectations. However, the satellite and space segment experienced a decline in adjusted EBITDA margins. This was due to several quarters of balance sheet-related headwinds impacting manufacturing and deliveries, combined with cost growth on cutting-edge, non-recurring engineering-related programs nearing completion, as well as a delay in a large troposcatter related foreign military sales order.

• Q1 revenue expected to stay about the same as Q4. - Expecting greater EBITDA in Q1 than in Q4. - Unbilled receivables expected to decline as deliveries on certain programs (like Army and Marines next-gen tropo programs) are completed.

• Uncertainty regarding the timing and outcome of the strategic review for the terrestrial and wireless business. - Impact of development projects on margins due to being cutting-edge technologies. - Delays in foreign military sales orders influenced by political and defense spending budget factors.

Q: The strategic review process for the terrestrial business, timing, process, and capital structure post-divestiture?

A: The process has been ongoing, methodical. Anticipate simplifying the capital structure by paying off loans and preferreds if possible.

Q: Margin headwinds in Q4 and future actions?

A: In Q4, hard scrub of development jobs led to EAC adjustments. Development jobs are cutting edge, and noise is behind us, but focus is on getting it right for future production.

Q: Line of sight on converting unbilled receivables?

A: Unbilled receivables saw a reduction, expect further reduction as deliveries on Army and Marines programs continue.

Q: R&D expenses and balance?

A: Stated R&D expense is one line; customer-funded R&D is up. Prioritizing resources on programs with high margin potential. Digital common ground series of satellite modems is a major R&D project.

Q: Q1 revenue, growth, and margin expectation?

A: Revenue expected to stay same as Q4, EBITDA greater than Q4.

Q: Unbilled receivables composition and decline?

A: Majority in Satellite and Space, with large programs like U.S. Army NextGen Tropo and U.S. Marine Corps order contributing. Expect further reduction as deliveries progress.

Q: Margin on modem development programs moving to production?

A: Production margins are better than development margins.

Q: AGM date?

A: Information to be put out at appropriate time, no specific comment now.

Q: Progress on sale of terrestrial and wireless business?

A: Process ongoing, T&W business is undervalued, attractive, but can't comment on process details or success likelihood.

Q: Basingstoke facility revenue, cost structure, and employment?

A: Sizeable impact, revenue/cost not specified, employment under five now, was about 100 previously.