Segment Information

3 Months Ended

Oct. 31, 2021

Segment Reporting [Abstract]

Segment Information

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 current Chief Executive Officer. We currently manage our business through the following reportable operating segments:

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, 911 call handling 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 tactical satellite-based networks and ongoing support for complicated communications networks and 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, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, settlement of intellectual property litigation, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, proxy solicitation costs, strategic alternatives analysis expenses and other. 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 (loss) to Adjusted EBITDA is presented in the tables below:

	Three months ended October 31, 2021
	Commercial Solutions		Government Solutions	Unallocated	Total
Net sales	$	78,934,000	37,825,000	—	$	116,759,000
Operating income (loss)	$	2,203,000	(1,414,000)	(7,304,000)	$	(6,515,000)
Net income (loss)	$	2,055,000	(1,151,000)	(6,888,000)	$	(5,984,000)
Provision for (benefit from) income taxes	173,000		(631,000)	(1,595,000)	(2,053,000)
Interest (income) and other	(25,000)		254,000	(10,000)	219,000
Change in fair value of convertible preferred        stock purchase option liability	—		—	(304,000)	(304,000)
Interest expense	—		114,000	1,493,000	1,607,000
Amortization of stock-based compensation	—		—	921,000	921,000
Amortization of intangibles	4,260,000		1,089,000	—	5,349,000
Depreciation	1,808,000		381,000	52,000	2,241,000
Proxy solicitation costs	—		—	2,162,000	2,162,000
Restructuring costs	813,000		(101,000)	—	712,000
COVID-19 related costs	—		674,000	—	674,000
Adjusted EBITDA	$	9,084,000	629,000	(4,169,000)	$	5,544,000
Purchases of property, plant and equipment	$	2,696,000	942,000	—	$	3,638,000
Total assets at October 31, 2021	$	721,897,000	235,048,000	26,044,000	$	982,989,000

	Three months ended October 31, 2020
	Commercial Solutions		Government Solutions	Unallocated	Total
Net sales	$	81,802,000	53,416,000	—	$	135,218,000
Operating income (loss)	$	8,750,000	2,585,000	(97,051,000)	$	(85,716,000)
Net income (loss)	$	8,315,000	2,691,000	(96,846,000)	$	(85,840,000)
Provision for (benefit from) income taxes	339,000		(126,000)	(2,452,000)	(2,239,000)
Interest (income) and other	96,000		(40,000)	10,000	66,000
Interest expense	—		60,000	2,237,000	2,297,000
Amortization of stock-based compensation	—		—	699,000	699,000
Amortization of intangibles	4,287,000		1,279,000	—	5,566,000
Depreciation	1,996,000		403,000	153,000	2,552,000
Acquisition plan expenses	(1,052,000)		—	92,235,000	91,183,000
Adjusted EBITDA	$	13,981,000	4,267,000	(3,964,000)	$	14,284,000
Purchases of property, plant and equipment	$	389,000	421,000	80,000	$	890,000
Total assets at October 31, 2020	$	646,264,000	238,172,000	34,075,000	$	918,511,000

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 October 31, 2020, we recorded $91,183,000 of acquisition plan expenses, most of which were recorded in our unallocated expenses. See Note (2) - "Acquisitions" for further information. There were no such charges recorded in the three months ended October 31, 2021. During the three months ended October 31, 2021, we incurred $2,162,000 of proxy solicitation costs (including legal and advisory fees) as a result of a proxy contest initiated by a shareholder during the most recently completed fiscal quarter. There were no similar costs in the comparable period of the prior year.

During the three months ended October 31, 2021, our Commercial Solutions segment recorded $813,000 of restructuring costs incurred to shift production of our key satellite earth station products to a new 146,000 square foot facility in Chandler, Arizona. In addition, during the three months ended October 31, 2021, our Government Solutions segment recorded $674,000 of incremental operating costs related to our antenna facility located in the United Kingdom due to the impact of the COVID-19 pandemic. There were no such charges recorded in the three months ended October 31, 2020.

Interest expense in the tables above primarily relates to our Credit Facility, and includes the amortization of deferred financing costs. See Note (10) - "Credit Facility" for further discussion. Interest expense for the three months ended October 31, 2020 includes $1,178,000 of incremental interest expense related to a now terminated financing commitment letter, as discussed in more detail in Note (2) - "Acquisitions."

Intersegment sales for the three months ended October 31, 2021 and 2020 by the Commercial Solutions segment to the Government Solutions segment were $1,132,000 and $851,000, 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 October 31, 2021 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs. The large majority of our long-lived assets are located in the U.S.