cmtl-20201031
10-QFALSE10/31/20207/31Q12021COMTECH TELECOMMUNICATIONS CORP /DE/0000023197us-gaap:AccountingStandardsUpdate201613Member24us-gaap:AccountingStandardsUpdate201613Member.500P5YP3Y00000231972020-08-012020-10-310000023197us-gaap:CommonStockMember2020-08-012020-10-310000023197cmtl:SeriesAJuniorParticipatingCumulativePreferredStockMember2020-08-012020-10-31xbrli:shares00000231972020-12-04iso4217:USD00000231972020-10-3100000231972020-07-31iso4217:USDxbrli:shares00000231972019-08-012019-10-310000023197us-gaap:CommonStockMember2019-07-310000023197us-gaap:AdditionalPaidInCapitalMember2019-07-310000023197us-gaap:RetainedEarningsMember2019-07-310000023197us-gaap:TreasuryStockMember2019-07-3100000231972019-07-310000023197us-gaap:AdditionalPaidInCapitalMember2019-08-012019-10-310000023197us-gaap:CommonStockMember2019-08-012019-10-310000023197us-gaap:RetainedEarningsMember2019-08-012019-10-310000023197us-gaap:CommonStockMember2019-10-310000023197us-gaap:AdditionalPaidInCapitalMember2019-10-310000023197us-gaap:RetainedEarningsMember2019-10-310000023197us-gaap:TreasuryStockMember2019-10-3100000231972019-10-310000023197us-gaap:CommonStockMember2020-07-310000023197us-gaap:AdditionalPaidInCapitalMember2020-07-310000023197us-gaap:RetainedEarningsMember2020-07-310000023197us-gaap:TreasuryStockMember2020-07-310000023197us-gaap:AdditionalPaidInCapitalMember2020-08-012020-10-310000023197us-gaap:CommonStockMember2020-08-012020-10-310000023197us-gaap:RetainedEarningsMember2020-08-012020-10-310000023197us-gaap:RetainedEarningsMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2020-08-010000023197srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2020-08-010000023197us-gaap:CommonStockMember2020-10-310000023197us-gaap:AdditionalPaidInCapitalMember2020-10-310000023197us-gaap:RetainedEarningsMember2020-10-310000023197us-gaap:TreasuryStockMember2020-10-31cmtl:operating_segment0000023197cmtl:CGCTechnologyMember2020-01-272020-01-270000023197cmtl:CGCTechnologyMember2020-01-270000023197cmtl:CGCTechnologyMember2020-07-312020-07-310000023197cmtl:CGCTechnologyMember2020-10-312020-10-310000023197cmtl:CGCTechnologyMember2020-07-310000023197cmtl:CGCTechnologyMember2020-10-310000023197cmtl:CGCTechnologyMember2020-08-012020-10-310000023197us-gaap:TechnologyBasedIntangibleAssetsMembercmtl:CGCTechnologyMember2020-07-310000023197us-gaap:TechnologyBasedIntangibleAssetsMembercmtl:CGCTechnologyMember2020-08-012020-10-310000023197us-gaap:TechnologyBasedIntangibleAssetsMembercmtl:CGCTechnologyMember2020-10-310000023197us-gaap:CustomerRelationshipsMembercmtl:CGCTechnologyMember2020-07-310000023197us-gaap:CustomerRelationshipsMembercmtl:CGCTechnologyMember2020-08-012020-10-310000023197us-gaap:CustomerRelationshipsMembercmtl:CGCTechnologyMember2020-10-310000023197us-gaap:TradeNamesMembercmtl:CGCTechnologyMember2020-07-310000023197us-gaap:TradeNamesMembercmtl:CGCTechnologyMember2020-08-012020-10-310000023197us-gaap:TradeNamesMembercmtl:CGCTechnologyMember2020-10-31xbrli:pure0000023197cmtl:UHPNetworksMember2020-06-012020-06-010000023197cmtl:UHPNetworksMember2020-05-312020-05-310000023197cmtl:GilatSatelliteNetworksLtdMember2020-08-012020-10-310000023197cmtl:GilatSatelliteNetworksLtdMember2020-08-012020-10-310000023197us-gaap:GeographicConcentrationRiskMembercmtl:USGovernmentMemberus-gaap:SalesRevenueNetMember2020-08-012020-10-310000023197us-gaap:GeographicConcentrationRiskMembercmtl:USGovernmentMemberus-gaap:SalesRevenueNetMember2019-08-012019-10-310000023197us-gaap:GeographicConcentrationRiskMembercmtl:UnitedStatesDomesticMemberus-gaap:SalesRevenueNetMember2020-08-012020-10-310000023197us-gaap:GeographicConcentrationRiskMembercmtl:UnitedStatesDomesticMemberus-gaap:SalesRevenueNetMember2019-08-012019-10-310000023197us-gaap:GeographicConcentrationRiskMembercountry:USus-gaap:SalesRevenueNetMember2020-08-012020-10-310000023197us-gaap:GeographicConcentrationRiskMembercountry:USus-gaap:SalesRevenueNetMember2019-08-012019-10-310000023197cmtl:TotalInternationalSalesMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-08-012020-10-310000023197cmtl:TotalInternationalSalesMemberus-gaap:GeographicConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-08-012019-10-310000023197us-gaap:GeographicConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-08-012020-10-310000023197us-gaap:GeographicConcentrationRiskMemberus-gaap:SalesRevenueNetMember2019-08-012019-10-310000023197cmtl:VerizonCommunicationsInc.Memberus-gaap:CustomerConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-08-012020-10-310000023197cmtl:USGovernmentMembercmtl:CommercialSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:USGovernmentMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:USGovernmentMember2020-08-012020-10-310000023197cmtl:CommercialSolutionsSegmentMembercmtl:UnitedStatesDomesticMember2020-08-012020-10-310000023197cmtl:UnitedStatesDomesticMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:UnitedStatesDomesticMember2020-08-012020-10-310000023197cmtl:CommercialSolutionsSegmentMembercountry:US2020-08-012020-10-310000023197country:UScmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197country:US2020-08-012020-10-310000023197cmtl:TotalInternationalSalesMembercmtl:CommercialSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:TotalInternationalSalesMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:TotalInternationalSalesMember2020-08-012020-10-310000023197cmtl:CommercialSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:FixedPriceContractMembercmtl:CommercialSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:FixedPriceContractMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:FixedPriceContractMember2020-08-012020-10-310000023197us-gaap:TimeAndMaterialsContractMembercmtl:CommercialSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:TimeAndMaterialsContractMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:TimeAndMaterialsContractMember2020-08-012020-10-310000023197cmtl:CommercialSolutionsSegmentMemberus-gaap:TransferredAtPointInTimeMember2020-08-012020-10-310000023197us-gaap:TransferredAtPointInTimeMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:TransferredAtPointInTimeMember2020-08-012020-10-310000023197cmtl:CommercialSolutionsSegmentMemberus-gaap:TransferredOverTimeMember2020-08-012020-10-310000023197cmtl:GovernmentSolutionsSegmentMemberus-gaap:TransferredOverTimeMember2020-08-012020-10-310000023197us-gaap:TransferredOverTimeMember2020-08-012020-10-310000023197cmtl:USGovernmentMembercmtl:CommercialSolutionsSegmentMember2019-08-012019-10-310000023197cmtl:USGovernmentMembercmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197cmtl:USGovernmentMember2019-08-012019-10-310000023197cmtl:CommercialSolutionsSegmentMembercmtl:UnitedStatesDomesticMember2019-08-012019-10-310000023197cmtl:UnitedStatesDomesticMembercmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197cmtl:UnitedStatesDomesticMember2019-08-012019-10-310000023197cmtl:CommercialSolutionsSegmentMembercountry:US2019-08-012019-10-310000023197country:UScmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197country:US2019-08-012019-10-310000023197cmtl:TotalInternationalSalesMembercmtl:CommercialSolutionsSegmentMember2019-08-012019-10-310000023197cmtl:TotalInternationalSalesMembercmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197cmtl:TotalInternationalSalesMember2019-08-012019-10-310000023197cmtl:CommercialSolutionsSegmentMember2019-08-012019-10-310000023197cmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197us-gaap:FixedPriceContractMembercmtl:CommercialSolutionsSegmentMember2019-08-012019-10-310000023197us-gaap:FixedPriceContractMembercmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197us-gaap:FixedPriceContractMember2019-08-012019-10-310000023197us-gaap:TimeAndMaterialsContractMembercmtl:CommercialSolutionsSegmentMember2019-08-012019-10-310000023197us-gaap:TimeAndMaterialsContractMembercmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197us-gaap:TimeAndMaterialsContractMember2019-08-012019-10-310000023197cmtl:CommercialSolutionsSegmentMemberus-gaap:TransferredAtPointInTimeMember2019-08-012019-10-310000023197us-gaap:TransferredAtPointInTimeMembercmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197us-gaap:TransferredAtPointInTimeMember2019-08-012019-10-310000023197cmtl:CommercialSolutionsSegmentMemberus-gaap:TransferredOverTimeMember2019-08-012019-10-310000023197cmtl:GovernmentSolutionsSegmentMemberus-gaap:TransferredOverTimeMember2019-08-012019-10-310000023197us-gaap:TransferredOverTimeMember2019-08-012019-10-3100000231972020-11-012020-10-310000023197cmtl:StockBasedAwardsMember2020-08-012020-10-310000023197cmtl:StockBasedAwardsMember2019-08-012019-10-310000023197cmtl:CommercialAndInternationalCustomersMemberus-gaap:BilledRevenuesMember2020-10-310000023197cmtl:CommercialAndInternationalCustomersMemberus-gaap:BilledRevenuesMember2020-07-310000023197cmtl:CommercialAndInternationalCustomersMemberus-gaap:UnbilledRevenuesMember2020-10-310000023197cmtl:CommercialAndInternationalCustomersMemberus-gaap:UnbilledRevenuesMember2020-07-310000023197us-gaap:GovernmentMemberus-gaap:BilledRevenuesMember2020-10-310000023197us-gaap:GovernmentMemberus-gaap:BilledRevenuesMember2020-07-310000023197us-gaap:GovernmentMemberus-gaap:UnbilledRevenuesMember2020-10-310000023197us-gaap:GovernmentMemberus-gaap:UnbilledRevenuesMember2020-07-310000023197us-gaap:AccountsReceivableMembercmtl:USGovernmentMemberus-gaap:CustomerConcentrationRiskMember2020-08-012020-10-310000023197us-gaap:AccountsReceivableMembercmtl:VerizonCommunicationsInc.Memberus-gaap:CustomerConcentrationRiskMember2020-08-012020-10-310000023197us-gaap:AccountsReceivableMembercmtl:USGovernmentMemberus-gaap:CustomerConcentrationRiskMember2019-08-012020-07-310000023197cmtl:TCSs911callhandlingsoftwareMembercmtl:TeleCommunicationSystemsIncMember2020-10-310000023197cmtl:TCSs911callhandlingsoftwareMembercmtl:TeleCommunicationSystemsIncMember2020-07-310000023197cmtl:October2018CreditFacilityMemberus-gaap:SecuredDebtMember2020-10-310000023197cmtl:October2018CreditFacilityMemberus-gaap:RevolvingCreditFacilityMember2020-10-310000023197cmtl:October2018CreditFacilityMember2020-10-310000023197us-gaap:LetterOfCreditMembercmtl:October2018CreditFacilityMember2020-10-310000023197cmtl:October2018CreditFacilityMembercmtl:SwinglineLoanMember2020-10-310000023197cmtl:October2018CreditFacilityMember2020-08-012020-10-310000023197cmtl:October2018CreditFacilityMember2019-08-012019-10-310000023197cmtl:October2018CreditFacilityMember2019-10-310000023197cmtl:October2018CreditFacilityMembercmtl:AdjustedLIBORateMember2020-08-012020-10-310000023197cmtl:October2018CreditFacilityMember2018-10-312018-10-310000023197us-gaap:FederalFundsEffectiveSwapRateMembercmtl:October2018CreditFacilityMember2020-08-012020-10-310000023197cmtl:ExecutiveChairmanMember2020-08-012020-10-310000023197cmtl:ExecutiveChairmanMember2019-08-012019-10-310000023197cmtl:ExecutiveChairmanMember2020-10-310000023197cmtl:ChandlerArizonaMember2020-09-300000023197cmtl:IncomeTaxesPayableNoncurrentMember2020-10-310000023197cmtl:IncomeTaxesPayableNoncurrentMember2020-07-310000023197cmtl:DeferredTaxLiabilityNoncurrentMember2020-10-310000023197cmtl:DeferredTaxLiabilityNoncurrentMember2020-07-310000023197cmtl:A2000StockIncentivePlanMember2020-10-310000023197us-gaap:EmployeeStockOptionMembercmtl:A2000StockIncentivePlanMember2020-08-012020-10-310000023197us-gaap:EmployeeStockOptionMembercmtl:A2000StockIncentivePlanMember2020-10-310000023197us-gaap:PerformanceSharesMembercmtl:A2000StockIncentivePlanMember2020-10-310000023197cmtl:A2000StockIncentivePlanMembercmtl:RSUsAndRestrictedStockMember2020-10-310000023197cmtl:ShareunitsMembercmtl:A2000StockIncentivePlanMember2020-10-310000023197cmtl:A2001EmployeeStockPurchasePlanMembercmtl:EmployeeStockPurchasePlanEsppMember2020-10-310000023197us-gaap:CostOfSalesMember2020-08-012020-10-310000023197us-gaap:CostOfSalesMember2019-08-012019-10-310000023197us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-08-012020-10-310000023197us-gaap:SellingGeneralAndAdministrativeExpensesMember2019-08-012019-10-310000023197us-gaap:ResearchAndDevelopmentExpenseMember2020-08-012020-10-310000023197us-gaap:ResearchAndDevelopmentExpenseMember2019-08-012019-10-310000023197us-gaap:StockAppreciationRightsSARSMembercmtl:A2000StockIncentivePlanMember2020-07-310000023197us-gaap:StockAppreciationRightsSARSMembercmtl:A2000StockIncentivePlanMember2020-10-310000023197us-gaap:EmployeeStockOptionMember2020-08-012020-10-310000023197us-gaap:EmployeeStockOptionMember2019-08-012019-10-310000023197us-gaap:PerformanceSharesMember2020-08-012020-10-310000023197us-gaap:PerformanceSharesMember2019-08-012019-10-310000023197cmtl:RSUsAndRestrictedStockMember2020-08-012020-10-310000023197cmtl:RSUsAndRestrictedStockMember2019-08-012019-10-310000023197us-gaap:EmployeeStockMember2020-08-012020-10-310000023197us-gaap:EmployeeStockMember2019-08-012019-10-310000023197cmtl:ShareunitsMember2020-08-012020-10-310000023197cmtl:ShareunitsMember2019-08-012019-10-310000023197us-gaap:EmployeeStockOptionMember2020-07-310000023197us-gaap:EmployeeStockOptionMember2020-10-310000023197srt:MinimumMemberus-gaap:EmployeeStockOptionMember2020-08-012020-10-310000023197us-gaap:EmployeeStockOptionMembersrt:MaximumMember2020-08-012020-10-310000023197us-gaap:ShareBasedCompensationAwardTrancheOneMemberus-gaap:EmployeeStockOptionMember2020-08-012020-10-310000023197us-gaap:ShareBasedCompensationAwardTrancheTwoMemberus-gaap:EmployeeStockOptionMember2020-08-012020-10-310000023197cmtl:PerformanceSharesRSUsRestrictedStockandShareUnitsMember2020-07-310000023197cmtl:PerformanceSharesRSUsRestrictedStockandShareUnitsMember2020-08-012020-10-310000023197cmtl:PerformanceSharesRSUsRestrictedStockandShareUnitsMember2020-10-310000023197cmtl:PerformanceSharesRSUsRestrictedStockandShareUnitsMember2019-08-012019-10-310000023197us-gaap:PerformanceSharesMembercmtl:GrantedSinceFiscal2014Membercmtl:EmployeesMember2020-08-012020-10-310000023197srt:DirectorMembercmtl:RSUsAndRestrictedStockMember2017-08-012018-07-310000023197srt:DirectorMembercmtl:RSUsAndRestrictedStockMember2019-07-310000023197srt:DirectorMembercmtl:RSUsAndRestrictedStockMember2020-08-012020-10-310000023197cmtl:RSUsAndRestrictedStockMembercmtl:EmployeesMember2020-08-012020-10-310000023197cmtl:RSUsAndRestrictedStockMembercmtl:EmployeesMember2020-10-310000023197cmtl:ShareunitsMember2017-07-310000023197cmtl:ShareunitsMember2017-07-312017-07-310000023197cmtl:ShareunitsMember2020-10-310000023197cmtl:DividendEquivalentsMember2020-08-012020-10-310000023197cmtl:DividendEquivalentsMember2019-08-012019-10-310000023197cmtl:DividendEquivalentsMember2020-10-310000023197cmtl:DividendEquivalentsMember2020-07-310000023197us-gaap:OperatingSegmentsMembercmtl:CommercialSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:OperatingSegmentsMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:CorporateNonSegmentMember2020-08-012020-10-310000023197us-gaap:OperatingSegmentsMembercmtl:CommercialSolutionsSegmentMember2020-10-310000023197us-gaap:OperatingSegmentsMembercmtl:GovernmentSolutionsSegmentMember2020-10-310000023197us-gaap:CorporateNonSegmentMember2020-10-310000023197us-gaap:OperatingSegmentsMembercmtl:CommercialSolutionsSegmentMember2019-08-012019-10-310000023197us-gaap:OperatingSegmentsMembercmtl:GovernmentSolutionsSegmentMember2019-08-012019-10-310000023197us-gaap:CorporateNonSegmentMember2019-08-012019-10-310000023197us-gaap:OperatingSegmentsMembercmtl:CommercialSolutionsSegmentMember2019-10-310000023197us-gaap:OperatingSegmentsMembercmtl:GovernmentSolutionsSegmentMember2019-10-310000023197us-gaap:CorporateNonSegmentMember2019-10-310000023197us-gaap:IntersegmentEliminationMembercmtl:CommercialSolutionsSegmentMember2020-08-012020-10-310000023197us-gaap:IntersegmentEliminationMembercmtl:CommercialSolutionsSegmentMember2019-08-012019-10-310000023197cmtl:CommercialSolutionsSegmentMember2020-07-310000023197cmtl:GovernmentSolutionsSegmentMember2020-07-310000023197cmtl:CommercialSolutionsSegmentMembercmtl:CGCTechnologyMember2020-08-012020-10-310000023197cmtl:CGCTechnologyMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:SolacomTechnologiesIncMembercmtl:CommercialSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:SolacomTechnologiesIncMembercmtl:GovernmentSolutionsSegmentMember2020-08-012020-10-310000023197cmtl:SolacomTechnologiesIncMember2020-08-012020-10-310000023197cmtl:CommercialSolutionsSegmentMember2020-10-310000023197cmtl:GovernmentSolutionsSegmentMember2020-10-310000023197us-gaap:CommonStockMember2020-08-010000023197cmtl:CommercialSolutionsSegmentMember2020-08-010000023197cmtl:GovernmentSolutionsSegmentMember2020-08-010000023197us-gaap:CustomerRelationshipsMember2020-08-012020-10-310000023197us-gaap:CustomerRelationshipsMember2020-10-310000023197us-gaap:TechnologyBasedIntangibleAssetsMember2020-08-012020-10-310000023197us-gaap:TechnologyBasedIntangibleAssetsMember2020-10-310000023197us-gaap:TrademarksAndTradeNamesMember2020-08-012020-10-310000023197us-gaap:TrademarksAndTradeNamesMember2020-10-310000023197us-gaap:CustomerRelationshipsMember2019-08-012020-07-310000023197us-gaap:CustomerRelationshipsMember2020-07-310000023197us-gaap:TechnologyBasedIntangibleAssetsMember2019-08-012020-07-310000023197us-gaap:TechnologyBasedIntangibleAssetsMember2020-07-310000023197us-gaap:TrademarksAndTradeNamesMember2019-08-012020-07-310000023197us-gaap:TrademarksAndTradeNamesMember2020-07-3100000231972020-09-2900000231972020-10-272020-10-270000023197us-gaap:SubsequentEventMember2020-12-090000023197srt:ScenarioForecastMember2021-02-192021-02-19cmtl:transaction0000023197cmtl:OtherMattersMember2018-05-012018-05-310000023197cmtl:OtherMattersMembercmtl:SettlementWithOFACMember2020-09-172020-09-17
Index

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 31, 2020

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-7928
https://cdn.kscope.io/baf0421672eae87429a4d772e5e38a92-cmtl-20201031_g1.jpg
(Exact name of registrant as specified in its charter)
Delaware 11-2139466
(State or other jurisdiction of incorporation /organization) (I.R.S. Employer Identification Number)
68 South Service Road, Suite 230,
Melville, NY
  
11747
(Address of principal executive offices) (Zip Code)
(631)962-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.10 per share CMTLNASDAQ Stock Market LLC
Series A Junior Participating Cumulative Preferred Stock, par value $0.10 per share  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes               No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes               No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Emerging growth company
Non-accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes               No
As of December 4, 2020, the number of outstanding shares of Common Stock, par value $0.10 per share, of the registrant was 25,010,803 shares.


Index

COMTECH TELECOMMUNICATIONS CORP.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 4.
Item 6.
1

Index

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
AssetsOctober 31, 2020July 31, 2020
Current assets:
Cash and cash equivalents$32,468,000 47,878,000 
Accounts receivable, net132,070,000 126,816,000 
Inventories, net81,400,000 82,302,000 
Prepaid expenses and other current assets28,609,000 20,101,000 
Total current assets274,547,000 277,097,000 
Property, plant and equipment, net26,043,000 27,037,000 
Operating lease right-of-use assets, net28,340,000 30,033,000 
Goodwill331,487,000 330,519,000 
Intangibles with finite lives, net252,453,000 258,019,000 
Deferred financing costs, net2,207,000 2,391,000 
Other assets, net3,434,000 4,551,000 
Total assets$918,511,000 929,647,000 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$25,887,000 23,423,000 
Accrued expenses and other current liabilities89,911,000 85,161,000 
Operating lease liabilities, current8,055,000 8,247,000 
Dividends payable 2,468,000 
Contract liabilities44,229,000 40,250,000 
Interest payable1,470,000 163,000 
Total current liabilities169,552,000 159,712,000 
Non-current portion of long-term debt, net217,000,000 149,500,000 
Operating lease liabilities, non-current22,561,000 24,109,000 
Income taxes payable2,147,000 1,963,000 
Deferred tax liability, net18,143,000 17,637,000 
Long-term contract liabilities9,891,000 9,596,000 
Other liabilities19,065,000 17,831,000 
Total liabilities458,359,000 380,348,000 
Commitments and contingencies (See Note 18)
Stockholders’ equity:  
Preferred stock, par value $0.10 per share; shares authorized and unissued 2,000,000
  
Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 40,043,753 shares and 39,924,439 shares at October 31, 2020 and July 31, 2020, respectively
4,004,000 3,992,000 
Additional paid-in capital569,422,000 569,891,000 
Retained earnings328,575,000 417,265,000 
902,001,000 991,148,000 
Less:  
Treasury stock, at cost (15,033,317 shares at October 31, 2020 and July 31, 2020)
(441,849,000)(441,849,000)
Total stockholders’ equity460,152,000 549,299,000 
Total liabilities and stockholders’ equity$918,511,000 929,647,000 
See accompanying notes to condensed consolidated financial statements.
2

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended October 31,
 20202019
Net sales$135,218,000 170,267,000 
Cost of sales85,010,000 106,700,000 
Gross profit50,208,000 63,567,000 
Expenses:  
Selling, general and administrative27,540,000 31,851,000 
Research and development11,635,000 14,861,000 
Amortization of intangibles5,566,000 5,206,000 
Acquisition plan expenses91,183,000 2,389,000 
 135,924,000 54,307,000 
Operating (loss) income(85,716,000)9,260,000 
Other expenses (income):  
Interest expense2,297,000 1,804,000 
Interest (income) and other66,000 (77,000)
(Loss) income before (benefit from) provision for income taxes(88,079,000)7,533,000 
(Benefit from) provision for income taxes(2,239,000)1,145,000 
Net (loss) income$(85,840,000)6,388,000 
Net (loss) income per share:  
Basic$(3.39)0.26 
Diluted$(3.39)0.26 
Weighted average number of common shares outstanding – basic25,305,000 24,555,000 
Weighted average number of common and common equivalent shares outstanding – diluted25,305,000 24,737,000 
 
See accompanying notes to condensed consolidated financial statements.

3

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED OCTOBER 31, 2020 AND 2019
(Unaudited)
Common StockAdditional
Paid-in Capital
Retained EarningsTreasury StockStockholders'
Equity
SharesAmountSharesAmount
Balance as of July 31, 201939,276,161 $3,928,000 $552,670,000 $420,333,000 15,033,317 $(441,849,000)$535,082,000 
Equity-classified stock award compensation
— — 879,000 — — — 879,000 
Proceeds from exercises of stock options
10,600 1,000 305,000 — — — 306,000 
Proceeds from issuance of employee stock purchase plan shares
10,135 1,000 245,000 — — — 246,000 
Issuance of restricted stock
21,510 2,000 (2,000)— — —  
Net settlement of stock-based awards
83,820 8,000 (2,781,000)— — — (2,773,000)
Cash dividends declared, net ($0.10 per share)
— — — (2,428,000)— — (2,428,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)
— — — (56,000)— — (56,000)
Net income
— — — 6,388,000 — — 6,388,000 
Balance as of October 31, 201939,402,226 $3,940,000 $551,316,000 $424,237,000 15,033,317 $(441,849,000)$537,644,000 
Balance as of July 31, 202039,924,439 3,992,000 569,891,000 417,265,000 15,033,317 (441,849,000)549,299,000 
Equity-classified stock award compensation
— — 699,000 — — — 699,000 
Proceeds from issuance of employee stock purchase plan shares
15,265 1,000 181,000 — — — 182,000 
Issuance of restricted stock
35,975 4,000 (4,000)— — —  
Net settlement of stock-based awards
68,074 7,000 (1,345,000)— — — (1,338,000)
Cash dividends declared, net ($0.10 per share)
— — — (2,493,000)— — (2,493,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)
— — — (142,000)— — (142,000)
Adoption of current expected credit loss standard (see Note (3))— — — (215,000)— — (215,000)
Net loss— — — (85,840,000)— — (85,840,000)
Balance as of October 31, 202040,043,753 $4,004,000 $569,422,000 $328,575,000 15,033,317 $(441,849,000)$460,152,000 

See accompanying notes to condensed consolidated financial statements.
4

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended October 31,
 20202019
Cash flows from operating activities:  
Net (loss) income$(85,840,000)6,388,000 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization of property, plant and equipment2,552,000 2,651,000 
Amortization of intangible assets with finite lives5,566,000 5,206,000 
Amortization of stock-based compensation699,000 879,000 
Amortization of deferred financing costs184,000 185,000 
Estimated contract settlement costs 230,000 
Changes in other liabilities(1,033,000)(1,033,000)
Provision for (benefit from) allowance for doubtful accounts110,000 (343,000)
Provision for excess and obsolete inventory1,003,000 373,000 
Deferred income tax expense816,000 2,286,000 
Other(225,000)(3,000)
Changes in assets and liabilities, net of effects of business acquisitions:  
Accounts receivable(5,784,000)(15,947,000)
Inventories(101,000)2,656,000 
Prepaid expenses and other current assets(5,247,000)930,000 
Other assets45,000 (44,000)
Accounts payable1,133,000 4,299,000 
Accrued expenses and other current liabilities7,031,000 (1,095,000)
Contract liabilities4,274,000 (822,000)
Other liabilities, non-current2,358,000 3,000 
Interest payable1,307,000 (133,000)
Income taxes payable(3,077,000)(1,221,000)
Net cash (used in) provided by operating activities (See Note (2))(74,229,000)5,445,000 
Cash flows from investing activities:  
Purchases of property, plant and equipment(890,000)(1,250,000)
Net cash used in investing activities(890,000)(1,250,000)
Cash flows from financing activities:  
Net borrowings of long-term debt under Credit Facility67,500,000 4,000,000 
Remittance of employees' statutory tax withholding for stock awards(2,737,000)(4,560,000)
Cash dividends paid(5,236,000)(2,692,000)
Repayment of principal amounts under finance lease liabilities (198,000)
Proceeds from issuance of employee stock purchase plan shares182,000 246,000 
Proceeds from exercises of stock options 306,000 
Net cash provided by (used in) financing activities59,709,000 (2,898,000)
Net (decrease) increase in cash and cash equivalents(15,410,000)1,297,000 
Cash and cash equivalents at beginning of period47,878,000 45,576,000 
Cash and cash equivalents at end of period$32,468,000 46,873,000 
See accompanying notes to condensed consolidated financial statements (Continued)


5

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three months ended October 31,
20202019
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest$786,000 1,701,000 
Income taxes, net$22,000 79,000 
Non-cash investing and financing activities:
Reclass of finance lease right-of-use assets to property, plant and equipment$ 295,000 
Cash dividends declared but unpaid (including accrual of dividend equivalents)$142,000 2,484,000 
Accrued additions to property, plant and equipment$1,489,000 692,000 

See accompanying notes to condensed consolidated financial statements.

6

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)     General

The accompanying condensed consolidated financial statements of Comtech Telecommunications Corp. and its subsidiaries ("Comtech," "we," "us," or "our") as of and for the three months ended October 31, 2020 and 2019 are unaudited. In the opinion of management, the information furnished reflects all material adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the unaudited interim periods. Our results of operations for such periods are not necessarily indicative of the results of operations to be expected for the full fiscal year.

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reported period. Actual results may differ from those estimates.

Our condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements, filed with the Securities and Exchange Commission ("SEC"), for the fiscal year ended July 31, 2020 and the notes thereto contained in our Annual Report on Form 10-K, and all of our other filings with the SEC.

As disclosed in more detail in Note (14) - "Segment Information," we manage our business in two reportable segments: Commercial Solutions and Government Solutions.

Certain reclassifications have been made to previously reported condensed consolidated financial statements to conform to the current fiscal period presentation.

    Impact of Coronavirus Disease 2019 Pandemic ("COVID-19") on Our Business

Since March 2020, we have conducted most of our non-production related operations using remote working arrangements, curtailed most business travel, and have established social distancing safeguards. These precautions and business practices are expected to remain in effect so long as government advisories recommend. Additionally, we have experienced order delays, production delays, minor supply chain disruptions, lower levels of factory utilization and higher logistics and operational costs. Although the COVID-19 pandemic is by no means over and additional waves of COVID-19 could again alter the business landscape, we believe that the pandemic’s worst impact on our business is largely behind us. As the vaccine for COVID-19 becomes widely available, we believe that business conditions will improve. Our long-term fundamentals remain strong as we continue to believe we are well-positioned for growth as business conditions meaningfully improve.

(2)     Acquisitions
    CGC Technology Limited

On January 27, 2020, we completed the acquisition of CGC Technology Limited ("CGC"), a privately held company located in the United Kingdom, pursuant to the Share Purchase Agreement, dated as of January 27, 2020. CGC is a leading global provider of high precision full motion fixed and mobile X/Y satellite tracking antennas, reflectors, radomes and other ground station equipment. The acquisition of CGC brought established relationships with several top-tier European aerospace companies and other government entities, and we expect CGC to participate in the anticipated growth in the number of low Earth orbit ("LEO") and medium Earth orbit ("MEO") satellite constellations.

The acquisition has a preliminary purchase price for accounting purposes of $23,650,000, of which $12,075,000 was payable in cash and $11,575,000 was payable by the issuance of 323,504 shares of Comtech’s common stock at a volume weighted average stock price of $35.78. The fair value of consideration transferred in connection with this acquisition was $22,740,000, which was net of $160,000 of cash acquired and $750,000 payable by us upon the first anniversary of the closing of the transaction, subject to certain conditions.
7

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We are accounting for the acquisition of CGC under the acquisition method of accounting in accordance with FASB ASC 805. The purchase price was allocated to the assets acquired and liabilities assumed, based on their preliminary fair value as of January 27, 2020, pursuant to the business combination accounting rules. Acquisition plan expenses were not included as a component of consideration transferred and were expensed in the period incurred. Pro forma financial information is not disclosed, as the acquisition was not material.

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in connection with the CGC acquisition:
Purchase Price Allocation (1)
Measurement Period AdjustmentsPurchase Price Allocation
(as adjusted)
Payable in cash$12,075,000 — $12,075,000 
Payable in common stock11,575,000 — 11,575,000 
Preliminary purchase price at fair value$23,650,000 — $23,650,000 
Preliminary allocation of aggregate purchase price:
Cash and cash equivalents$160,000 — $160,000 
Current assets4,904,000 101,000 5,005,000 
Property, plant and equipment697,000  697,000 
Operating lease assets924,000 — 924,000 
Deferred tax assets, non-current470,000  470,000 
Non-current assets89,000  89,000 
Contract liabilities(6,890,000)— (6,890,000)
Accrued warranty obligations(1,000,000)— (1,000,000)
Other current liabilities(3,104,000) (3,104,000)
Non-current liabilities(1,327,000) (1,327,000)
Net tangible liabilities at preliminary fair value$(5,077,000)101,000 $(4,976,000)
Identifiable intangibles, deferred taxes and goodwill:Estimated Useful Lives
Technology$6,700,000  $6,700,000 20 years
Customer relationships8,100,000  8,100,000 17 years
Trade name1,000,000  1,000,000 5 years
Deferred tax liabilities(2,967,000)(17,000)(2,984,000)
Goodwill15,894,000 (84,000)15,810,000 Indefinite
Preliminary allocation of aggregate purchase price$23,650,000  $23,650,000 

(1) As reported in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2020.

The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized over their estimated useful lives. The preliminary fair value of customer relationships (which include acquired backlog) was primarily based on the value of the discounted cash flows that the related intangible asset could be expected to generate in the future. The preliminary fair value of technology and trade name was based on the discounted capitalization of royalty expense saved because we now own the assets. Among the factors contributing to the recognition of goodwill, as a component of the preliminary purchase price allocation, were synergies in products and technologies and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Government Solutions segment based on specific identification and is generally not deductible for income tax purposes.

8

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The allocation of the preliminary purchase price shown in the above table was based upon a preliminary valuation and estimates and assumptions that are subject to change within the purchase price allocation period, generally one year from the acquisition date. As such, the preliminary purchase price for accounting purposes is subject to finalization. The primary areas of the purchase price allocation not yet finalized include the purchase price (due to potential indemnification obligations of the seller under the Share Purchase Agreement), a final assessment of assets acquired and liabilities assumed (including inventory, contract liabilities and warranty obligations), income taxes and residual goodwill.

UHP Networks Inc.

In November 2019, we entered into an agreement to acquire UHP Networks, Inc. and its sister company (together, "UHP"), a leading provider of innovative and disruptive satellite ground station technology solutions. UHP is based in Canada and has developed revolutionary technology that is transforming the Very Small Aperture Terminal ("VSAT") market. With end-markets for high-speed satellite-based networks significantly growing, our acquisition of UHP, if consummated, will allow us to enhance our solution offerings with low cost time division multiple access ("TDMA") satellite modems, which we do not currently offer. In June 2020, we agreed with UHP to amend the terms of our purchase agreement, which resulted in the total aggregate purchase price being reduced by approximately 24% from $50,000,000 to $38,000,000 (of which $5,000,000 will be paid in cash, with the remainder in shares of our common stock, cash, or a combination of both, as we may elect at the time of closing). The transaction is subject to customary closing conditions, including regulatory approval to allow us to purchase UHP's sister company which is headquartered in Moscow. In August 2020, at the request of the Federal Antimonopoly Service ("FAS") of the Russian Federation we submitted an application for regulatory approval to the FAS and the Commission for Supervising Foreign Investments in the Russian Federation (the "Russian Commission") pursuant to Russia’s Foreign Investment Law ("FIL"). In order to purchase UHP’s sister company, which is based in Moscow, approval by the Russian Commission and the FAS is required. If we do not receive approval by December 31, 2020, either we or UHP may terminate the purchase agreement.

Acquisition Plan Expenses

During the three months ended October 31, 2020 and 2019, we incurred $91,183,000 and $2,389,000, respectively, of acquisition plan expenses. For the more recent fiscal quarter, $88,343,000 related to the previously announced litigation and merger termination with Gilat Satellite Networks, LTD. ("Gilat"), including $70,000,000 paid in cash to Gilat. The remaining costs primarily related to the pending acquisition of UHP and GD NG-911 acquisition-related litigation. Additionally, we recorded $1,178,000 of incremental interest expense for ticking fees related to a now terminated financing commitment letter.

Cash Flow Presentation of $70,000,000 Merger Termination Fee

Because we did not complete the Gilat acquisition, we presented the $70,000,000 payment to Gilat made during the three months ended October 31, 2020 as a reduction to cash flows from operating activities for the current period rather than as a cash outflow stemming from investing activities.

(3)     Adoption of Accounting Standards and Updates

We are required to prepare our condensed consolidated financial statements in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") which is the source for all authoritative U.S. generally accepted accounting principles, which are commonly referred to as "GAAP." The FASB ASC is subject to updates by the FASB, which are known as Accounting Standards Updates ("ASUs"). During the three months ended October 31, 2020, we adopted:

FASB ASU No. 2016-13, which requires companies to utilize an impairment model (current expected credit loss ("CECL”)) for most financial assets measured at amortized cost and certain other financial instruments, which include, but are not limited to trade receivables and contract assets. This accounting standard replaced the incurred loss model with a model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate those losses. On August 1, 2020, we adopted this ASU on a modified-retrospective basis and recorded a $215,000 decrease to opening retained earnings.
9

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

FASB ASU No. 2018-13, which modifies the disclosure requirements for fair value measurements in Topic 820. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2018-17, which requires entities to consider indirect interests held through related parties under common control on a proportional basis, rather than as the equivalent of a direct interest in its entirety, when determining whether a decision-making fee is a variable interest. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2018-18, which clarifies when certain transactions between collaborative arrangement participants should be accounted for under ASC 606 and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination. The ASU also precludes entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

FASB ASU No. 2019-08, which requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured based on the grant-date fair value of the share-based payment award. On August 1, 2020, we adopted this ASU. Our adoption of this ASU did not have any impact on our condensed consolidated financial statements or disclosures.

(4)     Revenue Recognition

In accordance with FASB ASC 606 - Revenue from Contracts with Customers ("ASC 606"), we record revenue in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers. Under ASC 606, we follow a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance obligations; and (5) recognize revenue using one of the following two methods:

Over time - We recognize revenue using the over time method when there is a continuous transfer of control to the customer over the contractual period of performance. This generally occurs when we enter into a long-term contract relating to the design, development or manufacture of complex equipment or technology platforms to a buyer’s specification (or to provide services related to the performance of such contracts). Continuous transfer of control is typically supported by contract clauses which allow our customers to unilaterally terminate a contract for convenience, pay for costs incurred plus a reasonable profit and take control of work-in-process. Revenue recognized over time is generally based on the extent of progress toward completion of the related performance obligations. The selection of the method to measure progress requires judgment and is based on the nature of the products or services provided. In certain instances, typically for firm fixed-price contracts, we use the cost-to-cost measure because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion, including warranty costs. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Costs to fulfill generally include direct labor, materials, subcontractor costs, other direct costs and an allocation of indirect costs. When these contracts are modified, the additional goods or services are generally not distinct from those already provided. As a result, these modifications form part of an existing contract and we must update the transaction price and our measure of progress for the single performance obligation and recognize a cumulative catch-up to revenue and gross profits.
10

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

For over time contracts using a cost-to-cost measure of progress, we have an estimate at completion ("EAC") process in which management reviews the progress and execution of our performance obligations. This EAC process requires management judgment relative to assessing risks, estimating contract revenue and costs, and making assumptions for schedule and technical issues. Since certain contracts extend over a long period of time, the impact of revisions in revenue and or cost estimates during the progress of work may impact current period earnings through a cumulative adjustment. Additionally, if the EAC process indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident. Contract revenue and cost estimates for significant contracts are generally reviewed and reassessed at least quarterly.

The cost-to-cost method is principally used to account for contracts in our mission-critical technologies and high-performance transmission technologies product lines and, to a lesser extent, certain location-based and messaging infrastructure contracts in our public safety and location technologies product line. For service-based contracts in our public safety and location technologies product line, we recognize revenue over time. These services are typically recognized as a series of services performed over the contract term using the straight-line method, or based on our customers’ actual usage of the networks and platforms which we provide.

Point in time - When a performance obligation is not satisfied over time, we must record revenue using the point in time accounting method which generally results in revenue being recognized upon shipment or delivery of a promised good or service to a customer. This generally occurs when we enter into short term contracts or purchase orders where items are provided to customers with relatively quick turn-around times. Modifications to such contracts and or purchase orders, which typically provide for additional quantities or services, are accounted for as a new contract because the pricing for these additional quantities or services are based on standalone selling prices.

Point in time accounting is principally applied to contracts in our satellite ground station technologies product line (which includes satellite modems, solid-state and traveling wave tube amplifiers) and certain contracts for our solid-state, high-power amplifiers in our high-performance transmission technologies product line. Point in time accounting is also applied to certain contracts in our mission-critical technologies product line. The contracts related to these product lines do not meet the requirements for over time revenue recognition because our customers cannot utilize the equipment for its intended purpose during any phase of our manufacturing process; customers do not simultaneously receive and or consume the benefits provided by our performance; customers do not control the asset (i.e., prior to delivery, customers cannot direct the use of the asset, sell or exchange the equipment, etc.); and, although many of our contracts have termination for convenience clauses and or an enforceable right to payment for performance completed to date, our performance creates an asset with an alternative use through the point of delivery.

In determining that our equipment has alternative use, we considered the underlying manufacturing process for our products. In the early phases of manufacturing, raw materials and work in process (including subassemblies) consist of common parts that are highly fungible among many different types of products and customer applications. Finished products are either configured to our standard configuration or based on our customers’ specifications. Finished products, whether built to our standard specification or to a customers’ specification, can be sold to a variety of customers and across many different end use applications with minimal rework, if needed, and without incurring a significant economic loss.

When identifying a contract with our customer, we consider when it has approval and commitment from both parties, if the rights of the parties are identified, if the payment terms are identified, if it has commercial substance and if collectability is probable.

11

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
When identifying performance obligations, we consider whether there are multiple promises and how to account for them. In our contracts, multiple promises are separated if they are distinct, both individually and in the context of the contract. If multiple promises in a contract are highly interrelated or comprise a series of distinct services performed over time, they are combined into a single performance obligation. In some cases, we may also provide the customer with an additional service-type warranty, which we recognize as a separate performance obligation. Service-type warranties do not represent a significant portion of our consolidated net sales. When service-type warranties represent a separate performance obligation, the revenue is deferred and recognized ratably over the extended warranty period. Our contracts, from time-to-time, may also include options for additional goods and services. To-date, these options have not represented material rights to the customer as the pricing for them reflects standalone selling prices. As a result, we do not consider options we offer to be performance obligations for which we must allocate a portion of the transaction price. In many cases, we provide assurance-type warranty coverage for some of our products for a period of at least one year from the date of delivery.

When identifying the transaction price, we typically utilize the contract's stated price as a starting point. The transaction price in certain arrangements may include estimated amounts of variable consideration, including award fees, incentive fees or other provisions that can either increase or decrease the transaction price. We estimate variable consideration as the amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the estimation uncertainty is resolved. The estimation of this variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (e.g., historical, current and forecasted) that is reasonably available to us.

When allocating the contract’s transaction price, we consider each distinct performance obligation. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. We determine standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions, including geographic or regional specific factors, competitive positioning, internal costs, profit objectives and internally approved pricing guidelines related to the performance obligations.

Almost all of our contracts with customers are denominated in U.S. dollars and typically are either firm fixed-price or cost reimbursable type contracts (including fixed-fee, incentive-fee and time-and-material type contracts). In almost all of our contracts with customers, we are the principal in the arrangement and report revenue on a gross basis. Transaction prices for contracts with U.S. domestic and international customers are usually based on specific negotiations with each customer and in the case of the U.S. government, sometimes based on estimated or actual costs of providing the goods or services in accordance with applicable regulations. Sales by geography and customer type, as a percentage of consolidated net sales, are as follows:
 Three months ended October 31,
 20202019
United States  
U.S. government32.5 %40.8 %
Domestic41.9 %36.1 %
Total United States74.4 %76.9 %
International25.6 %23.1 %
Total100.0 %100.0 %

12

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Sales to U.S. government customers include sales to the U.S. Department of Defense ("DoD"), intelligence and civilian agencies, as well as sales directly to or through prime contractors. Domestic sales include sales to commercial customers, as well as to U.S. state and local governments. Included in domestic sales are sales to Verizon Communications Inc. ("Verizon"), which accounted for 12.5% of consolidated net sales for the three months ended October 31, 2020. Except for the U.S. government, there were no customers that represented more than 10.0% of consolidated net sales during the three months ended October 31, 2019. Except for the U.S., no individual country (including sales to U.S. domestic companies for inclusion in products that are sold to a foreign country) represented more than 10.0% of consolidated net sales for the three months ended October 31, 2020 and 2019.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our chief operating decision-maker ("CODM") for the three months ended October 31, 2020 and 2019. We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors which impact our business:
Three months ended October 31, 2020
Commercial SolutionsGovernment SolutionsTotal
Geographical region and customer type
U.S. government$9,458,000 34,432,000 $43,890,000 
Domestic49,300,000 7,414,000 56,714,000 
Total United States58,758,000 41,846,000 100,604,000 
International23,044,000 11,570,000 34,614,000 
Total$81,802,000 53,416,000 $135,218,000 
Contract type
Firm fixed-price$80,988,000 32,656,000 $113,644,000 
Cost reimbursable814,000 20,760,000 21,574,000 
Total$81,802,000 53,416,000 $135,218,000 
Transfer of control
Point in time$29,671,000 23,031,000 $52,702,000 
Over time52,131,000 30,385,000 82,516,000 
Total$81,802,000 53,416,000 $135,218,000 
Three months ended October 31, 2019
Commercial SolutionsGovernment SolutionsTotal
Geographical region and customer type
U.S. government$16,748,000 52,773,000 $69,521,000 
Domestic53,354,000 8,041,000 61,395,000 
Total United States70,102,000 60,814,000 130,916,000 
International24,212,000 15,139,000 39,351,000 
Total$94,314,000 75,953,000 $170,267,000 
Contract type
Firm fixed-price$92,548,000 50,724,000 $143,272,000 
Cost reimbursable1,766,000 25,229,000 26,995,000 
Total$94,314,000 75,953,000 $170,267,000 
Transfer of control
Point in time$37,723,000 37,786,000 $75,509,000 
Over time56,591,000 38,167,000 94,758,000 
Total$94,314,000 75,953,000 $170,267,000 
13

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The timing of revenue recognition, billings and collections results in receivables, unbilled receivables and contract liabilities on our Condensed Consolidated Balance Sheet. Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. For certain contracts with provisions that are intended to protect customers in the event we do not satisfy our performance obligations, billings occur subsequent to revenue recognition, resulting in unbilled receivables. Under ASC 606, unbilled receivables constitute contract assets. There were no material impairment losses recognized on contract assets during the three months ended October 31, 2020 and 2019, respectively. On large long-term contracts, and for contracts with international customers that do not do business with us regularly, payment terms typically require advanced payments and deposits. Under ASC 606, payments received from customers in excess of revenue recognized to-date results in a contract liability. These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract. Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract. Under the typical payment terms for our contracts accounted for at a point in time, costs are accumulated in inventory until the time of billing, which generally coincides with revenue recognition. Of the contract liability balance at July 31, 2020 and July 31, 2019, $16,370,000 and $18,609,000 was recognized as revenue during the three months ended October 31, 2020 and 2019, respectively.

We recognize the incremental costs to obtain or fulfill a contract as an expense when incurred if the amortization period of the asset is one year or less. Incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

As commissions payable to our internal sales and marketing employees or contractors are contingent upon multiple factors, such commissions are not considered direct costs to obtain or fulfill a contract with a customer and are expensed as incurred in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations. As for commissions payable to our third-party sales representatives related to long-term contracts, we do consider these types of commissions both direct and incremental costs to obtain and fulfill such contracts. Therefore, such commissions are included in total estimated costs at completion for such contracts and expensed over time through cost of sales on our Condensed Consolidated Statements of Operations.

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the end of a fiscal period. Remaining performance obligations, which we refer to as backlog, exclude unexercised contract options and potential orders under indefinite delivery / indefinite quantity ("IDIQ") contracts. As of October 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $605,464,000 (which represents the amount of our consolidated backlog). We estimate that a substantial portion of our remaining performance obligations at October 31, 2020 will be completed and recognized as revenue during the next twenty-four month period, with the rest thereafter. During the three months ended October 31, 2020, revenue recognized from performance obligations satisfied, or partially satisfied, in previous periods (for example due to changes in the transaction price) was not material.

(5)    Fair Value Measurements and Financial Instruments

Using the fair value hierarchy described in FASB ASC 820 "Fair Value Measurements and Disclosures," we valued our cash and cash equivalents using Level 1 inputs that were based on quoted market prices.

We believe that the carrying amounts of our other current financial assets (such as accounts receivable) and other current liabilities (including accounts payable and accrued expenses) approximate their fair values due to their short-term maturities.

The fair value of our Credit Facility that we entered into on October 31, 2018 approximates its carrying amount due to its variable interest rate and pricing grid that is dependent upon our leverage ratio as of the end of each fiscal quarter.

As of October 31, 2020 and July 31, 2020, other than the financial instruments discussed above, we had no other significant assets or liabilities included in our Condensed Consolidated Balance Sheets recorded at fair value, as such term is defined by FASB ASC 820.
14

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(6)    Earnings Per Share

Our basic earnings per share ("EPS") is computed based on the weighted average number of common shares (including vested but unissued stock units, share units, performance shares and restricted stock units ("RSUs")), outstanding during each respective period. Our diluted EPS reflects the dilution from potential common stock issuable pursuant to the exercise of equity-classified stock-based awards, if dilutive, outstanding during each respective period. Pursuant to FASB ASC 260 "Earnings Per Share," equity-classified stock-based awards that are subject to performance conditions are not considered in our diluted EPS calculations until the respective performance conditions have been satisfied. When calculating our diluted earnings per share, we consider the amount an employee must pay upon assumed exercise of stock-based awards and the amount of stock-based compensation cost attributed to future services and not yet recognized.

There were no repurchases of our common stock during the three months ended October 31, 2020 and 2019. See Note (17) - "Stockholders’ Equity" for more information.

Weighted average stock options, RSUs and restricted stock outstanding of 1,839,000 and 382,000 shares for the three months ended October 31, 2020 and 2019, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 232,000 and 197,000 weighted average performance shares outstanding for the three months ended October 31, 2020 and 2019, respectively, as the performance conditions have not yet been satisfied. However, net (loss) income (the numerator) for EPS calculations for each respective period, is reduced by the compensation expense related to these awards.

The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:
 Three months ended October 31,
20202019
Numerator:  
Net (loss) income for basic calculation$(85,840,000)6,388,000 
Numerator for diluted calculation$(85,840,000)6,388,000 
Denominator:  
Denominator for basic calculation25,305,000 24,555,000 
Effect of dilutive securities:  
Stock-based awards 182,000 
Denominator for diluted calculation25,305,000 24,737,000 
(7)     Accounts Receivable

Accounts receivable consist of the following at:
 October 31, 2020July 31, 2020
Receivables from commercial and international customers$64,461,000 67,109,000 
Unbilled receivables from commercial and international customers28,806,000 21,588,000 
Receivables from the U.S. government and its agencies37,345,000 32,870,000 
Unbilled receivables from the U.S. government and its agencies3,446,000 7,018,000 
Total accounts receivable134,058,000 128,585,000 
Less allowance for doubtful accounts1,988,000 1,769,000 
Accounts receivable, net$132,070,000 126,816,000 

15

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unbilled receivables as of October 31, 2020 relate to contracts-in-progress for which revenue has been recognized, but for which we have not yet earned the right to bill the customer for work performed to-date. Under ASC 606, unbilled receivables constitute contract assets. Management estimates that substantially all amounts not yet billed at October 31, 2020 will be billed and collected within one year.

Allowance for doubtful accounts as of October 31, 2020 includes $215,000 recorded at August 1, 2020 as a result of our adoption of FASB ASU No. 2016-13, which is discussed in more detail in Note (3) - "Adoption of Accounting Standards and Updates."

As of October 31, 2020, the U.S. government (and its agencies) and Verizon represented 30.4% and 10.1%, respectively, of total accounts receivable. As of July 31, 2020, except for the U.S. government (and its agencies), which represented 31.0% of total accounts receivable, there were no other customers which accounted for greater than 10.0% of total accounts receivable.

(8)     Inventories

Inventories consist of the following at:
 October 31, 2020July 31, 2020
Raw materials and components$60,718,000 59,175,000 
Work-in-process and finished goods39,851,000 42,203,000 
Total inventories100,569,000 101,378,000 
Less reserve for excess and obsolete inventories19,169,000 19,076,000 
Inventories, net$81,400,000 82,302,000 

As of October 31, 2020 and July 31, 2020, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $7,633,000 and $7,215,000, respectively, and the amount of inventory related to contracts from third-party commercial customers who outsource their manufacturing to us was $1,383,000 and $1,387,000, respectively.

(9)     Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:
 October 31, 2020July 31, 2020
Accrued wages and benefits$19,613,000 20,857,000 
Accrued contract costs12,707,000 15,306,000 
Accrued warranty obligations16,196,000 15,200,000 
Accrued legal costs2,593,000 2,539,000 
Accrued commissions and royalties4,576,000 4,621,000 
Accrued acquisition plan expenses22,794,000 7,014,000 
Other11,432,000 19,624,000 
Accrued expenses and other current liabilities$89,911,000 85,161,000 

Accrued contract costs represent direct and indirect costs on contracts as well as estimates of amounts owed for invoices not yet received from vendors or reflected in accounts payable.

Accrued warranty obligations as of October 31, 2020 relate to estimated liabilities for assurance type warranty coverage that we provide to our customers. We generally provide warranty coverage for some of our products for a period of at least one year from the date of delivery. We record a liability for estimated warranty expense based on historical claims, product failure rates, consideration of contractual obligations, future costs to resolve software issues and other factors. Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.
16

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Accrued acquisition plan expenses as of October 31, 2020 and July 31, 2020 primarily relate to legal and professional fees for litigation settlement and merger termination with Gilat as well as legal expenses associated with a previously completed acquisition. See Note (2) - "Acquisitions" and Note (18) - "Legal Proceedings and Other Matters" for further discussion.

Changes in our accrued warranty obligations during the three months ended October 31, 2020 and 2019 were as follows:
Three months ended October 31,
 20202019
Balance at beginning of period$15,200,000 15,968,000 
Provision for warranty obligations1,845,000 989,000 
Charges incurred(849,000)(1,191,000)
Reclassification from non-current liabilities 302,000 
Balance at end of period$16,196,000 16,068,000 
Our current accrued warranty obligations at October 31, 2020 and July 31, 2020 include $1,856,000 and $2,158,000, respectively, of warranty obligations for a small product line that we refer to as the TCS 911 call handling software solution. This solution was licensed to customers prior to our acquisition of TeleCommunication Systems, Inc. ("TCS").

(10)     Credit Facility

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders.

The Credit Facility provides a senior secured loan facility of up to $550,000,000 consisting of: (i) a revolving loan facility ("Revolving Loan Facility") with a borrowing limit of $300,000,000; (ii) an accordion feature allowing us to borrow up to an additional $250,000,000; (iii) a $35,000,000 letter of credit sublimit; and (iv) a swingline loan credit sublimit of $25,000,000.
    
The Credit Facility matures on October 31, 2023 (the "Revolving Maturity Date"). If we issue new unsecured debt in excess of $5,000,000 with a maturity date that is less than 91 days from October 31, 2023, the Revolving Maturity Date would automatically accelerate so that it would be 91 days earlier than the maturity date of the new unsecured debt.

As of October 31, 2020, the amount outstanding under our Credit Facility was $217,000,000 which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet. At October 31, 2020, we had $3,046,000 of standby letters of credit outstanding under our Credit Facility related to guarantees of future performance on certain customer contracts and no outstanding commercial letters of credit. During the three months ended October 31, 2020, we had outstanding balances under the Credit Facility ranging from $125,000,000 to $217,000,000.

As of October 31, 2020, total net deferred financing costs related to the Credit Facility were $2,207,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense related to our Credit Facility, including amortization of deferred financing costs, recorded during the three months ended October 31, 2020 and 2019 was $1,111,000 and $1,753,000, respectively. Our blended interest rate approximated 2.70% and 4.70%, respectively, for the three months ended October 31, 2020 and 2019.

17

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Borrowings under the Credit Facility shall be either: (i) Alternate Base Rate borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the greatest of (a) the Prime Rate (as defined) in effect on such day, (b) the Federal Funds Effective Rate (as defined) in effect on such day plus 1/2 of 1.00% per annum and (c) the Adjusted LIBO Rate (as defined) on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00% per annum, plus (y) the Applicable Rate (as defined), or (ii) Eurodollar borrowings, which bear interest from the applicable borrowing date at a rate per annum equal to (x) the Adjusted LIBO Rate for such interest period plus (y) the Applicable Rate. Determination of the Applicable Rate is based on a pricing grid that is dependent upon our Secured Leverage Ratio (as defined) as of the end of each fiscal quarter for which consolidated financial statements have been most recently delivered.

The Credit Facility contains customary representations, warranties and affirmative covenants. The Credit Facility also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stockholder dividends, and (vii) certain other restrictive agreements. The Credit Facility also contains certain financial covenants and customary events of default (subject to grace periods, as appropriate), such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of our business. In addition, under certain circumstances, we may be required to enter into amendments to the Credit Facility in connection with any further syndication of the Credit Facility.

The Credit Facility provides for, among other things: (i) no scheduled payments of principal until maturity; (ii) a maximum Secured Leverage Ratio of 3.75x trailing twelve months ("TTM") Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and a Maximum Total Leverage Ratio of 4.50x TTM Adjusted EBITDA, each with no step downs; and (iii) a Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA.

As of October 31, 2020, our Secured Leverage Ratio was 3.31x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as of October 31, 2020 was 11.42x TTM Adjusted EBITDA compared to the Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA. Given our expected future business performance, we anticipate maintaining compliance with the terms and financial covenants in our Credit Facility for the foreseeable future.

The obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries (the "Guarantors"). As collateral security under the Credit Facility and the guarantees thereof, we and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in, substantially all of our tangible and intangible assets.

On December 6, 2018, we entered into the first amendment to the Credit Facility. The purpose of the amendment was to provide for a mechanism to replace the LIBO Rate for Eurodollar borrowings with an alternative benchmark interest rate, should the LIBO Rate generally become unavailable in the future on an other-than-temporary basis.

Capitalized terms used but not defined herein have the meanings set forth for such terms in the Credit Facility and the Prior Credit Facility, which have been documented and filed with the SEC.

18

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(11)     Leases
Our leases historically relate to the leasing of facilities and equipment. In accordance with FASB ASC 842 - "Leases" ("ASC 842"), we determine at inception whether an arrangement is, or contains, a lease and whether the lease should be classified as an operating or a financing lease. At lease commencement, we recognize a right-of-use ("ROU") asset and lease liability based on the present value of the future lease payments over the estimated lease term. We have elected to not recognize a ROU asset or lease liability for any leases with terms of twelve months or less. Instead, for such short-term leases, we recognize lease expense on a straight-line basis over the lease term. Certain of our leases include options to extend the term of the lease or to terminate the lease early. When it is reasonably certain that we will exercise a renewal option or will not exercise a termination option, we include the impact of exercising or not exercising such option, respectively, in the estimate of the lease term. As our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate ("IBR") on the commencement date to calculate the present value of future lease payments. Such IBR represents our estimated rate of interest to borrow on a collateralized basis over a term commensurate with the expected lease term.

Some of our leases include payments that are based on the Consumer Price Index ("CPI") or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability using the index as of the lease commencement date. Other variable lease payments, such as common area maintenance, property taxes, and usage-based amounts, are required by ASC 842 to be excluded from the ROU asset and lease liability and expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset would also consider, to the extent applicable, any deferred rent upon adoption, lease pre-payments or initial direct costs of obtaining the lease (e.g., such as commissions).

For all classes of leased assets, we elected the practical expedient to not separate lease components (i.e., the actual item being leased, such as the facility or piece of equipment) from non-lease components (i.e., the distinct elements of a contract not related to securing the use of the leased asset, such as common area maintenance and consumable supplies).

Certain of our facility lease agreements (which are classified as operating leases) contain rent holidays or rent escalation clauses. For rent holidays and rent escalation clauses during the lease term, we record rental expense on a straight-line basis over the term of the lease. As of October 31, 2020, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased.

19

Index
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The components of lease expense are as follows:
Three months ended October 31,
20202019
Finance lease expense:
Amortization of ROU assets$12,000 108,000 
Interest on lease liabilities1,000 2,000 
Operating lease expense2,488,000 2,637,000 
Short-term lease expense247,000 863,000 
Variable lease expense964,000 993,000 
Sublease income(17,000) 
Total lease expense$3,695,000 4,603,000 

Additional information related to leases is as follows:
Three months ended October 31,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating leases - Operating cash outflows$2,543,000 2,843,000 
Finance leases - Operating cash outflows1,000 2,000 
Finance leases - Financing cash outflows12,000 198,000 
ROU assets obtained in the exchange for lease liabilities (non-cash):
Operating leases$478,000 598,000 

The following table is a reconciliation of future cash flows relating to operating and financing lease liabilities presented on our Condensed Consolidated Balance Sheet as of October 31, 2020:
OperatingFinanceTotal
Remainder of fiscal 2021$6,915,000 23,000 $6,938,000 
Fiscal 20228,056,000 16,000 8,072,000 
Fiscal 20236,327,000 5,000 6,332,000 
Fiscal 20244,982,000  4,982,000 
Fiscal 20254,319,000  4,319,000 
Thereafter2,807,000  2,807,000 
Total future undiscounted cash flows33,406,000 44,000