Comtech Telecommunications Corp. Q3 FY2025 earnings call

Challenges - Burdensome capital structure with $168 million senior secured debt, $65 million subordinated debt, $200 million preferred stock, etc. - Extensive cost structure. - Extensive leadership turnover. - Poor operational discipline. - Misaligned sales incentives. ### Opportunities - Satellite and Space: Strong market position, proprietary technology, growing addressable market. - Terrestrial and Wireless: High-quality customer relationships, growth drivers like customer upgrades, new cloud-based products, international interest in 5G location technologies. ### Quarter Progress - Secured $40 million capital infusion to renegotiate lender terms. - Reduced annual labor costs by approx. $33 million through workforce reductions. - Discontinued over 70 products in Satellite and Space. - Satellite and Space has progress in next-gen product sales, but GFSR contract protest led to $36 million de-booking. - T&W had strong quarter with higher net sales of NG-911 services, nearly completed next-generation 911 call handling solution. - Generated $2.3 million of positive GAAP operating cash flows in Q3.

Consolidated net sales were $126.8 million. The Satellite and Space Communications segment had net sales of $67.6 million in Q3, a decrease of 8.3% sequentially. The de-booking related to the low-margin U.S. Army GFSR contract was $36.4 million. Excluding the de-booking, gross bookings for the quarter were $107.4 million, with a book-to-bill ratio of 0.85x. The Terrestrial and Wireless (T&W) segment had net sales of $59.2 million in Q3, an increase of 12% sequentially. Net sales in the T&W segment for Q3 included over $3 million of incremental NG-911 services revenue. The Satellite and Space segment's revenue contribution and T&W segment's revenue contribution are part of the consolidated sales.

No specific forward-looking financial guidance provided. Mentioned that no updates on previously disclosed strategic alternative processes at this point.

• Capital structure risks with tight financial covenants. - Operational risks like product line obsolescence and contract protest outcomes. - Compliance risks such as the DDTC information request related to potential misclassification of modems.

Q: In Satellite and Space, where stand on development acceptance and potential full rate production for next-generation digital back-end modems like EDIM?

A: Daniel Gizinski said they continue to make good progress on EDIM, with ongoing work before joint certification phase with U.S. Army, expecting significant progress toward certification by end of calendar year; early production units of other products in portfolio deployed to key customers.

Q: In Terrestrial and Wireless, any outstanding competitions or awards awaited?

A: Jeff Robertson said there are a number of compelling bids in the RFP process, but prefers not to comment on specific ones.

Q: Number of discontinued products in Satellite and Space, how much revenue impact and time frame?

A: Daniel Gizinski said impact expected to be less than 10% of Satellite and Space segment revenue, no material impact on revenue above previously discussed; strategy is to focus on better solutions at fair margins.

Q: Outlook for Terrestrial and Wireless to return to growth and margin improvement?

A: Jeff Robertson said strategy includes growth opportunities in international carrier markets for CLT business, especially 5G, and looking at launching new products; working on margin performance by looking at architecture of Next Gen 911 networks and cloud-based products' margin profile.