Welcome to Comtech Telecommunications Corp.'s Conference Call for the First Quarter of fiscal 2025. As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Maria Ceriello of Comtech. Please go ahead, Maria.

Thank you, operator, and thanks, everyone, for joining us today. I'm here with Ken Traub, Comtech's Chairman, President and CEO; Mike Bondi, CFO; Daniel Gizinski, President of the Satellite and Space Communications business; and Jeff Robertson, President of the Terrestrial and Wireless Networks business. Before we get started, please note we have a detailed discussion of the quarter in the press release we issued this morning, which is available on our website. 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 morning, everyone. I appreciate you taking the time to join us today. Let me introduce myself. I'm Ken Traub, the new Chairman, President and CEO of Comtech. I joined the Comtech Board of Directors on October 31 of this year, became Executive Chairman on November 27, became the President and CEO today. Before I begin my remarks, I would like to express my appreciation to John Ratigan. John's last day at Comtech was today. He's a true gentleman and professional. At this critical juncture, John and I and the rest of the Board of Directors reached an amicable and consensual understanding, it was best for John to step aside so that I can take over as President and CEO. He has been supportive and has done so with grace and dignity, which has helped to facilitate a smooth transition. We are grateful and wish him the best in all of his future endeavors. I would also like to express my appreciation to Judy Chambers and Yacov Shamash who have both been valued members of the Board of Directors and whose last day is today as of the Annual Shareholder Meeting. We also welcome Michael Hildebrandt, who joined the Board on November 18 and is already a valuable contributor Board and the company. I will now provide you with some highlights on my personal background which will enable me to share my high-level perspectives on leadership, particularly in turnarounds, and then I will apply that to my observations and plans for Comtech. I have devoted most of my professional career to business transformations and turnarounds. This is not easy work, but I find it very rewarding to help companies navigate through challenges and capitalize on opportunities to achieve optimal outcomes for all stakeholders. I have taken…

Thanks, Ken. Before getting into the detailed results, I first want to summarize this past quarter for you. We posted a significant GAAP operating loss of $129.2 million which was driven primarily by several large non-cash charges and write-downs that impacted our P&L, which I will explain shortly. The Terrestrial and Wireless segment continues to perform well but we continue to face challenges within our Satellite and Space segment. While we are all disappointed with these results, we are optimistic that the new leadership Ken is providing and the initiatives he described will better position Comtech for the future. Now let's turn to the key metrics for this past quarter. Consolidated net sales were $115.8 million compared to $151.9 million in Q1 of fiscal 2024. This reflects lower net sales in our Satellite and Space segment, offset in part by higher net sales in our Terrestrial and Wireless segment. Our consolidated book-to-bill ratio, a measure defined as bookings divided by net sales for the three months ended October 31, 2024, was 1.1. Net sales in our Satellite and Space segment during fiscal Q1 reflect lower net sales of our troposcatter and SATCOM solutions, high-power solid-state amplifiers related to the PST divestiture completed in November of 2023 and satellite ground infrastructure solutions, including steerable antennas related to the CGC disposition initiated in Q4 of fiscal 2024. To put a finer point on it, last year within our troposcatter product line, our next-gen troposcatter contracts with the US Marine Corps and the US Army were in full swing with respect to procurement and manufacturing. Today, as Daniel will touch on, these contracts have significantly progressed, allowing us to begin invoicing and collecting on the unbilled receivables that we had built up in fiscal 2024. Collectively, these two programs accounted for approximately $8…

Thanks, Mike. I'm Daniel Gizinski, President of Comtech's Satellite and Space Communications segment. While I'm relatively new to this role, I've been with Comtech for over five years. During my tenure, I have held key leadership positions and driven meaningful operational improvements at divisions and sites across the company. This experience has enabled me to hit the ground running with well-informed decisions on an accelerated time scale. This is important as there is a lot of work to be done to address the efficiency and operational discipline and excessive cost structure that has built up over years. Prior to Comtech, I spent the majority of my career in the aerospace and satellite industry, including positions at companies like General Electric, Sierra Nevada Corporation and L3 Harris. In these roles, I honed my skill set and built a deep understanding of our customers, markets and the opportunity set present ahead of us even during this period of significant change for our industry. The cadence of satellite launch has increased by orders of magnitude, and we've seen the US stand up a new service in the US space force, which has grown its budget to nearly $30 billion. And as an electrical engineer and then program manager who spent his early career developing products much like the ones Comtech manufacturers today, I deeply understand both the things that Comtech continues to get right and the areas where we need to make changes on both the technical and business side. As Ken mentioned in his remarks, it is important to drive clarity around the priorities, align the team around these objectives and drive accountability and progress throughout the organization. Ken's arrival has driven a tenor change and he has moved quickly to align the team to address these challenges. Our priorities are clear.…

Thank you, Daniel. I'm Jeff Robertson, the President of Comtech Terrestrial and Wireless business segment. First, I'll provide a brief overview of my background. Then I'll share some insights into our T&W business and there are significant opportunities and progress in our public safety and carrier technologies. After initially consulting with the business, I assumed this full-time role in March 2024. I have over 25 years of leadership experience in this space, including roles as CEO of Intrado and other organizations. I bring a track record of successfully navigating divestiture processes while maintaining focus on business fundamentals. Notable examples include carve-outs such as Airbus Communications North America to Motorola in 2017 and Intrado Public Safety to Stonepeak in 2023. As Comtech announced last quarter, we are exploring strategic alternatives for the T&W business. Due to the strong market position, customer relationships, profit profile, growth potential and recurrent revenue and steady cash flow, we've attracted strong interest from potential partners. This process is ongoing and as Ken described, it will be part of a broader strategic alternatives review involving all aspects of the company. The Terrestrial & Wireless business is built on stability and growth potential. In the Public Safety sector, our revenues are underpinned by predictable funding sources, long sales cycles, while our carrier business benefits from shorter sales cycles and technical complexity as we enable wireless, VoIP and non-traditional carriers to comply with regulatory requirements. T&W awards in fiscal Q1 included a $30 million-plus contract renewed by one of the largest wireless carriers in the United States to enhance critical 911 call routing services. Also a large multiyear location-based services maintenance and support contract from another top-tier wireless carrier in the US, valued at over $19 million. A $2 million plus NextGen 911 Guardian call handling solution contract was…

Thank you, Jeff. I want to close with a brief summary. While Comtech's recent historical performance has been unsatisfactory, the company has great assets, including its people, technologies, reputation, customers and relationships. Since I joined the company as Executive Chairman, about six weeks ago, I have learned a lot to give me confidence that we can overcome the challenges and create new opportunities to strengthen the business and create value. I am honored to expand my role as President and CEO today and look forward to leading the company into a stronger and brighter future. As outlined today, our priorities for contact going forward include, first, earning the trust of all key stakeholders by being candid about both the challenges and opportunities delivering on a thoughtful plan to strengthen the company going forward. Second, implementing operational discipline and rightsizing to improve context, processes and cost structure. Third, supporting and growing successful business units by enhancing our key points of differentiation, providing superior products and services to our customers. Fourth, conducting a comprehensive review of all strategic alternatives. Fifth, strengthening the company's capital structure. And finally, leading a corporate culture that is centered on integrity, transparency, accountability and a determination to be the leading and most successful provider of secure communication technologies. With that, operator, let's open it up for questions, keeping in mind, we have the Annual Shareholders Meeting to attend shortly after this call.

[Operator Instructions] Our first question will come from Joe Gomes with Noble Capital. Please go ahead.

Good morning. Ken, nice to meet you.

Nice to meet you, Joe.

So I'm going to be harsh with you right out of the gate, okay? Warren Buffet has always been quoted as saying, when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. And while I appreciate your story, fraud doesn't necessarily equate to a bad business. Comtech's performance topped in, I think it was fiscal 2019 in terms of revenues and adjusted EBITDA and it's in pretty much downhill since. Almost, I don't know, 2.5 years ago, Ken Peterman came on. He started One Comtech, built the Arizona facility all of this to take out cost, to focus. John was continuing along the same path. And now you're telling us, we got to do it all over again. And it just seems it's never ending and I don't see the end in sight. So what's going to change to actually make Comtech start growing again and be a good business? Or is it just a bad business?

Very fair question set of points there, Joe. And you really -- one of my favorite Warren Buffett quote. So I do agree with you. And that's why I am here because I do believe that this company can be fixed. The history is disappointing. We get it. But there are valuable assets here and the company does have important differentiated technology. It's got really great customer relationships. There is -- it has performed poorly over the years. There's no doubt about it. I am here to address that. And we have already started to implement a series of changes that I've outlined today to better position this company for the future. None of it is easy, right? It's fair to say. This is a turnaround, right? The historical performance cannot continue. We have to fix this business. I wouldn't be trying if I didn't believe that we can create a better future. And we have a lot -- we have talent here, right? Example I gave at ABNH. Shortly after I arrived as CEO, I concluded I needed to replace the entire management team. That's not the case here. There's a lot of strong talent in this company, right? There are real assets. So -- and I'm working with a good team that recognizes yes, it's been a rough road, we're going to fix it. Let me also close -- you mentioned the sequence of CEOs. Yeah, I'm the fifth CEO over a relatively short period of time. That's not a good sign. But I will share with you what John Ratigan said to me, as I put in my remarks, he is a true gentleman, and he has moved on with grace and dignity. When I first had the discussion with John about what we'll do going forward, his response was, Ken, you are far better suited to lead Comtech into the future than I am. That shows a real humility, a recognition. And yeah, this isn't going to be easy, Joe, but we're going to do it. This company is committed to it. We are going to be a better context going forward than what you've seen in the past.

Thanks for that. Let me do one follow-up and then I'll get back in queue so other people can ask some questions here. I know we're time-constrained. And this one is more for Mike. Mike, in the fiscal fourth quarter call, you mentioned revenues were expected to be flat with fourth quarter and adjusted EBITDA expectations were to see improvement. And both of those numbers were down. And essentially, I believe at the time of the call, the quarter was pretty much done. And I'm just trying to square that circle as to how that you guys could have said that and then the numbers come in so different than what was said on the call.

Hi, good morning, Joe, a fair question, too. Yes, I think it's twofold. I think part of it was we had to close the books on some of our contracts that have estimates to complete, so we needed to see the actuals come in after we reported. That's one thing. And we did have some adjustments on some of our EACs as we're closing those projects up and gearing up for production which is a good thing in the second half of the year. But I would say the second unexpected item as we had to continue to reassess our unbilled, our EBITDA does reflect approximately $20 million reduction from having to take a position on an unbilled receivable that we had booked and have been tracking for the past couple of quarters. It was not clear is there was some uncertainty as to the timing of being able to bill and collect that, that we had to take a charge and that was after we had provided that guidance. So I would say those are probably the two main drivers.

Okay, great. Thanks for that clarity and pardon me, to get back in queue. Thanks.

Thanks, Joe.

Thank you. Our next question will come from Greg Burns with Sidoti. Please go ahead.

Good morning. When we look at challenges -- some of the top line challenges on the Satellite business. I think over the last quarter or two, you've been pointing to maybe the balance sheet issues causing some production delays, your inability to get maybe deliver on some product. I guess the thought was now that you had brought debt current and you would see maybe an improvement in production and start to see some movement on delivering against your backlog. Now we're back to the debt being current again and the balance sheet seems to be an increasing issue. So what's the impact going to be maybe on your production? Are we back to where we were? And maybe a quarter or two ago with the inability to maybe get terms from suppliers? Or how is this going to impact production going forward?

Good morning, Greg, I'll take that first part of the question, I guess. In terms of where we are cash position-wise, and where we are with our vendors, we have maintained you see on the balance sheet or AP at levels that are much lower than what we had been tracking. We're keeping the aging and check definitely feeding the supply chain as best as possible. In terms of our liquidity, we've been able to maintain that covenant. So I think on that front, we are addressing that head on. In terms of where we are with our lenders and the actual debt, I'll turn it over to Ken to maybe talk more about next steps.

Yeah. So, Greg, it's an accounting requirement to reclassify the debt as current when there's an anticipation that we will not meet the financial covenants. So the debt is reclassified as current for those reasons. We've developed a very constructive and positive working relationship with the lenders as well as the preferred stockholders. And we're continuing to work with them constructively and believe that we will get -- with their support, we're going to get through this and be in a better position financially than the company has been.

Okay. And I guess just a follow-up. So in terms of kind of maybe market demand, is -- what we're seeing now? Are you losing business? Or are you losing market share? Or -- because the implication or the thought over the last couple of quarters was maybe some of this was -- it was not market-related, it was kind of Comtech related in terms of your ability to get production levels back to normalized rates and your ability to deliver against your backlog. So is what we're seeing now more kind of market related? How should we view the decline in revenue this quarter maybe relative to what you had expected at the end?

I'm just going to make a high-level comment, Greg, and then I'm going to turn it over to Daniel to give you some specifics in the Satellite space. But we have over $800 million of funded backlog. So that gives us some confidence that the going-forward revenue is there. The -- not to say that there aren't plenty of business and operational and market challenges, there are. But we -- but with over $800 million of backlog, that supports the confidence going forward. Dan, you want to add a little specifics and Jeff, if you want to follow that as well.

So, absolutely. So on the Satellite & Space side, I think there's a few things that are worth highlighting. The first is we have and continue to maintain and execute against large multiyear funded programs. One of the historical trends in our Satellite business has always been the large infrastructure build-outs occur and generate some level of volatility in the ability of customers to accept and ingest the deliveries of new equipment. I think from a market standpoint, we kind of show in Q1, a relatively modest level of book-to-bill, about 1.0, which I think reflects several major new wins as well as follow-on orders from existing customers that are in early stages of building out their ground infrastructure. I think ultimately, from a market standpoint, we feel like we're strongly positioned continuing to be competitive in the sections of the market that we're pushing after. And I think ultimately, as Ken mentioned, a strong backlog in the S&S segment as well, both in the funded and unfunded but highly visible segment.

Okay. Thank you.

I would just add on to Daniel's thoughts on the T&W business, because we serve public safety, state, local government. The customers are extremely sticky. So when you look at our historical track record, you'll see that it's consistently growing to your point of market share, so which I'm excited about. Also the steady funding stream of public safety from the surcharges that are charged to the customers. That funding stream actually helps my business and its stability and growth. So along with the backlog that Ken mentioned, so I think we're in good shape from a market demand perspective, and we're certainly not losing market share. In fact, we're growing.

Thank you. Our next question will come from Griffin Boss with B. Riley Securities. Please go ahead.

Hi, thanks for taking my question. I'll try to keep this brief. Welcome, Ken, first of all, and then I'll just start on the strategic review, particularly for Terrestrial and Wireless Networks. Back in October, when it was announced that the strategic transformation strategy was happening specifically for T&W, that was said to be well underway. Should we look at this kind of new updated strategic transformation as a continuation of that process for T&W or is this going to be a reset of that timeline to look for a potential sale of that business?

Good question, Griffin. It is a continuation and broadening of the previously announced process. I did believe that it makes more sense to explore all strategic alternatives to put whatever transaction we may do with T&W or elsewhere in a broader context. So we're well informed of all opportunities before consummating any specific transaction.

Okay. Makes sense. And then maybe one more for Mike here. Now that you took that charge on the unbilled, can you just provide maybe more clarity or an update on the remaining unbilled in your expectation for meeting whatever milestones need to be met to convert those to build in the future?

Sure. In terms of focus on the two main troposcatter programs that we have with the US Army, you'll find in our disclosures today, we are sitting with about $10 million in the unbilled for those contracts. That will likely get resolved, as Daniel mentioned with the stop work order we'll be resuming on that front. And with the US Army, that program is now in its latter stages of delivery. So we'll be invoicing and collecting in that with normal terms. High level overall, our own bills did come down. While the headline number for the receivables was still about $200 million before reserves. It does reflect the shifting of unbilled to billed category. So our expectation is over the next couple of months, we'll be working those down.

Okay. Thank you both for taking my questions. Appreciate it.

Pleasure.

Thank you. At this time, I would like to turn the call back to the company for any additional or closing remarks.

Okay. This is Ken again. Thank you all for joining us. Let me reiterate my enthusiasm to lead Comtech going forward. While we know the company has faced various challenges that have built up over time, we also do have great assets, as I described, including our people, our technologies, reputation, customers and relationships. Since I joined the company as Executive Chairman recently, I have learned a lot to give me confidence that we can overcome the challenges and create new opportunities to strengthen the business and create value. We look forward to keeping you informed as we proceed. Thank you all for joining us.

This does conclude today's call. Thank you for your participation. You may disconnect at any time.