Segment Information

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

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

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

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

Operating segment information, along with a reconciliation of segment net income (loss) and consolidated net income to Adjusted EBITDA is presented in the tables below:



	Three months ended April 30, 2020
		Commercial Solutions		Government Solutions		Unallocated		Total
Net sales		$	78,311,000	56,810,000		—		$	135,121,000
Operating income (loss)		$	4,041,000	4,194,000		(11,371,000	)	$	(3,136,000	)

Net income (loss)		$	3,462,000	4,253,000		(11,704,000	)	$	(3,989,000	)
Provision for (benefit from) income taxes		481,000		(65,000	)	(1,175,000	)	(759,000		)
Interest (income) and other		89,000		—		19,000		108,000
Interest expense		9,000		6,000		1,489,000		1,504,000
Amortization of stock-based compensation		—		—		981,000		981,000
Amortization of intangibles		4,313,000		1,204,000		—		5,517,000
Depreciation		1,993,000		447,000		210,000		2,650,000
Estimated contract settlement costs		476,000		—		—		476,000
Acquisition plan expenses		701,000		—		5,282,000		5,983,000
Adjusted EBITDA		$	11,524,000	5,845,000		(4,898,000	)	$	12,471,000

Purchases of property, plant and equipment		$	1,263,000	531,000		118,000		$	1,912,000
Long-lived assets acquired in connection with the acquisitions		$	4,023,000	4,402,000		—		$	8,425,000
Total assets at April 30, 2020		$	663,455,000	235,739,000		52,538,000		$	951,732,000



	Three months ended April 30, 2019
		Commercial Solutions		Government Solutions		Unallocated		Total
Net sales		$	89,600,000	80,848,000		—		$	170,448,000
Operating income (loss)		$	8,126,000	10,053,000		(6,883,000	)	$	11,296,000

Net income (loss)		$	8,086,000	10,073,000		(10,547,000	)	$	7,612,000
Provision for income taxes		10,000		—		1,537,000		1,547,000
Interest (income) and other		9,000		(21,000	)	(10,000	)	(22,000		)
Interest expense		21,000		1,000		2,137,000		2,159,000
Amortization of stock-based compensation		—		—		1,119,000		1,119,000
Amortization of intangibles		3,692,000		844,000		—		4,536,000
Depreciation		2,374,000		367,000		177,000		2,918,000
Estimated contract settlement costs		2,465,000		—		—		2,465,000
Acquisition plan expenses		—		—		1,704,000		1,704,000
Adjusted EBITDA		$	16,657,000	11,264,000		(3,883,000	)	$	24,038,000

Purchases of property, plant and equipment		$	1,730,000	296,000		181,000		$	2,207,000
Long-lived assets acquired in connection with the acquisitions		$	60,451,000	—		—		$	60,451,000
Total assets at April 30, 2019		$	665,499,000	200,442,000		37,546,000		$	903,487,000



	Nine months ended April 30, 2020
	Commercial Solutions		Government Solutions		Unallocated		Total
Net sales	$	268,747,000	198,295,000		—		$	467,042,000
Operating income (loss)	$	26,501,000	16,280,000		(30,423,000	)	$	12,358,000

Net income (loss)	$	26,031,000	16,364,000		(36,501,000	)	$	5,894,000
Provision for (benefit from) income taxes	382,000		(65,000	)	1,186,000		1,503,000
Interest (income) and other	62,000		(26,000	)	1,000		37,000
Interest expense	26,000		7,000		4,891,000		4,924,000
Amortization of stock-based compensation	—		—		3,098,000		3,098,000
Amortization of intangibles	13,037,000		2,915,000		—		15,952,000
Depreciation	6,372,000		1,072,000		578,000		8,022,000
Estimated contract settlement costs	444,000		—		—		444,000
Acquisition plan expenses	701,000		—		13,696,000		14,397,000
Adjusted EBITDA	$	47,055,000	20,267,000		(13,051,000	)	$	54,271,000

Purchases of property, plant and equipment	$	3,178,000	956,000		286,000		$	4,420,000
Long-lived assets acquired in connection with the acquisitions	$	6,060,000	34,609,000		—		$	40,669,000
Total assets at April 30, 2020	$	663,455,000	235,739,000		52,538,000		$	951,732,000



	Nine months ended April 30, 2019
		Commercial Solutions		Government Solutions		Unallocated		Total
Net sales		$	254,308,000	241,117,000		—		$	495,425,000
Operating income (loss)		$	23,942,000	24,480,000		(17,420,000	)	$	31,002,000

Net income (loss)		$	23,783,000	24,505,000		(29,382,000	)	$	18,906,000
Provision for income taxes		65,000		—		1,726,000		1,791,000
Interest (income) and other		32,000		(33,000	)	(6,000	)	(7,000		)
Write-off of deferred financing costs		—		—		3,217,000		3,217,000
Interest expense		62,000		8,000		7,025,000		7,095,000
Amortization of stock-based compensation		—		—		3,356,000		3,356,000
Amortization of intangibles		10,581,000		2,532,000		—		13,113,000
Depreciation		6,898,000		1,113,000		607,000		8,618,000
Estimated contract settlement costs		6,351,000		—		—		6,351,000
Settlement of intellectual property litigation		—		—		(3,204,000	)	(3,204,000		)
Acquisition plan expenses		—		—		4,612,000		4,612,000
Facility exit costs		—		1,373,000		—		1,373,000
Adjusted EBITDA		$	47,772,000	29,498,000		(12,049,000	)	$	65,221,000

Purchases of property, plant and equipment		$	4,593,000	1,357,000		438,000		$	6,388,000
Long-lived assets acquired in connection with the acquisitions		$	60,451,000	—		—		$	60,451,000
Total assets at April 30, 2019		$	665,499,000	200,442,000		37,546,000		$	903,487,000

Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs and also includes all of our amortization of stock-based compensation. During the three months ended April 30, 2020 and 2019, we recorded $5,983,000 and $1,704,000 of acquisition plan expenses, respectively. During the nine months ended April 30, 2020 and 2019, we recorded $14,397,000 and $4,612,000 of acquisition plan expenses, respectively. These expenses were recorded primarily in our unallocated expenses. See Note (2) - "Acquisitions" for further information. In addition, offsetting unallocated expenses for the nine months ended April 30, 2019 is a $3,204,000 benefit as a result of a favorable ruling issued by the U.S. Court of Appeals for the Federal Circuit related to a legacy TCS intellectual property matter.

Interest expense in the tables above relate to our Prior Credit Facility and Credit Facility, and includes the amortization of deferred financing costs. In addition, during the nine months ended April 30, 2019, we recorded a $3,217,000 loss from the write-off of deferred financing costs primarily related to the Term Loan Facility portion of our Prior Credit Facility. See Note (11) - "Credit Facility" for further discussion.

Intersegment sales for the three months ended April 30, 2020 and 2019 by the Commercial Solutions segment to the Government Solutions segment were $3,115,000 and $1,413,000, respectively. Intersegment sales for the nine months ended April 30, 2020 and 2019 by the Commercial Solutions segment to the Government Solutions segment were $6,876,000 and $14,515,000, respectively. There were nominal sales by the Government Solutions segment to the Commercial Solutions segment for these periods. All intersegment sales are eliminated in consolidation and are excluded from the tables above.

Unallocated assets at April 30, 2020 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs. Substantially all of our long-lived assets are located in the U.S.