Segment Information

6 Months Ended

Jan. 31, 2023

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 Chief Executive Officer.

In the fourth quarter of fiscal 2022, we revised our business segments to better align them with end-markets for our products and services and our CODM began managing our business in two new reportable segments: “Satellite and Space Communications” and “Terrestrial and Wireless Networks.” As a result, the segment information for the prior fiscal year has been recast to conform to the current year presentation.

Satellite and Space Communications is organized into four technology areas: satellite modem technologies and amplifier technologies, troposcatter and SATCOM solutions, space components and antennas, and high-power amplifiers and switches technologies. This segment offers customers: satellite ground station technologies, services and system integration that facilitate the transmission of voice, video and data over GEO, MEO and LEO satellite constellations, including solid-state and traveling wave tube power amplifiers, modems, VSAT platforms and frequency converters; satellite communications and tracking antenna systems, including high precision full motion fixed and mobile X/Y tracking antennas, RF feeds, reflectors and radomes; over-the-horizon microwave equipment that can transmit digitized voice, video, and data over distances up to 200 miles using the troposphere and diffraction, including the Comtech COMET™; solid-state, RF microwave high-power amplifiers and control components designed for radar, electronic warfare, data link, medical and aviation applications; and procurement and supply chain management of high reliability EEE parts for satellite, launch vehicle and manned space applications.

Terrestrial and Wireless Networks is organized into four service areas: next generation 911 and call delivery, Solacom call handling solutions, trusted location and messaging solutions, and cyber security training and services. This segment offers customers: SMS text to 911 services, providing alternate paths for individuals who need to request assistance (via text messaging) a method to reach Public Safety Answering Points ("PSAPs"); next generation 911 solutions, providing emergency call routing, location validation, policy-based routing rules, logging and security functionality; Emergency Services IP Network transport infrastructure for emergency services communications and support of next generation 911 services; call handling applications for PSAPs; wireless emergency alerts solutions for network operators; software and equipment for location-based and text messaging services for various applications, including for public safety, commercial and government services, and cybersecurity training, skills labs, and competency assessments for both technical and non-technical applications.

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 Satellite and Space Communications and Terrestrial and Wireless Networks segments do not consider any allocation of indirect expense, or any of the following: income taxes, interest, change in fair value of the convertible preferred stock purchase option liability, write-off of deferred financing costs, amortization of stock-based compensation, amortization of intangibles, depreciation expense, amortization of cost to fulfill assets, acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs (for next-generation satellite technology), facility exit costs, CEO transition costs, proxy solicitation costs, strategic alternatives 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 Satellite and Space Communications and Terrestrial and Wireless Networks 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 January 31, 2023
	Satellite and Space Communications		Terrestrial and Wireless Networks	Unallocated	Total
Net sales	$	80,407,000	53,318,000	—	$	133,725,000
Operating income (loss)	$	3,327,000	3,312,000	(7,420,000)	$	(781,000)
Net income (loss)	$	3,123,000	3,563,000	(11,491,000)	$	(4,805,000)
(Benefit from) provision for income taxes	(422,000)		(116,000)	316,000	(222,000)
Interest (income) and other	597,000		(135,000)	(7,000)	455,000
Interest expense	29,000		—	3,762,000	3,791,000
Amortization of stock-based compensation	—		—	1,268,000	1,268,000
Amortization of intangibles	1,828,000		3,521,000	—	5,349,000
Depreciation	1,010,000		1,921,000	36,000	2,967,000
Amortization of cost to fulfill assets	240,000		—	—	240,000
Restructuring costs	1,089,000		—	454,000	1,543,000
Strategic emerging technology costs	738,000		—	—	738,000
Adjusted EBITDA	$	8,232,000	8,754,000	(5,662,000)	$	11,324,000
Purchases of property, plant and equipment	$	119,000	2,414,000	164,000	$	2,697,000
Total assets at January 31, 2023	$	486,426,000	471,358,000	25,888,000	$	983,672,000

	Three months ended January 31, 2022
	Satellite and Space Communications		Terrestrial and Wireless Networks	Unallocated	Total
Net sales	$	69,180,000	51,201,000	—	$	120,381,000
Operating (loss) income	$	(2,500,000)	6,856,000	(28,946,000)	$	(24,590,000)
Net (loss) income	$	(2,508,000)	6,965,000	(26,331,000)	$	(21,874,000)
Provision for (benefit from) income taxes	82,000		(209,000)	(3,149,000)	(3,276,000)
Interest (income) and other	(80,000)		100,000	(50,000)	(30,000)
Change in fair value of convertible preferred        stock purchase option liability	—		—	(398,000)	(398,000)
Interest expense	6,000		—	982,000	988,000
Amortization of stock-based compensation	—		—	1,983,000	1,983,000
Amortization of intangibles	1,828,000		3,521,000	—	5,349,000
Depreciation	773,000		1,510,000	51,000	2,334,000
CEO transition costs	—		—	13,554,000	13,554,000
Restructuring costs	1,726,000		—	—	1,726,000
COVID-19 related costs	355,000		—	—	355,000
Proxy solicitation costs	—		—	9,086,000	9,086,000
Adjusted EBITDA	$	2,182,000	11,887,000	(4,272,000)	$	9,797,000
Purchases of property, plant and equipment	$	3,187,000	1,986,000	—	$	5,173,000
Total assets at January 31, 2022	$	482,989,000	485,155,000	26,710,000	$	994,854,000

	Six months ended January 31, 2023
	Satellite and Space Communications		Terrestrial and Wireless Networks	Unallocated	Total
Net sales	$	161,280,000	103,584,000	—	$	264,864,000
Operating income (loss)	$	8,343,000	4,056,000	(22,904,000)	$	(10,505,000)
Net income (loss)	$	8,938,000	4,168,000	(29,007,000)	$	(15,901,000)
(Benefit from) provision for income taxes	(644,000)		(281,000)	95,000	(830,000)
Interest (income) and other	22,000		169,000	9,000	200,000
Interest expense	27,000		—	5,999,000	6,026,000
Amortization of stock-based compensation	—		—	2,172,000	2,172,000
Amortization of intangibles	3,656,000		7,042,000	—	10,698,000
Depreciation	2,030,000		3,658,000	77,000	5,765,000
Amortization of cost to fulfill assets	480,000		—	—	480,000
CEO transition costs	—		—	9,090,000	9,090,000
Restructuring costs	2,145,000		—	723,000	2,868,000
Strategic emerging technology costs	1,484,000		—	—	1,484,000
Adjusted EBITDA	$	18,138,000	14,756,000	(10,842,000)	$	22,052,000
Purchases of property, plant and equipment	$	4,554,000	4,956,000	408,000	$	9,918,000
Total assets at January 31, 2023	$	486,426,000	471,358,000	25,888,000	$	983,672,000

	Six months ended January 31, 2022
	Satellite and Space Communications		Terrestrial and Wireless Networks	Unallocated	Total
Net sales	$	133,740,000	103,400,000	—	$	237,140,000
Operating (loss) income	$	(7,813,000)	12,958,000	(36,250,000)	$	(31,105,000)
Net (loss) income	$	(7,582,000)	12,943,000	(33,219,000)	$	(27,858,000)
Benefit from income taxes	(517,000)		(68,000)	(4,744,000)	(5,329,000)
Interest (income) and other	167,000		82,000	(60,000)	189,000
Change in fair value of convertible preferred stock purchase   option liability	—		—	(702,000)	(702,000)
Interest expense	120,000			2,475,000	2,595,000
Amortization of stock-based compensation	—		—	2,904,000	2,904,000
Amortization of intangibles	3,656,000		7,042,000	—	10,698,000
Depreciation	1,598,000		2,874,000	103,000	4,575,000
CEO transition costs	—		—	13,554,000	13,554,000
Proxy solicitation costs	—		—	11,248,000	11,248,000
Restructuring costs	2,438,000		—	—	2,438,000
COVID-19 related costs	1,029,000		—	—	1,029,000
Adjusted EBITDA	$	909,000	22,873,000	(8,441,000)	$	15,341,000
Purchases of property, plant and equipment	$	4,224,000	4,587,000	—	$	8,811,000
Total assets at January 31, 2022	$	482,989,000	485,155,000	26,710,000	$	994,854,000

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. See Note (1) - "General - CEO Transition Costs & Related" for information related to such costs. During the three and six months ended January 31, 2023, our Unallocated segment incurred $454,000 and $723,000, respectively, of restructuring costs focused on streamlining our operations. There were no similar costs incurred in fiscal 2022. Also, during the three and six months ended January 31, 2022, we incurred $9,086,000 and $11,248,000, respectively, of proxy solicitation costs (including legal and advisory fees and costs associated with a related lawsuit) as a result of a now-settled proxy contest. There were no similar costs incurred in fiscal 2023.

During the three and six months ended January 31, 2023, our Satellite and Space Communications segment recorded $1,089,000 and $2,145,000, respectively, of restructuring costs primarily incurred to streamline our operations, including costs related to the ongoing relocation of certain of our satellite ground station production facilities to a new 146,000 square foot facility in Chandler, Arizona. Similar restructuring costs of $1,726,000 and $2,438,000 were incurred during the three and six months ended January 31, 2022, respectively. In addition, during the three and six months ended January 31, 2023, we incurred $738,000 and $1,484,000 of strategic emerging technology costs for next-generation satellite technology to advance our solutions offerings to be used with new broadband satellite constellations. There were no similar costs incurred in fiscal 2022. During the three and six months ended January 31, 2022, our Satellite and Space Communications segment recorded $355,000 and $1,029,000, respectively, 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 similar incremental operating costs during the corresponding periods in fiscal 2023.

Interest expense in the tables above primarily relates to our Credit Facility, and includes the amortization of deferred financing costs. See Note (9) - "Credit Facility" for further discussion.

Intersegment sales for both the three and six months ended January 31, 2023 and 2022 between the Satellite and Space Communications segment and the Terrestrial and Wireless Networks segment were nominal. All intersegment sales are eliminated in consolidation and are excluded from the tables above.

Unallocated assets at January 31, 2023 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.