Comtech Telecommunications Earnings 2019-01-31

CMTL 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 cmtl0131201910q.htm CURRENT REPORT Document

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January 31, 2019



	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-7928

(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)

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of March 1, 2019, the number of outstanding shares of Common Stock, par value $0.10 per share, of the registrant was 24,125,899 shares.

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COMTECH TELECOMMUNICATIONS CORP. INDEX
			Page
PART I. FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements	2

		Condensed Consolidated Balance Sheets - January 31, 2019 and July 31, 2018 (Unaudited)	2

		Condensed Consolidated Statement of Operations - Three and Six Months Ended January 31, 2019 and 2018 (Unaudited)	3

		Condensed Consolidated Statements of Stockholders' Equity - Three and Six Months Ended January 31, 2019 and 2018 (Unaudited)	4

		Condensed Consolidated Statements of Cash Flows - Six Months Ended January 31, 2019 and 2018 (Unaudited)	6

		Notes to Condensed Consolidated Financial Statements (Unaudited)	8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63

	Item 4.	Controls and Procedures	64

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	64

	Item 1A.	Risk Factors	64

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

	Item 4.	Mine Safety Disclosures	64

	Item 6.	Exhibits	65

		Signature Page	66

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	January 31, 2019			July 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	45,997,000		43,484,000
Accounts receivable, net	138,920,000			147,439,000
Inventories, net	87,395,000			75,076,000
Prepaid expenses and other current assets	13,493,000			13,794,000
Total current assets	285,805,000			279,793,000
Property, plant and equipment, net	28,391,000			28,987,000
Goodwill	290,633,000			290,633,000
Intangibles with finite lives, net	232,219,000			240,796,000
Deferred financing costs, net	3,495,000			2,205,000
Other assets, net	2,784,000			2,743,000
Total assets	$	843,327,000		845,157,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	30,057,000		43,928,000
Accrued expenses and other current liabilities	60,343,000			65,034,000
Dividends payable	2,382,000			2,356,000
Contract liabilities	35,027,000			34,452,000
Current portion of long-term debt	—			17,211,000
Current portion of capital lease and other obligations	1,284,000			1,836,000
Interest payable	640,000			499,000
Total current liabilities	129,733,000			165,316,000
Non-current portion of long-term debt, net	174,500,000			148,087,000
Non-current portion of capital lease and other obligations	490,000			765,000
Income taxes payable	414,000			2,572,000
Deferred tax liability, net	13,521,000			10,927,000
Long-term contract liabilities	8,336,000			7,689,000
Other liabilities	3,456,000			4,117,000
Total liabilities	330,450,000			339,473,000
Commitments and contingencies (See Note 19)
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 38,950,547 shares and 38,860,571 shares at January 31, 2019 and July 31, 2018, respectively	3,895,000			3,886,000
Additional paid-in capital	539,273,000			538,453,000
Retained earnings	411,558,000			405,194,000
	954,726,000			947,533,000
Less:
Treasury stock, at cost (15,033,317 shares at January 31, 2019 and July 31, 2018)	(441,849,000		)	(441,849,000	)
Total stockholders’ equity	512,877,000			505,684,000
Total liabilities and stockholders’ equity	$	843,327,000		845,157,000

See accompanying notes to condensed consolidated financial statements.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three months ended January 31,					Six months ended January 31,
	Three months ended January 31,					Six months ended January 31,
	2019			2018		2019			2018
Net sales	$	164,133,000		133,731,000		$	324,977,000		255,300,000
Cost of sales	102,888,000			82,930,000		205,963,000			156,783,000
Gross profit	61,245,000			50,801,000		119,014,000			98,517,000

Expenses:
Selling, general and administrative	31,987,000			27,215,000		63,834,000			55,690,000
Research and development	13,983,000			13,435,000		27,193,000			27,185,000
Amortization of intangibles	4,288,000			5,268,000		8,577,000			10,537,000
Settlement of intellectual property litigation	(3,204,000		)	—		(3,204,000		)	—
Acquisition plan expenses	1,778,000			—		2,908,000			—
	48,832,000			45,918,000		99,308,000			93,412,000

Operating income	12,413,000			4,883,000		19,706,000			5,105,000

Other expenses (income):
Interest expense	2,267,000			2,519,000		4,936,000			5,107,000
Write-off of deferred financing costs	—			—		3,217,000			—
Interest (income) and other	(51,000		)	(48,000	)	15,000			(9,000	)

Income before provision for (benefit from) income taxes	10,197,000			2,412,000		11,538,000			7,000
Provision for (benefit from) income taxes	2,371,000			(13,349,000	)	244,000			(14,094,000	)

Net income	$	7,826,000		15,761,000		$	11,294,000		14,101,000
Net income per share (See Note 6):
Basic	$	0.33		0.66		$	0.47		0.59
Diluted	$	0.32		0.66		$	0.47		0.59

Weighted average number of common shares outstanding – basic	24,034,000			23,816,000		24,017,000			23,805,000

Weighted average number of common and common equivalent shares outstanding – diluted	24,168,000			23,953,000		24,245,000			23,942,000

See accompanying notes to condensed consolidated financial statements.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)



	Three months ended January 31, 2019 and 2018
	Common Stock			Additional Paid-in Capital			Retained Earnings			Treasury Stock				Stockholders' Equity
	Shares	Amount		Additional Paid-in Capital			Retained Earnings			Shares	Amount			Stockholders' Equity
Balance as of October 31, 2017	38,640,511	$	3,864,000	$	532,940,000		$	381,064,000		15,033,317	$	(441,849,000	)	$	476,019,000
Equity-classified stock award compensation	—	—		1,080,000			—			—	—			1,080,000
Proceeds from issuance of employee stock purchase plan shares	12,548	1,000		207,000			—			—	—			208,000
Net settlement of stock-based awards	371	—		(3,000		)	—			—	—			(3,000		)
Cash dividends declared, net ($0.10 per share)	—	—		—			(2,350,000		)	—	—			(2,350,000		)
Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—			(94,000		)	—	—			(94,000		)
Net income	—	—		—			15,761,000			—	—			15,761,000
Balance as of January 31, 2018	38,653,430	$	3,865,000	$	534,224,000		$	394,381,000		15,033,317	$	(441,849,000	)	$	490,621,000

Balance as of October 31, 2018	38,938,844	$	3,894,000	$	537,852,000		$	406,199,000		15,033,317	$	(441,849,000	)	$	506,096,000
Equity-classified stock award compensation	—	—		1,191,000			—			—	—			1,191,000
Proceeds from issuance of employee stock purchase plan shares	11,337	1,000		234,000			—			—	—			235,000
Net settlement of stock-based awards	366	—		(4,000		)	—			—	—			(4,000		)
Cash dividends declared, net ($0.10 per share)	—	—		—			(2,383,000		)	—	—			(2,383,000		)
Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—			(84,000		)	—	—			(84,000		)
Net income	—	—		—			7,826,000			—	—			7,826,000
Balance as of January 31, 2019	38,950,547	$	3,895,000	$	539,273,000		$	411,558,000		15,033,317	$	(441,849,000	)	$	512,877,000

See accompanying notes to condensed consolidated financial statements. (Continued)

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

(Unaudited)



	Six months ended January 31, 2019 and 2018
	Common Stock					Additional Paid-in Capital			Retained Earnings			Treasury Stock				Stockholders' Equity
	Shares		Amount			Additional Paid-in Capital			Retained Earnings			Shares	Amount			Stockholders' Equity
Balance as of July 31, 2017	38,619,467		$	3,862,000		$	533,001,000		$	385,136,000		15,033,317	$	(441,849,000	)	$	480,150,000
Equity-classified stock award compensation	—		—			1,827,000			—			—	—			1,827,000
Proceeds from issuance of employee stock purchase plan shares	24,222		2,000			395,000			—			—	—			397,000
Forfeiture of restricted stock	(10,254	)	(1,000		)	1,000			—			—	—			—
Net settlement of stock-based awards	19,995		2,000			(1,000,000		)	—			—	—			(998,000		)
Cash dividends declared, net ($0.20 per share)	—		—			—			(4,701,000		)	—	—			(4,701,000		)
Accrual of dividend equivalents, net of reversal ($0.20 per share)	—		—			—			(155,000		)	—	—			(155,000		)
Net income	—		—			—			14,101,000			—	—			14,101,000
Balance as of January 31, 2018	38,653,430		$	3,865,000		$	534,224,000		$	394,381,000		15,033,317	$	(441,849,000	)	$	490,621,000

Balance as of July 31, 2018	38,860,571		$	3,886,000		$	538,453,000		$	405,194,000		15,033,317	$	(441,849,000	)	$	505,684,000
Equity-classified stock award compensation	—		—			2,237,000			—			—	—			2,237,000
Proceeds from exercises of stock options	6,100		1,000			173,000			—			—	—			174,000
Proceeds from issuance of employee stock purchase plan shares	20,198		2,000			474,000			—			—	—			476,000
Issuance of restricted stock	10,386		1,000			(1,000		)	—			—	—			—
Net settlement of stock-based awards	53,292		5,000			(2,063,000		)	—			—	—			(2,058,000		)
Cash dividends declared, net ($0.20 per share)	—		—			—			(4,764,000		)	—	—			(4,764,000		)
Accrual of dividend equivalents, net of reversal ($0.20 per share)	—		—			—			(166,000		)	—	—			(166,000		)
Net income	—		—			—			11,294,000			—	—			11,294,000
Balance as of January 31, 2019	38,950,547		$	3,895,000		$	539,273,000		$	411,558,000		15,033,317	$	(441,849,000	)	$	512,877,000

See accompanying notes to condensed consolidated financial statements.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six months ended January 31,
	2019			2018
Cash flows from operating activities:
Net income	$	11,294,000		14,101,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment	5,700,000			6,663,000
Amortization of intangible assets with finite lives	8,577,000			10,537,000
Amortization of stock-based compensation	2,237,000			1,827,000
Amortization of deferred financing costs	732,000			1,098,000
Write-off of deferred financing costs	3,217,000			—
Estimated contract settlement costs	3,886,000			—
Settlement of intellectual property litigation	(3,204,000		)	—
Loss on disposal of property, plant and equipment	40,000			—
Provision for allowance for doubtful accounts	487,000			577,000
Provision for excess and obsolete inventory	1,749,000			2,433,000
Deferred income tax expense (benefit)	2,594,000			(11,218,000	)
Changes in assets and liabilities:
Accounts receivable	3,229,000			5,801,000
Inventories	(14,068,000		)	(13,537,000	)
Prepaid expenses and other current assets	1,568,000			1,745,000
Other assets	107,000			(257,000	)
Accounts payable	(14,693,000		)	(2,259,000	)
Accrued expenses and other current liabilities	3,282,000			(5,146,000	)
Contract liabilities	(857,000		)	235,000
Other liabilities, non-current	275,000			(242,000	)
Interest payable	177,000			(199,000	)
Income taxes payable	(3,291,000		)	(2,982,000	)
Net cash provided by operating activities	13,038,000			9,177,000

Cash flows from investing activities:
Purchases of property, plant and equipment	(4,181,000		)	(2,836,000	)
Net cash used in investing activities	(4,181,000		)	(2,836,000	)

Cash flows from financing activities:
Net borrowings of long-term debt under Credit Facility	174,500,000			—
Net (payments) borrowings under Revolving Loan portion of Prior Credit Facility	(48,603,000		)	9,400,000
Repayment of debt under Term Loan portion of Prior Credit Facility	(120,121,000		)	(10,354,000	)
Remittance of employees' statutory tax withholdings for stock awards	(5,021,000		)	(998,000	)
Cash dividends paid	(4,998,000		)	(4,821,000	)
Payment of deferred financing costs	(1,808,000		)	—
Repayment of principal amounts under capital lease and other obligations	(863,000		)	(1,337,000	)
Proceeds from issuance of employee stock purchase plan shares	476,000			397,000
Payment of shelf registration costs	(80,000		)	—
Proceeds from exercises of stock options	174,000			—
Net cash used in financing activities	(6,344,000		)	(7,713,000	)

Net increase (decrease) in cash and cash equivalents	2,513,000			(1,372,000	)
Cash and cash equivalents at beginning of period	43,484,000			41,844,000
Cash and cash equivalents at end of period	$	45,997,000		40,472,000
See accompanying notes to condensed consolidated financial statements. (Continued)

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
	Six months ended January 31,
	2019		2018
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest	$	3,844,000	3,977,000
Income taxes, net	$	941,000	108,000

Non-cash investing and financing activities:
Cash dividends declared but unpaid (including dividend equivalents)	$	2,548,000	2,506,000
Accrued additions to property, plant and equipment	$	963,000	1,102,000
Accrued deferred financing costs	$	4,000	—
Accrued shelf registration costs	$	68,000	—
Issuance (forfeiture) of restricted stock	$	1,000	(1,000	)

See accompanying notes to condensed consolidated financial statements.

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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 and six months ended January 31, 2019 and 2018 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, 2018 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 (15) - "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.

(2) Solacom Acquisition - Subsequent Event

On February 28, 2019, we completed our acquisition of Solacom Technologies Inc. ("Solacom"), pursuant to the Arrangement Agreement, dated as of January 7, 2019, by and among Solacom, Comtech and Solar Acquisition Corp., a Canadian corporation and a direct, wholly-owned subsidiary of Comtech. Solacom is a leading provider of Next Generation 911 ("NG911") solutions for public safety agencies. Effective during our third quarter of fiscal 2019, its financial results will be included in our Commercial Solutions segment. The acquisition of Solacom was a significant step in our strategy of enhancing our safety and security solutions. The acquisition has a preliminary purchase price for accounting purposes of $31,533,000, of which $25,927,000 was settled in cash and $5,606,000 was settled with the issuance of 208,699 shares of Comtech’s common stock at a volume weighted average stock price of $26.86. The cash portion of the purchase price was funded principally through borrowings under our Credit Facility. The preliminary purchase price for accounting purposes is subject to finalization.

(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 six months ended January 31, 2019, we adopted:


•	FASB ASU No. 2014-09 "Revenue from Contracts with Customers (Topic 606)."See Note (4) - "Revenue" for further information.

•

FASB ASU No. 2016-16 "Intra-Entity Transfers of Assets Other Than Inventory," which eliminates a prior exception and now requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory (for example, intellectual property and property, plant and equipment) when the transfer occurs. We adopted this ASU on August 1, 2018. There was no material impact to our condensed consolidated financial statements (including any cumulative-effect adjustment) and disclosures upon such adoption.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

During the six months ended January 31, 2019, the SEC issued Final Rule Release No. 33-10532 "Disclosure Update and Simplification," which revised certain of the SEC’s disclosure requirements that have become superseded in light of other SEC and or U.S. GAAP disclosure requirements. As a result of the final rule’s amendments, the SEC now requires a registrant to reconcile its changes in stockholders' equity for both the current and comparative interim and year-to-date periods, with subtotals. Our Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended January 31, 2019 and 2018 reflect our adoption of this final rule.

(4) Revenue

On August 1, 2018, we adopted ASU No. 2014-09 "Revenue from Contracts with Customers (Topic 606)" or "ASC 606" applying the modified retrospective transition method. Except for new presentation or disclosure requirements, the impact of adoption, both as of August 1, 2018 and for the three and six months ended January 31, 2019, was not material to our business, results of operations or financial condition. As a practical expedient, we adopted the new standard only for existing contracts as of August 1, 2018. All periods prior to August 1, 2018 will continue to be reported under the accounting standards in effect in those periods. As a result of ASC 606, we made the following adjustments to our Condensed Consolidated Balance Sheet as of August 1, 2018:



	As reported at		Adoption of			Balance at
	July 31, 2018		ASC 606			August 1, 2018
Accrued expenses and other current liabilities⁽¹⁾	$	65,034,000	$	(2,079,000	)	$	62,955,000
Contract liabilities, current and non-current⁽²⁾	42,141,000		2,079,000			44,220,000

⁽¹⁾ See Note (9) - "Accrued Expenses and Other Current Liabilities" for further discussion of reclassification.

⁽²⁾ Formerly presented on the face of our Condensed Consolidated Balance Sheet as "Customer advances and deposits, current and non-current" prior to our adoption of ASC 606.

The core principle of ASC 606 is that revenue should be recorded 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.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(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 command and control solutions and over-the-horizon microwave systems product lines and, to a lesser extent, certain location-based and messaging infrastructure contracts in our enterprise technology solutions product line. For service-based contracts in both our enterprise technology solutions and safety and security technology solutions product lines, 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 earth station product line (which includes satellite modems, traveling wave tube amplifiers ("TWTAs") and solid-state power amplifiers ("SSPAs")) and solid-state high-power narrow and broadband amplifiers. Point in time accounting is also applied to certain contracts in our command and control solutions 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.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(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 January 31,				Six months ended January 31,
	2019		2018		2019		2018
United States
U.S. government	45.2	%	31.5	%	44.7	%	32.0	%
Domestic	32.0	%	42.0	%	31.7	%	43.1	%
Total United States	77.2	%	73.5	%	76.4	%	75.1	%

International	22.8	%	26.5	%	23.6	%	24.9	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(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"). Sales to Verizon were 10.1% of consolidated net sales for the three months ended January 31, 2019. Sales to Verizon were 10.5% and 11.1%, respectively, of consolidated net sales for the three and six months ended January 31, 2018. International sales include sales to U.S. domestic companies for inclusion in products that are sold to international customers. 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% of consolidated net sales for the three and six months ended January 31, 2019 and 2018.

The following tables summarize our disaggregation of revenue consistent with information reviewed by our chief operating decision-maker ("CODM") for the three and six months ended January 31, 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 January 31, 2019					Six months ended January 31, 2019
	Commercial Solutions		Government Solutions	Total		Commercial Solutions		Government Solutions	Total
Geographical region and customer type
U.S. government	$	20,911,000	53,389,000	$	74,300,000	$	35,131,000	110,213,000	$	145,344,000
Domestic	43,693,000		8,761,000	52,454,000		85,930,000		17,035,000	102,965,000
Total United States	64,604,000		62,150,000	126,754,000		121,061,000		127,248,000	248,309,000

International	22,131,000		15,248,000	37,379,000		43,647,000		33,021,000	76,668,000
Total	$	86,735,000	77,398,000	$	164,133,000	$	164,708,000	160,269,000	$	324,977,000
Contract type
Firm fixed price	$	85,567,000	57,017,000	$	142,584,000	$	161,857,000	120,628,000	$	282,485,000
Cost reimbursable	1,168,000		20,381,000	21,549,000		2,851,000		39,641,000	42,492,000
Total	$	86,735,000	77,398,000	$	164,133,000	$	164,708,000	160,269,000	$	324,977,000
Transfer of control
Point in time	$	46,031,000	45,182,000	$	91,213,000	$	83,976,000	97,805,000	$	181,781,000
Over time	40,704,000		32,216,000	72,920,000		80,732,000		62,464,000	143,196,000
Total	$	86,735,000	77,398,000	$	164,133,000	$	164,708,000	160,269,000	$	324,977,000

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 what we have historically presented as unbilled receivables. Under ASC 606, unbilled receivables constitute contract assets. There were no material impairment losses recognized on contract assets during the six months ended January 31, 2019. 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 total contract liabilities at August 1, 2018, $24,606,000 was recognized as revenue during the six months ended January 31, 2019.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

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 third party sales representatives related to large long-term contracts, we do consider these types of commissions both direct and incremental costs to obtain and fulfill such contracts. Therefore, such types of 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 January 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $586,412,000. We expect that a significant portion of our remaining performance obligations at January 31, 2019 will be completed and recognized as revenue during the next twelve month period. During the three and six months ended January 31, 2019, 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, accrued expenses and the current portion of our favorable AT&T warranty settlement) 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. We believe the fair value of our non-current portion of capital lease and other obligations, which currently has a blended interest rate of approximately 7.0%, would not be materially different than its carrying value as of January 31, 2019.

The fair value of the non-current portion of our favorable AT&T warranty settlement would not be materially different than its carrying value as of as of January 31, 2019, given our belief that the present value of such liability reflects market participants' assumptions for a similar junior, unsecured debt instrument. See Note (9) - "Accrued Expenses and Other Current Liabilities" for further discussion of the favorable AT&T warranty settlement.

As of January 31, 2019 and July 31, 2018, 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.

(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.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

There were no purchases of our common stock during the three or six months ended January 31, 2019 or 2018. See Note (18) - "Stockholders’ Equity" for more information.

Weighted average stock options, RSUs and restricted stock outstanding of 1,678,000 and 1,812,000 for the three months ended January 31, 2019 and 2018, respectively, and 609,000 and 1,821,000 for the six months ended January 31, 2019 and 2018, respectively, were not included in our diluted EPS calculation because their effect would have been anti-dilutive.

Our EPS calculations exclude 245,000 and 259,000 weighted average performance shares outstanding for the three months ended January 31, 2019 and 2018, respectively, and 240,000 and 211,000 for the six months ended January 31, 2019 and 2018, respectively, as the performance conditions have not yet been satisfied. However, the compensation expense related to these awards is included in net income (the numerator) for EPS calculations for each respective period.

The following table reconciles the numerators and denominators used in the basic and diluted EPS calculations:



	Three months ended January 31,			Six months ended January 31,
	2019		2018	2019		2018
Numerator:
Net income for basic calculation	$	7,826,000	15,761,000	$	11,294,000	14,101,000
Numerator for diluted calculation	$	7,826,000	15,761,000	$	11,294,000	14,101,000

Denominator:
Denominator for basic calculation	24,034,000		23,816,000	24,017,000		23,805,000
Effect of dilutive securities:
Stock-based awards	134,000		137,000	228,000		137,000
Denominator for diluted calculation	24,168,000		23,953,000	24,245,000		23,942,000

(7) Accounts Receivable

Accounts receivable consist of the following at:



	January 31, 2019		July 31, 2018
Receivables from commercial and international customers	$	80,828,000	83,411,000
Unbilled receivables from commercial and international customers	12,902,000		19,731,000
Receivables from the U.S. government and its agencies	45,300,000		26,251,000
Unbilled receivables from the U.S. government and its agencies	1,850,000		19,807,000
Total accounts receivable	140,880,000		149,200,000
Less allowance for doubtful accounts	1,960,000		1,761,000
Accounts receivable, net	$	138,920,000	147,439,000

Unbilled receivables as of January 31, 2019 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, which we adopted on August 1, 2018 (see Note (4) - "Revenue"), unbilled receivables constitute contract assets. Management estimates that substantially all amounts not yet billed at January 31, 2019 will be billed and collected within one year.

Of the unbilled receivables from commercial and international customers at January 31, 2019 and July 31, 2018, approximately $1,545,000 and $1,558,000, respectively, relates to a large over-the-horizon microwave systems contract with our large U.S. prime contractor customer (all of which related to our North African country end-customer).

As of January 31, 2019, the U.S. government (and its agencies) and Verizon represented 33.5% and 11.6%, respectively, of total accounts receivable. As of July 31, 2018, the U.S. government (and its agencies) and Verizon represented 30.9% and 10.1%, respectively, of total accounts receivable.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(8) Inventories

Inventories consist of the following at:



	January 31, 2019		July 31, 2018
Raw materials and components	$	56,283,000	53,649,000
Work-in-process and finished goods	48,173,000		38,854,000
Total inventories	104,456,000		92,503,000
Less reserve for excess and obsolete inventories	17,061,000		17,427,000
Inventories, net	$	87,395,000	75,076,000

As of January 31, 2019 and July 31, 2018, the amount of inventory directly related to long-term contracts (including contracts-in-progress) was $1,337,000 and $1,249,000, respectively, and the amount of inventory related to contracts from third party commercial customers who outsource their manufacturing to us was $1,641,000 and $1,310,000, respectively.

(9) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:



	January 31, 2019		July 31, 2018
Accrued wages and benefits	$	23,239,000	23,936,000
Accrued contract costs	11,202,000		10,016,000
Accrued warranty obligations	9,576,000		11,738,000
Accrued legal costs	2,625,000		6,179,000
Accrued commissions and royalties	3,541,000		4,654,000
Other	10,160,000		8,511,000
Accrued expenses and other current liabilities	$	60,343,000	65,034,000

On August 1, 2018, in connection with our adoption of ASC 606, $2,079,000 of accrued expenses and other current liabilities were reclassified to contract liabilities on our Condensed Consolidated Balance Sheet. Of this total amount, $1,679,000 and $400,000, respectively, was reclassified from the "accrued warranty obligations" and "other" categories presented in the above table to contract liabilities, as they represented deferred revenue related to service-type warranty performance obligations. See Note (4) - "Revenue" for further discussion of our adoption of ASC 606.

Other accrued expenses as of January 31, 2019 include $811,000 for the current portion of the facility exit costs related to the closure of a manufacturing facility, as discussed in more detail in Note (10) - "Cost Reduction Actions."

Accrued legal costs as of July 31, 2018 included $3,372,000 related to estimated costs associated with a certain TeleCommunication Systems, Inc. ("TCS") intellectual property matter. During the three and six months ended January 31, 2019, this matter was favorably resolved. As a result, we reduced such accrued legal costs and recorded a $3,204,000 benefit in the Condensed Consolidated Statement of Operations. See Note (19) - "Legal Proceedings and Other Matters" for additional information.

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 January 31, 2019 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, a 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.

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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Changes in our accrued warranty obligations during the six months ended January 31, 2019 and 2018 were as follows:



	Six months ended January 31,
	2019			2018
Balance at beginning of period	$	11,738,000		17,617,000
Reclass to contract liabilities as of August 1, 2018	(1,679,000		)	—
Provision for warranty obligations	1,738,000			2,278,000
Charges incurred	(3,066,000		)	(3,914,000	)
Warranty settlement and reclass (see below)	845,000			(3,500,000	)
Balance at end of period	$	9,576,000		12,481,000

Our current accrued warranty obligations at January 31, 2019 and July 31, 2018 include $4,169,000 and $4,650,000, 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 TCS. During the six months ended January 31, 2018, we entered into a full and final warranty settlement with AT&T, the largest customer/distributor of this product line, pursuant to which we issued thirty-six credits to AT&T of $153,000 which AT&T can apply on a monthly basis to purchases of solutions from us, beginning October 2017 through September 2020. As of January 31, 2019, the total present value of these monthly credits is $2,840,000, of which $1,656,000 is included in our current accrued warranty obligations and $1,184,000 is reflected in other liabilities (non-current) on our Condensed Consolidated Balance Sheet. In connection with this favorable settlement, during the six months ended January 31, 2018, we recorded a benefit to cost of sales of $660,000.

(10) Cost Reduction Actions

During the three months ended October 31, 2018, we took steps to improve our future operating results and successfully consolidated our Government Solutions segment’s manufacturing facility located in Tampa, Florida with another facility that we maintain in Orlando, Florida. In doing so, we accrued $1,373,000 of facility exit costs, which were recorded in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.

During the three and six months ended January 31, 2019, we made cash payments of $181,000 related to such facility exit cost accrual. As of January 31, 2019, the remaining estimated facility exit costs amounted to $1,192,000, of which $811,000 and $381,000, respectively, was included in "accrued expenses and other current liabilities" and "other liabilities (non-current)" on our Condensed Consolidated Balance Sheet. To-date, we have incurred an immaterial amount of severance and retention costs related to our Florida facilities consolidation.

(11) Credit Facility

On October 31, 2018, we entered into a First Amended and Restated Credit Agreement (the "Credit Facility") with a syndicate of lenders, replacing our prior Credit Agreement dated as of February 23, 2016 (as amended by that certain First Amendment, dated as of June 6, 2017 (the "Prior Credit Facility")). In connection with the establishment of our new Credit Facility, during the three months ended October 31, 2018, we wrote-off $3,217,000 of deferred financing costs primarily related to the Term Loan Facility portion of our Prior Credit Facility and capitalized deferred financing costs of $1,812,000 related to the new Credit Facility.

The new 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.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

The proceeds of the new Credit Facility were used, in part, to repay in full the outstanding borrowings under the Prior Credit Facility, and additional proceeds of the Credit Facility are expected to be used by us for working capital and other general corporate purposes. As of January 31, 2019, the amount outstanding under our Credit Facility was $174,500,000, which is reflected in the non-current portion of long-term debt on our Condensed Consolidated Balance Sheet. At January 31, 2019, we had $2,331,000 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 January 31, 2019, we had outstanding balances under the new Credit Facility ranging from $160,000,000 to $174,500,000.

As of January 31, 2019, total net deferred financing costs related to the Credit Facility were $3,495,000 and are being amortized over the term of our Credit Facility through October 31, 2023.

Interest expense, including amortization of deferred financing costs, for the three months ended January 31, 2019 and 2018 was $2,171,000 and $2,350,000, respectively. The amount for the most recent fiscal quarter relates to our new Credit Facility; whereas, the amount in the comparable prior year period relates to our Prior Credit Facility. Interest expense, including amortization of deferred financing costs, for the six months ended January 31, 2019 and 2018 was $4,713,000 and $4,815,000, respectively. The amount for the most recent fiscal year-to-date period relates to both our Prior Credit Facility and new Credit Facility; whereas, the amount in the comparable prior year period relates only to our Prior Credit Facility. Our blended interest rate approximated 5.08% and 5.10%, respectively, for the three months ended January 31, 2019 and 2018, and approximated 5.54% and 5.20%, respectively, for the six months ended January 31, 2019 and 2018.

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) a significant increase in our balance sheet flexibility; (ii) no scheduled payments of principal until maturity; (iii) 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; (iv) a Minimum Interest Expense Coverage Ratio of 3.25x TTM Adjusted EBITDA; (v) reduced interest rates of approximately 25 basis points as compared to the Prior Credit Facility (based on our Secured Leverage Ratio as of July 31, 2018); and (vi) the elimination or relaxation of many restrictive covenants in our Prior Credit Facility.

As of January 31, 2019, our Secured Leverage Ratio was 1.85x TTM Adjusted EBITDA compared to the maximum allowable Secured Leverage Ratio of 3.75x TTM Adjusted EBITDA. Our Interest Expense Coverage Ratio as of January 31, 2019 was 12.16x 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.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

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 is 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.

The Prior Credit Facility was a $400,000,000 secured credit facility and comprised of a senior secured term loan A facility of $250,000,000 (the "Term Loan Facility") and a secured revolving loan facility of up to $150,000,000, including a $25,000,000 letter of credit sublimit (the "Revolving Loan Facility"). The proceeds of the Prior Credit Facility were primarily used to finance our acquisition of TCS, including the repayment of certain existing indebtedness of TCS. During the three months ended October 31, 2018, we had outstanding balances under the Revolving Loan Facility, ranging from $34,904,000 to $63,804,000.

As of July 31, 2018, the net amount outstanding under the Prior Credit Facility was as follows:



	July 31, 2018
Term Loan Facility	$	120,121,000
Less unamortized deferred financing costs related to Term Loan Facility	3,427,000
Term Loan Facility, net	116,694,000
Revolving Loan Facility	48,604,000
Amount outstanding under Prior Credit Facility, net	165,298,000
Less current portion of long-term debt	17,211,000
Non-current portion of long-term debt	$	148,087,000

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.

(12) Capital Lease and Other Obligations

We lease certain equipment under capital leases. As of January 31, 2019 and July 31, 2018, the net book value of the leased assets which collateralize the capital lease and other obligations was $1,542,000 and $2,547,000, respectively, and consisted primarily of machinery and equipment. Depreciation of leased assets is included in depreciation expense.

As of January 31, 2019, our capital lease and other obligations reflect a blended interest rate of approximately 7.0%. Our capital leases generally contain provisions whereby we can purchase the equipment at the end of the lease for a one dollar buyout.

Future minimum payments under capital lease and other obligations consisted of the following at January 31, 2019:



Remainder of fiscal 2019	$	1,070,000
Fiscal 2020	780,000
Fiscal 2021 and beyond	—
Total minimum lease payments	1,850,000
Less: amounts representing interest	76,000
Present value of net minimum lease payments	1,774,000
Current portion of capital lease and other obligations	1,284,000
Non-current portion of capital lease and other obligations	$	490,000

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

(13) Income Taxes

On December 22, 2017, H.R.1, also known as the Tax Cuts and Jobs Act ("Tax Reform"), was enacted in the U.S. Tax Reform significantly lowered the amount of our current and future income tax expense primarily due to the reduction in the U.S. statutory income tax rate from 35.0% to 21.0%. This provision went into effect on January 1, 2018 and required us to remeasure our deferred tax assets and liabilities. In fiscal 2019 and beyond, Tax Reform will result in the loss of our ability to take the domestic production activities deduction, which has been repealed, and is also likely to result in lower tax deductions for certain executive compensation expenses.

For fiscal 2018, we were subject to a 35.0% statutory income tax rate with respect to the period August 1, 2017 through December 31, 2017 and a 21.0% statutory income tax rate with respect to the period January 1, 2018 through July 31, 2018, or a blended statutory income tax rate for fiscal 2018 of approximately 27.0%. As such, our effective tax rate for accounting purposes in fiscal 2018, excluding discrete items, was 27.0%. We expect to fully benefit from the lower statutory income tax rate in fiscal 2019 and thereafter.

In connection with Tax Reform, during the three months ended January 31, 2018, we recorded an initial estimated net discrete tax benefit of $14,018,000, primarily related to the remeasurement of deferred tax liabilities associated with non-deductible amortization related to intangible assets. This remeasurement was recorded pursuant to ASC 740 "Income Taxes" and SEC Staff Accounting Bulletin ("SAB") 118, using estimates based on reasonable and supportable assumptions and available information as of such reporting date. The remeasurement of deferred taxes as a result of Tax Reform may change if the estimated timing of the deferred tax impacts shift between fiscal 2018 and fiscal 2019 and beyond, which will become known after we file our federal and state income tax returns for fiscal 2018. In addition, it is possible that the Internal Revenue Service ("IRS") will issue clarifying or interpretive guidance related to Tax Reform, which may ultimately result in a change to our estimated income tax.

At January 31, 2019 and July 31, 2018, total unrecognized tax benefits were $7,506,000 and $9,339,000, respectively, including interest of $58,000 and $202,000, respectively. At January 31, 2019 and July 31, 2018, $414,000 and $2,572,000, respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Condensed Consolidated Balance Sheets. The remaining unrecognized tax benefits of $7,092,000 and $6,767,000 at January 31, 2019 and July 31, 2018, respectively, were presented as an offset to the associated non-current deferred tax assets on our Condensed Consolidated Balance Sheets. Of the total unrecognized tax benefits, $6,852,000 and $8,563,000, at January 31, 2019 and July 31, 2018, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized. Unrecognized tax benefits result from income tax positions taken or expected to be taken on our income tax returns for which a tax benefit has not been recorded in our condensed consolidated financial statements. Our policy is to recognize interest and penalties relating to uncertain tax positions in income tax expense.

During the six months ended January 31, 2019, the IRS finalized its audit of our federal income tax return for fiscal 2016 without assessing additional taxes. Our federal income tax returns for fiscal 2015 and 2017 remain subject to potential future IRS audit. None of our state income tax returns prior to fiscal 2014 are subject to audit. TCS's federal income tax returns for tax year 2015 and the tax period from January 1, 2016 to February 23, 2016 are subject to potential future IRS audit. None of TCS's state income tax returns prior to calendar year 2014 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

(14) Stock-Based Compensation

Overview

We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended, (the "Plan") and our 2001 Employee Stock Purchase Plan, as amended and restated effective December 4, 2018 (the "ESPP"), and recognize related stock-based compensation in our condensed consolidated financial statements. The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants): (i) incentive and non-qualified stock options, (ii) restricted stock units ("RSUs"), (iii) RSUs with performance measures (which we refer to as "performance shares"), (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, "share units") and (vi) stock appreciation rights ("SARs"), among other types of awards. Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

As of January 31, 2019, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,362,500. Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a stockholder who owns stock representing more than 10.0% of the voting power, no more than five years. We expect to settle all outstanding awards under the Plan and employee purchases under the ESPP with the issuance of new shares of our common stock.

As of January 31, 2019, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 8,320,017 shares (net of 3,953,739 expired and canceled awards), of which an aggregate of 5,880,653 have been exercised or settled.

As of January 31, 2019, the following stock-based awards, by award type, were outstanding:



Stock options	1,582,195
Performance shares	260,262
RSUs and restricted stock	441,101
Share units	155,806
Total	2,439,364

Our ESPP provides for the issuance of up to 1,050,000 shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value at the date of issuance. Through January 31, 2019, we have cumulatively issued 763,933 shares of our common stock to participating employees in connection with our ESPP.

Stock-based compensation for awards issued is reflected in the following line items in our Condensed Consolidated Statements of Operations:



	Three months ended January 31,					Six months ended January 31,
	2019			2018		2019			2018
Cost of sales	$	60,000		51,000		$	118,000		91,000
Selling, general and administrative expenses	1,051,000			954,000		1,956,000			1,608,000
Research and development expenses	80,000			75,000		163,000			128,000
Stock-based compensation expense before income tax benefit	1,191,000			1,080,000		2,237,000			1,827,000
Estimated income tax benefit	(260,000		)	(234,000	)	(488,000		)	(494,000	)
Net stock-based compensation expense	$	931,000		846,000		$	1,749,000		1,333,000

Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. At January 31, 2019, unrecognized stock-based compensation of $10,021,000, net of estimated forfeitures of $874,000, is expected to be recognized over a weighted average period of 3.0 years. Total stock-based compensation capitalized and included in ending inventory at both January 31, 2019 and July 31, 2018 was $48,000. There are no liability-classified stock-based awards outstanding as of January 31, 2019 or July 31, 2018.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Stock-based compensation expense (benefit), by award type, is summarized as follows:



	Three months ended January 31,					Six months ended January 31,
	2019			2018		2019			2018
Stock options	$	181,000		268,000		$	352,000		536,000
Performance shares	386,000			371,000		792,000			483,000
RSUs and restricted stock	568,000			390,000		1,115,000			774,000
ESPP	56,000			51,000		108,000			96,000
Share units	—			—		(130,000		)	(62,000	)
Stock-based compensation expense before income tax benefit	1,191,000			1,080,000		2,237,000			1,827,000
Estimated income tax benefit	(260,000		)	(234,000	)	(488,000		)	(494,000	)
Net stock-based compensation expense	$	931,000		846,000		$	1,749,000		1,333,000

ESPP stock-based compensation expense primarily relates to the 15% discount offered to participants in the ESPP. During the six months ended January 31, 2019 and 2018, we recorded benefits of $130,000 and $62,000, respectively, which primarily represents the recoupment of certain share units.

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled. Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of January 31, 2019 and July 31, 2018. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.

Stock Options

The following table summarizes the Plan's activity during the six months ended January 31, 2019:



	Awards (in Shares)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2018	1,668,975		$	28.72
Exercised	(78,930	)	28.37
Outstanding at October 31, 2018	1,590,045		28.74
Expired/canceled	(7,850	)	29.30
Outstanding at January 31, 2019	1,582,195		$	28.74	4.01	$	91,000

Exercisable at January 31, 2019	1,385,023		$	28.73	3.69	$	33,000

Vested and expected to vest at January 31, 2019	1,550,570		$	28.73	3.97	$	79,000

Stock options outstanding as of January 31, 2019 have exercise prices ranging from $20.90 to $33.94, representing the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years. There were no stock options exercised during the three months ended January 31, 2019, or three and six months ended January 31, 2018. The total intrinsic value relating to stock options exercised during the six months ended January 31, 2019 was $561,000. There were no stock options granted since fiscal 2017.

During the six months ended January 31, 2019, at the election of certain holders of vested stock options, 72,830 stock options were net settled upon exercise. As a result, 9,345 net shares of our common stock were issued during the six months ended January 31, 2019 after reduction of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Performance Shares, RSUs, Restricted Stock and Share Unit Awards

The following table summarizes the Plan's activity relating to performance shares, RSUs, restricted stock and share units:



	Awards (in Shares)		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at July 31, 2018	818,438		$	19.78
Granted	177,908		34.27
Settled	(121,790	)	21.08
Forfeited	(17,659	)	27.23
Outstanding at October 31, 2018	856,897		22.44
Granted	2,599		25.01
Settled	(526	)	11.40
Forfeited	(1,801	)	22.70
Outstanding at January 31, 2019	857,169		$	22.46	$	21,404,000

Vested at January 31, 2019	216,718		$	27.71	$	5,411,000

Vested and expected to vest at January 31, 2019	821,528		$	22.59	$	20,514,000

The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2019 was $14,000 and $4,224,000, respectively. The total intrinsic value relating to fully-vested awards settled during the three and six months ended January 31, 2018 was $11,000 and $1,948,000, respectively.

The performance shares granted to employees since fiscal 2014 principally vest over a three-year performance period, if pre-established performance goals are attained or as specified pursuant to the Plan and related agreements. As of January 31, 2019, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

RSUs and restricted stock granted to non-employee directors have a vesting period of three years and are convertible into shares of our common stock generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. RSUs granted to employees have a vesting period of five years and are convertible into shares of our common stock, generally at the time of vesting, on a one-for-one basis for no cash consideration.

Share units granted prior to July 31, 2017 were vested when issued and are convertible into shares of our common stock, generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. Share units granted on or after July 31, 2017 were granted to certain employees in lieu of non-equity incentive compensation and are convertible into shares of our common stock on the one-year anniversary of the respective grant date. Cumulatively through January 31, 2019, 270,979 share units granted have been settled.

The fair value of performance shares, RSUs, restricted stock and share units is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive and an applicable estimated discount for post vesting restrictions. RSUs, performance shares and restricted stock granted since fiscal 2013 are entitled to dividend equivalents unless forfeited before vesting occurs. Share units granted since fiscal 2014 are entitled to dividend equivalents while the underlying shares are unissued.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of settlement of the underlying shares into shares of our common stock. During the three and six months ended January 31, 2019, we accrued $84,000 and $166,000, respectively, of dividend equivalents (net of forfeitures) and paid out $1,000 and $260,000, respectively. Accrued dividend equivalents were recorded as a reduction to retained earnings. As of January 31, 2019 and July 31, 2018, accrued dividend equivalents were $619,000 and $713,000, respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three and six months ended January 31, 2019, we recorded a $4,000 income tax expense and a $453,000 income tax benefit, respectively, and during the three and six months ended January 31, 2018, we recorded a $14,000 income tax benefit and a $71,000 income tax expense, respectively. Such income tax expense generally relates to the reversal of deferred tax assets associated with expired and unexercised stock-based awards and any net income tax shortfalls upon settlement. Such income tax benefit generally relates to any net excess income tax benefits upon settlement.

(15) Segment Information

Reportable operating segments are determined based on Comtech’s management approach. The management approach, as defined by FASB ASC 280 "Segment Reporting" is based on the way that the CODM organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. Our CODM, for purposes of FASB ASC 280, is our Chief Executive Officer and President.

Our Commercial Solutions segment serves commercial customers and smaller government customers, such as state and local governments, that require advanced communication technologies to meet their needs. This segment also serves certain large government customers (including the U.S. government) that have requirements for off-the-shelf commercial equipment. We believe this segment is a leading provider of satellite communications (such as satellite earth station modems and TWTAs), public safety systems (such as NG911 technologies) and enterprise application technologies (such as messaging and trusted location-based technologies).

Our Government Solutions segment serves large government end-users (including those of foreign countries) that require mission-critical technologies and systems. Government solutions products include command and control applications (such as the design, installation and operation of data networks that integrate computing and communications, including both satellite and terrestrial links), ongoing network operation and management support services (including project management and fielding and maintenance solutions related to satellite ground terminals), troposcatter communications (such as digital troposcatter multiplexers, digital over-the-horizon modems, troposcatter systems and frequency converter systems) and RF power and switching technologies (such as solid-state high-power broadband amplifiers, enhanced position location reporting system (commonly known as "EPLRS") amplifier assemblies, identification friend or foe ("IFF") amplifiers and amplifiers used in the counteraction of improvised explosive devices).

Our CODM primarily uses a metric that we refer to as Adjusted EBITDA to measure an operating segment’s performance and to make decisions about resources to be allocated. Our Adjusted EBITDA metric for the Commercial Solutions and Government Solutions segments do not consider any allocation of indirect expenses, including the following: income taxes, interest (income) and other, interest expense, write-off of deferred financing costs, amortization of stock-based compensation, amortization of intangibles, depreciation expense, estimated contract settlement costs, facility exit costs, settlement of intellectual property litigation, acquisition plan expenses or strategic alternatives analysis expenses and other expenses that relate to our Unallocated segment. These items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results. Any amounts shown in the Adjusted EBITDA calculation for our Commercial Solutions and Government Solutions segments are directly attributable to those segments. Our Adjusted EBITDA is also used by our management in assessing the Company's operating results. Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Credit Facility) utilized for financial covenant calculations and also may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and, therefore, may not be comparable to similarly titled measures used by other companies.

Index

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Operating segment information, along with a reconciliation of segment net income (loss) and consolidated net income to Adjusted EBITDA is presented in the tables below:



	Three months ended January 31, 2019
	Commercial Solutions		Government Solutions	Unallocated		Total
Net sales	$	86,735,000	77,398,000	—		$	164,133,000
Operating income (loss)	$	8,758,000	7,783,000	(4,128,000	)	$	12,413,000

Net income (loss)	$	8,725,000	7,822,000	(8,721,000	)	$	7,826,000
Provision for income taxes

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$23.69	24	$572

10-Q	2019-01-31	Quarter: 2019-01-31
10-Q	2018-10-31	Quarter: 2018-10-31
10-K	2018-07-31	Annual: 2018-07-31
10-Q	2018-04-30	Quarter: 2018-04-30
10-Q	2018-01-31	Quarter: 2018-01-31
10-Q	2017-10-31	Quarter: 2017-10-31
10-K	2017-07-31	Annual: 2017-07-31
10-Q	2017-04-30	Quarter: 2017-04-30
10-Q	2017-01-31	Quarter: 2017-01-31
10-Q	2016-10-31	Quarter: 2016-10-31
10-K	2016-07-31	Annual: 2016-07-31
10-Q	2016-04-30	Quarter: 2016-04-30
10-Q	2016-01-31	Quarter: 2016-01-31
10-Q	2015-10-31	Quarter: 2015-10-31
10-K	2015-07-31	Annual: 2015-07-31
10-Q	2015-04-30	Quarter: 2015-04-30
10-Q	2015-01-31	Quarter: 2015-01-31
10-Q	2014-10-31	Quarter: 2014-10-31
10-K	2014-07-31	Annual: 2014-07-31
10-Q	2014-04-30	Quarter: 2014-04-30
10-Q	2014-01-31	Quarter: 2014-01-31

8-K	2019-01-07	Regulation FD, Exhibits
8-K	2018-12-06	Earnings, Regulation FD, Exhibits
8-K	2018-12-04	Shareholder Vote
8-K	2018-10-31	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-09-26	Earnings, Regulation FD, Exhibits
8-K	2018-09-26	Officers, Exhibits
8-K	2018-06-06	Earnings, Regulation FD, Exhibits

ITUB	Itau Unibanco Holding	82,420
TEF	Telefonica	43,560
HWC	Hancock Whitney	3,860
MSTR	Microstrategy	1,550
XTNT	Xtant Medical Holdings	43
ECRD	Ecard	0
DBE	Invesco DB Energy Fund	0
RGBD	Regional Brands	0
FDMG	Frontier Digital Media Group	0
VIST	Vist Financial	0

EX-31.1	exhibit311q2fy19.htm
EX-31.2	exhibit312q2fy19.htm
EX-32.1	exhibit321q2fy19.htm
EX-32.2	exhibit322q2fy19.htm