Comtech Telecommunications 2026 Q4 Earnings Call

Thanks everyone for joining us today. I am here with Ken Traub, Comtech's Chairman, President, and CEO, Mike Bondi, our CFO, and Jeff Robertson, President of Allerium. After Ken, Jeff, and Mike's remarks, they will be available for questions. Before we get started, please note we have a detailed discussion of the quarter and the year in the press release on 10-K we issued this afternoon, which are available on our website as well as the SEC's website. As described in those documents, on June 14, 2026, we entered into an agreement to sell most of our satellite and space communications business to an affiliate of Gilat Satellite Networks. As a result, the portion of that business being sold is presented as discontinued operations in our financial statements.

Unless we say otherwise, the financial results we discuss today relate to our continuing operations, with comparable prior periods recast to reflect these changes. Our continuing operations consist of our Allerium public safety business, our retained cybersecurity training solutions business, the wind down of certain now inactive U.S. Army contracts, and corporate functions. Our press release includes reconciliations of the non-GAAP measures we will discuss to the most directly comparable GAAP measures. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company, the company's plans, objectives, and business outlook, and the plans, objectives, and business outlook of the company's management. The company's assumptions regarding such performance, business outlook, and plans are forward-looking in nature and always involve significant risks and uncertainties. Actual results could differ materially from such forward-looking information.

Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company's SEC filings. With that, I will turn it over to Ken.

Ken? Thank you, Maria, and good afternoon, everyone.

I appreciate you joining us today. Fiscal 2026 was a defining year for Comtech. When I joined the company as CEO in January 2025, I told you that I believe the most critical factor for success in any business, and especially in a turnaround, is building trust with all key stakeholders, and that trust is built by honoring promises. I then laid out a transformation plan that had four pillars. First, our first pillar was to restore and enhance operational discipline throughout the company. Our second pillar was to generate positive operating cash flow. Our third pillar was to conduct a comprehensive review of strategic alternatives. Our fourth pillar was to strengthen the company's capital structure. Today, with the fiscal year behind us, I can report that we have delivered on each of these promises.

Let me take them in turn, because in fulfilling the promises we made, we have not only executed the turnaround as planned, but we have successfully transformed our company. Comtech is now a far stronger company operationally, financially, organizationally, and strategically. Our first pillar focused on operational discipline. Any observer of Comtech today will see a dramatically improved operational discipline throughout the entire company. I would like to highlight a few notable aspects. First, anyone would observe we have a new culture throughout our organization, which centers around transparency, empowerment, and accountability. Second, Comtech now has a significantly reduced and much more efficient cost structure. Third, we have implemented a disciplined approach to product and market initiatives. Fourth, we have enhanced our project execution. Finally, working capital management has been prioritized and optimized.

These initiatives have helped to drive Comtech's dramatic improvement in financial results, which is evident in the significant increases in gross margins and EBITDA margins that Mike will discuss, but is particularly noteworthy in the return to more consistent generation of positive operating cash flow, which I will discuss in more detail in a moment. The improved operational discipline throughout the company has also helped us win trust and credibility with our key stakeholders, particularly our employees, customers, suppliers, and creditors. The second pillar of our transformation plan focused on returning the company to positive operating cash flow. For the seven quarters leading up to January 31, 2025, Comtech reported operating cash flow losses in each quarter with a cumulative total cash burn of over $80 million.

After taking over as CEO in January 2025 and announcing the transformation plan, we reported positive operating cash flow on a consolidated basis in each of the six quarters since then, with a cumulative positive operating cash flow in that period of over $50 million. This has enabled us to increase our liquidity to over $61 million at the end of fiscal year 2026, while also reducing our debt. This is the greatest level of liquidity Comtech has had in its recent history and has put us in a position of strength as we focused on the next two pillars of our transformation plan, the review of strategic alternatives and the strengthening of the capital structure. Our third pillar of our transformation plan was that we committed to conduct a comprehensive review of strategic alternatives.

We conducted a very broad and deliberate process and considered all relevant options with our overarching goal of identifying the best path to maximizing long-term shareholder value. Hence, we took our time and executed on the first two pillars to create the position of strength that was key to conducting a successful process. By running a broad process with various alternatives available to us, it also gave us optionality and negotiating leverage with any potential suitors as we were not dependent on any one alternative. As we considered which assets to sell, one important consideration was to generate the cash to delever the balance sheet. But actually, the even more important consideration was to retain in the company the most attractive business for us to build and create the best path for long-term value creation. The answer became clear. Divesting the majority of Satellite and Space communications business would accomplish multiple goals.

First, a sale of S&S could generate enough cash to prepay most of our senior debt and enable a recapitalization. Second, while we have succeeded in turning it around, the Satellite and Space business has been a difficult business for Comtech to manage over the years. As recently as fiscal 2025, the Satellite and Space business reported GAAP operating losses of over $110 million and experienced significant and unpredictable fluctuations in its operating cash flow over the years. Third, by divesting Satellite and Space, which requires a lot of corporate support, we can streamline the business into one remaining operating segment and eliminate a significant amount of corporate overhead.

Finally, and most importantly, our public safety business in Allerium, coupled with our cyber training services, which has previously been part of Satellite and Space, have very attractive financial profiles with clear levers to drive future growth. Unlike the Satellite and Space business that we are divesting, Allerium is very stable as it is characterized by over 80% annual recurring revenue, long-term customer contracts, and significant backlog. Our cyber business has similar qualities. Recent innovations in our business, coupled with favorable industry dynamics and drivers, which Jeff will describe in more detail, provide opportunities for exciting long-term growth on top of the stable and predictable base of business. Further, the sale of most of Satellite and Space enables us to streamline and realign the business to be fit for purpose to support the long-term growth and success of our public safety business.

In marketing the Satellite and Space business, together with our financial advisors at TD Securities, we contacted over 150 potential buyers, signed over 80 NDAs, met with numerous prospects, and we are very pleased with the outcome, which is reflected in the definitive agreement we entered into with Gilat to sell most of that business for $157.5 million while keeping certain assets we wanted to retain. We received already $10 million of this purchase price at the time we signed the agreement, and while it is still subject to regulatory approval and other closing conditions, we expect to close this transaction by the end of this calendar year. The fourth pillar of our transformation plan was to strengthen our capital structure as the company's deep and expensive debt and preferred securities have been an issue for a long time.

We entered into two subordinated debt investments and two amendments to our subordinated debt and senior credit agreements in fiscal 2025, primarily to waive prior breaches of financial covenants, obtain covenant holidays going forward, and lower near-term cash interest payments. These amendments, together with the operational improvements we made that demonstrated the return to consistent positive cash flow, enabled us to satisfy ourselves and our auditors that the company's prior disclosures expressing doubts regarding its ability to continue as a going concern can confidently be removed from our financial statements. This was a very positive message and a sign of our progress to our stakeholders, including employees, customers, and suppliers. Contemporaneous with signing the definitive agreement with Gilat in June 2026, we entered into new amendments with our senior creditors, subordinated lenders, and preferred stockholders.