Comtech Telecommunications Corp. (CMTL) Earnings Call Transcript

Welcome to Comtech Telecommunications Corp.'s conference call for the fourth quarter and full year of fiscal 2026. As a reminder, this conference call is being recorded. I would now like to turn the call over to Maria Ceriello, Senior Director of FP&A 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, our CFO; and Jeff Robertson, President of Allerium. After Ken and Jeff and Mike's remarks, they will be available for questions. Before we get started, please note, we have a detailed discussion of the quarter and the year in the press release and 10-K we issued this afternoon, which are available on our website as well as the SEC's website. As described in the document, on June 14, 2026, we entered into an agreement to sell most of our Satellite and Space Communications business to an affiliate of Gilat Satellite Network. As a result, the portion of that business being sold is presented as discontinued operations in our financial statements. Unless we say otherwise, the financial results we discuss today relate to our continuing operations with comparable prior periods recast to reflect these changes. Our continuing operations consist of our Allerium public safety business, our retained cybersecurity training solutions business, the wind down of certain now inactive U.S. Army contracts and corporate functions. Our press release includes reconciliations of the non-GAAP measures we will discuss to the most directly comparable GAAP measures. Certain information presented in this call will include but not be limited to, information relating to the future performance and financial condition of the company, the company's plans, objectives and business outlook and the plans, objectives and business outlook of the company's management. The company's assumptions regarding such performance, business outlook and plans are forward-looking in nature and always involve significant risks and uncertainties. Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company's SEC filings. With that, I will turn it over to Ken. Ken?

Thank you, Maria, and good afternoon, everyone. I appreciate you joining us today. Fiscal 2026 was a defining year for Comtech. When I joined the company as CEO in January 2025, I told you that I believe the most critical factor for success in any business and especially in the turnaround is building trust with all key stakeholders. And that trust is built by honoring promises. I then laid out a transformation plan that had 4 pillars. First, our first pillar was to restore and enhance operational discipline throughout the company. Our second pillar was to generate positive operating cash flow. Our third pillar was to conduct a comprehensive review of strategic alternatives, and our fourth pillar was to strengthen the company's capital structure. Today, with the fiscal year behind us, I can report that we have delivered on each of these promises. Let me take them in turn because in fulfilling the promises we made, we have not only executed the turnaround as planned, but we have successfully transformed our company. Comtech is now a far stronger company operationally, financially, organizationally and strategically. Our first pillar focused on operational discipline. Any observer of Comtech today will see a dramatically improved operational discipline throughout the entire company. I would like to highlight a few notable aspects. First, anyone would observe, we have a new culture throughout our organization, which centers around transparency, empowerment and accountability. Second, Comtech now has a significantly reduced and much more efficient cost structure. Third, we have implemented a disciplined approach to product and market initiatives. And fourth, we have enhanced our project execution. And finally, working capital management has been prioritized and optimized. These initiatives have helped to drive Comtech's dramatic improvement in financial results, which is evident in the significant increases in gross margins and [ EBITDA ] margins that Mike will discuss, but it's particularly noteworthy in the return to more consistent generation of positive operating cash flow, which I will discuss in more detail in a moment. The improved operational discipline throughout the company has also helped us win trust and credibility with our key stakeholders, particularly our employees, customers, suppliers and creditors. The second pillar of our transformation plan focused on returning the company to positive operating cash flow. For the 7 quarters leading up to January 31, 2025, Comtech reported operating cash flow losses in each quarter with accumulated total cash burn of over $80 million. After taking over as CEO in January 2025 and announcing the transformation plan, we reported positive operating cash flow on a consolidated basis in each of the 6 quarters since then, with a cumulative positive operating cash flow in that period of over $50 million. This has enabled us to increase our liquidity to over $61 million at the end of fiscal year 2026 while also reducing our debt. This is the greatest level of liquidity Comtech has had in its recent history and has put us in a position of strength as we focus on the next 2 pillars of our transformation plan, the review of strategic alternatives and the strengthening of the capital structure. Our third pillar of our transformation plan was that we committed to conduct a comprehensive review of strategic alternatives. We conducted a very broad and deliberate process and considered all relevant options with our overarching goal of identifying the best path to maximizing long-term shareholder value. Hence, we took our time and executed on the first 2 pillars to create the position of strength that was key to conducting a successful process. By running a broad process with various alternatives available to us, it also gave us optionality and negotiating leverage with any potential suitors as we were not dependent on any one alternative. As we considered which assets to sell, one important consideration was to generate the cash to delever the balance sheet. But actually, the even more important consideration was to retain in the company the most attractive business for us to build and create the best path for long-term value creation. The answer became clear. Divesting the majority of satellite and space communications business would accomplish multiple goals. First, the sale of S&S could generate enough cash to prepay most of our senior debt and enable a recapitalization. Second, while we have succeeded in turning it around, the satellite and space business has been a difficult business for Comtech to manage over the years. As recently as fiscal 2025, the satellite and space business reported GAAP operating losses of over $110 million and experienced significant and unpredictable fluctuations in its operating cash flow over the years. Third, by divesting satellite and space, which requires a lot of corporate support, we can streamline the business into one remaining operating segment and eliminate a significant amount of corporate overhead. Finally and most importantly, our public safety business in Allerium, coupled with our cyber training services, which has previously been part of satellite and space, have very attractive financial profiles with clear levers to drive future growth. Unlike this satellite and space business that we are divesting, Allerium is very stable as it is characterized by over 80% annual recurring revenue, long-term customer contracts and significant backlog. Our cyber business has similar qualities. Recent innovations in our business, coupled with favorable industry dynamics and drivers, which Jeff will describe in more detail, provide opportunities for exciting long-term growth on top of the stable and predictable base of business. Further, the sale of most of satellite and space enables us to streamline and realign the business to be fit for purpose to support the long-term growth and success of our Public Safety business. In marketing the satellite and space business, together with our financial advisers at TD Securities, we contacted over 150 potential buyers, signed over 80 NDAs, met with numerous prospects, and we are very pleased with the outcome, which is reflected in the definitive agreement we entered into with Gilat to sell most of that business for $157.5 million while keeping certain assets we wanted to retain. We received already $10 million of this purchase price at the time we signed the agreement, and while it is still subject to regulatory approval and other closing conditions, we expect to close this transaction by the end of this calendar year. The fourth pillar of our transformation plan was to strengthen our capital structure as the company's deep and expensive debt and preferred securities have been an issue for a long time. We entered into 2 subordinated debt investments and 2 amendments through our subordinated debt and senior credit agreements in fiscal 2025, and primarily to wave prior breaches of financial confidence, obtained covenant holidays going forward and lower near-term cash interest payments. These amendments, together with the operational improvements we made that demonstrated the return to consistent positive cash flow enable us to satisfy ourselves and our auditors that the company's prior disclosures expressing doubts regarding its ability to continue as a going concern can confidently be removed from our financial statements. This was a very positive message and a sign of our progress to our stakeholders, including employees, customers and suppliers. Contemporaneous with signing the definitive agreement with Gilat, in June 2026, we entered into new amendments with our senior creditors, subordinated lenders and preferred stockholders. We were in compliance with all of these agreements at the time and our operational and strategic progress enabled us to negotiate favorable improvements in each of these agreements. One issue that was critical for us to resolve was a provision in the preferred stock agreement that calls for the acceleration of the preferred stockholders' right to redeem the full amount of the preferred stock upon certain refinancings of the senior debt. We succeeded in having that provision removed from the agreements and extended the redemption rights from October 2028 to October 2029. We also reduced the overall cost of capital by lowering the required prepayment fees on the senior debt and extending the trigger dates for increases of the make all adjustments on the subordinated debt so that we can refinance and pay off the subordinated debt before the next increase and the make-whole requirement comes into effect. We also obtained an extended covenant holiday through July 2027 so that we can focus on execution the pending transactions and the transition without concerns on covenant compliance. Overall, as a result of these amendments, we have already reduced our cost of capital and reduced and improved our financial flexibility. Further, we anticipate that upon closing the transaction to sell most of our S&S business, we will consummate additional refinancings and amendments that will result in a healthier capital structure going forward with further reductions in cost of capital and enhanced financial flexibility to support the long-term growth and development of our remaining business centered around Allerium, including cyber services. Now that we have successfully executed on all 4 pillars of our transformation plan, the operational discipline, the return to positive cash flow, consummating the strategic sale transaction and improving the capital structure, Comtech is much stronger in every dimension, as I said, operationally, financially, organizationally and strategically. As we await regulatory approval of the sale of the satellite and space business, we are executing a transition plan to align the organization to be purpose-built to support the long-term growth and success of our remaining business centered around Allerium's public safety operations plus our cyber services. Consequently, we announced today some important changes with our leadership team. Amy Rothstein-Hovey joined us on October 1 as General Counsel and will become our Chief Legal Officer and Corporate Secretary, right after Don Walther's last day at Comtech, which we expect to be shortly following the closing of the transaction to sell satellite and space to Gilat. We are excited to welcome Amy to Comtech as she brings more than 20 years of experience guiding governance, strategic transactions, capital markets activities, enterprise risk management and growth initiatives across global, public and private companies. We also announced today that Rich Nyren joined us on October 8 as Executive Vice President of Finance, who will become our Chief Financial Officer right after Mike Bondi's last day at Comtech, which we expect to be shortly following the filing of the 10-Q for the first quarter of fiscal 2027. We are also excited to welcome Rich to Comtech as he brings more than 30 years of finance, accounting, capital markets and strategic leadership experience across mission-critical communications, our space telecommunications and infrastructure businesses. I want to sincerely thank and complement Mike and Don for their dedication and contributions to the company. They have both been terrific partners as we have successfully navigated Comtech's transformation together over the past 2 years. We are all looking forward to continuing to work closely with Mike and Don during this transition period and are very grateful for their valuable contributions that have enabled us to get to this pivotal point in Comtech's evolution. They are also both really a pleasure to work with. While we will miss them following their departures, I know they will both be very successful going forward, and I wish them well. We are also excited about the critical roles that Rich and Amy will serve as they will be integrated closely with Jeff's Allerium team in building a focused dynamic leader in public safety. With that, I will turn the call over to Jeff to share with you additional perspectives on our Allerium business and why we are excited about the opportunities ahead for this business. Jeff?

Thanks, Ken. I'm incredibly excited about what's ahead for Allerium. Because we're entering this chapter, this next chapter from a position of real strength, to give just a few examples. Earlier this year, Allerium secured a multiyear contract extension valued in excess of $130 million from our largest customer, a leading U.S. telecommunications company. In Kentucky, we migrated the Commonwealth's first public safety answering point in December and then migrated 12 more PSAPs within the first 4 months of operation, a first-in-market milestone that validates our platform at statewide scale. And in Canada, we completed more than 60 Next-Gen 9-1-1 upgrades during the year and opened a new purpose-built facility in Gatineau, Quebec with support from the city and the province of Quebec. We entered fiscal 2027 with $520 million in funded backlog. Approximately 80% of our annual revenue now is recurring and long-standing relationships with states, public safety agencies and some of the world's largest mobile network operators. As Ken described, subject to regulatory approval and the closing of the Gilat transaction, we also expect to have greater financial flexibility and an organization purpose built around Allerium with our people, investments and priorities aligned around the markets we serve. That creates an opportunity, I believe, is much bigger than simply becoming a more focused company. We have spent decades operating across public safety and mobile networks. We understand how critical communications move through those environments from locating and routing an emergency call, to delivering it to the right agency to helping the call handler understand what is happening while also providing location, messaging and alerting capabilities within some of the world's largest mobile networks. That breadth matters because both markets are at inflection points. In public safety, next-generation 9-1-1 is creating a secure IP-based foundation capable of carrying much more than the traditional voice call. The next opportunity is to make better use of that foundation. As more information becomes available, agencies need ways to receive it, understand it and move it with the incident across systems, agencies and jurisdictions. That is where we believe Allerium has a significant opportunity. We already provide the network infrastructure and call handling technology across the emergency communications path, and 2 of the capabilities we have spent years investing in are now in the market. Mira is our new emergency call handling solution, and what makes it different is that it runs over the secure next-gen 9-1-1 network rather than inside a single agency. More and more emergencies require several agencies to respond together, and because Mira's features and integrations live in the network, agencies can work the same incident together instead of each working alone. That is a real advantage. Coral addresses the flood of new data coming into emergency communications, wearables, vehicle telematics, AI-enhanced cameras and other sources. Today, that information arrives through many different applications, often over the open Internet and is very hard to correlate in the middle of a stressful response. Coral carries it over the secure Next-Gen 9-1-1 networks we have already deployed. So it reaches the right agency together with the call. And across the portfolio, we see opportunities to bring more intelligence into the workflow without compromising the reliability and control public safety requires. Our opportunity in mobile networks is also very compelling. For decades, our technology has helped mobile network operators solve some of the most demanding location, messaging and emergency communications requirements. These capabilities operate deep within carrier networks at significant scale. As mobile networks become more software-driven and network capabilities become increasingly accessible through APIs, we believe our expertise in highly accurate location, messaging, alerting and carrier-grade infrastructure can support a broader set of services and applications. Artificial intelligence will accelerate opportunities in both markets, and our approach to it is practical. Let me start with what AI will not do. It will never replace the emergency dispatcher. What it can do is act as an assistant, coaching a call handler through a complex emergency when information is arriving faster than any one person can absorb it. No dispatcher can be an expert in everything. AI can know how different vehicle architectures behave in a crash and how to free someone trapped in a car. It can guide the first minutes of a chemical spill. It can suggest the specific questions about a suspect or a scene that help responders when they arrive. Some of this is in use today. real-time transcription of calls, real-time translation on the fly, which we saw heavily used during the World Cup this summer. AI as a training tool for new dispatchers in a job where it takes years to become an expert. Our clear advantage is where we sit. Allerium carries the audio and the information about an emergency from the moment it begins. So we can put AI to work on it in near real time inside systems where accuracy, reliability and security already matter. In mobile networks, the same applies to location and network intelligence. We believe that gives us a competitive advantage in the marketplace and will drive better margins over time. I also want to be a direct of bookings. For the year, our book to bill was 1.06 and backlog grew, but the second half was lighter than the first. We don't manage this business into a quarterly ratio. Our awards are large, multiyear contracts with states and carriers, often with option years, and they arrive when procurement cycles finish, not when our quarter does. The better measures are order tempo over a longer horizon and the quality of what we have booked, $520 million of funded backlog and roughly $860 million of revenue visibility when you include the unfunded value of contracts already in hand. That said, converting our pipeline into bookings is our first priority for fiscal 2027. One more piece of the portfolio as part of the transaction, we are retaining our cybersecurity training business. which becomes part of Allerium. It has an attractive profile, a profitable business built on long-standing U.S. government programs that have renewed through multiple cycles with proprietary training methods and deep customer relationships. It also fits where the market is going. Securing our nation's first response networks is one of the leading challenges facing public safety today and 9-1-1 systems are among the most targeted infrastructure in the country. As we bring this business into Allerium, we look forward to extending it into public safety, applying its experience and our own to help secure the nation's 9-1-1 services and cross-selling it to state, local and carrier customers we already serve. We expect it to add to our growth. When I look at Allerium today, I see a business with the pieces in place to grow. Roughly 80% of our revenue is recurring. According to Frost & Sullivan, we hold the #2 position in next-gen 9-1-1 core services in the United States and the #3 position in call handling and our location technology supports more than 250 million wireless subscribers. We are already the network, the call handling platform or the location provider for most of the customers we want to grow with, which means our new products go to market through relationships we already have. Mira gives our call handling customers a path to the cloud. Coral gives every agency on our networks a reason to use more of what the network can do, and the market is moving toward exactly these capabilities as states modernize and carriers build out 5G. Our job now is to turn that position into growth. That means executing for the customers who already trust us, converting the investments we have made into revenue, expanding the value we provide within existing relationships and bringing new capabilities to market with the discipline these customers expect. It also means focus. For the first time, every dollar we invest, every person we hire and every decision this leadership team makes role toward one mission, improving how emergencies are answered and responded to. On the public safety side, that is getting the right information to the right agency faster and helping call handlers act on it. On the carrier side, it is helping mobile network operators locate callers accurately, route emergency calls reliably and alert the public when it matters. A company that puts all of its attention on 1 market and knows this well tends to build better products, serve customers faster and run more efficiently. That is what we intend to do, and that is why we are so excited about this transition. I want to echo Ken's thanks to Mike Bondi and Don Walther for the tremendous amount of work they have done to put us in this position and for their partnership through this transition. I'm also excited to work with Rich and Amy and the rest of our leadership team as we build an organization designed specifically for Allerium and the opportunities ahead. We have a lot of work to do, but we know these markets. We know our customers and we know where we can create value for the communities that depend on 9-1-1 and for our shareholders. I'm excited to get after it. With that, I'll turn the call over to Mike to walk through the financials. Mike?

Thank you, Jeff, and good afternoon, everyone. Before I get into the numbers, let me spend just a moment on presentation to reiterate what Maria just said at the top of the call. Because we had agreed to sell most of our satellite and space business, that business is now being presented as held for sale on our balance sheet and discontinued operations in our income statement and cash flow statements. Comparative prior year information has also been recast on that basis. We now have one reportable operating segment, which consists of our historical Allerium segment, our cybersecurity training and related services business being retained in the sale to the lot and our corporate function. Additionally, although wound down and inactive in fiscal 2026, our continuing operations in fiscal 2025 included the runoff of 2 legacy satellite and space contracts with the U.S. Army called VSAT and GFSR. Such contracts are not being acquired by Gilat and therefore are not part of discontinued operations. Unless expressly stated, the results I'll be presenting today relate to our continuing operations, and I refer you to our earnings release and 10-K filings for any reconciliations to non-GAAP measures. I will review fiscal 2026 results first and the fourth quarter before turning to the balance sheet and liquidity. Fiscal 2026 net sales were $249.6 million compared to $300.9 million last year. It is important to understand that what drove this change in net sales has little bearing on Allerium's business going forward as the fiscal 2025 period included almost $49 million of net sales from the legacy U.S. Army VSAT and GFSR contracts, which had only contributed $1.7 million of gross profit last year. Those contracts principally wound down in fiscal '25 and had only negligible sales and gross profit in fiscal 2026 as a result of our decision to phase out and eliminate certain low-margin, capital-intensive revenues such as from these 2 contracts. Excluding such contracts in each year, fiscal 2026 net sales were comparable to fiscal 2025, with slightly lower net sales of our call handling solutions this year as initial deployment activity in 2025 has now transitioned to recurring maintenance revenue in 2026. Gross profit in fiscal 2026 improved to $97.2 million or 38.9% of net sales compared to $95.2 million or 31.6% of net sales in fiscal 2025. So despite the fluctuation in net sales, we generated $2 million more in gross profit. The improvement in gross margin reflects the continued adoption of our solutions and the migration of PSAPs onto our NG9-1-1 core services and call handling platforms as initial deployments progress into monthly recurring revenue streams. Selling, general and administrative expenses were approximately $88 million in fiscal 2026 and 2025. Both years included approximately $10 million of restructuring costs, primarily legal and professional fees associated with our strategic alternatives process and costs to streamline our operations. Excluding such restructuring activities, SG&A was approximately $78 million for each year, which reflects reduced corporate overhead offset by reinvestment back into Allerium and higher stock-based compensation. Research and development expenses were $11.6 million in fiscal 2026, consistent with the prior year. However, overall, we did increase our investments in newer technologies and cloud-based platforms this year as we increased our capital -- capitalized internal use software development efforts from just under $4 million last year to a little over $6 million this year. Our GAAP operating loss in fiscal 2026 was $18.2 million, an improvement compared to the $29.9 million of operating loss in fiscal '25. The fiscal 2026 amount includes $14.8 million of amortization of intangibles, the $10 million of restructuring costs I just mentioned, $3.1 million of stock-based compensation and $1.2 million of CEO transition costs. Excluding such amounts, operating income would have been $10.8 million or 4.3% of net sales compared to $7.6 million or $2.5 million of net sales on the same basis last year, which also includes proxy solicitation costs and an allocated goodwill impairment charge recorded last year. Adjusted EBITDA was $20.6 million or 8.3% of net sales in fiscal 2026 compared to $16.4 million or 5.5% of net sales in fiscal '25. The improvement, both in dollars and as a percentage, primarily reflects higher gross profit and lower core SG&A. Total interest expense across continuing and discontinued operations was $48.3 million and $45.6 million, respectively. Fiscal 2026 reflects a shift from cash interest associated with our credit facility to accretive make-whole adjustments and paid-in-kind interest associated with our subordinated credit facility, in addition to higher amortization of the make-whole adjustments, deferred financing costs and debt issuance costs due to the assumed repayment of a significant portion of our debt when the anticipated transaction with Gilat closes. Interest expense allocated to continuing operations in fiscal '26 was $21.3 million compared to $19 million last year. Most of that interest expense is noncash. Cash interest paid for continuing operations was approximately $5 million in fiscal 2026, down from $12.9 million last year. As Jeff mentioned, bookings for fiscal 2026 were $263.7 million, resulting in a book-to-bill ratio of 1.06. Bookings include a multiyear extension from Allerium's largest customer, valued in excess of $130 million at the time of award. Funded backlog at July 31, 2026, was $520.4 million compared to $506.3 million a year ago. Revenue visibility, which adds the unfunded value of certain multiyear contracts from which we expect future orders, was approximately $862 million. Turning to cash flow. Operating cash flows were $25 million for fiscal 2026 compared to outflows of $29.2 million in fiscal 2025. The improvement reflects favorable changes in working capital management driven by improved accountability and process disciplines as well as the timing of and progress toward completion on contracts accounted for over time, which allowed us to reduce billed and unbilled accounts receivable. Fiscal 2026 and fiscal 2025 operating cash flows absorbed about $7.8 million and $19.7 million, respectively, of payments for restructuring, severance, proxy solicitation and CEO transition costs. Including discontinued operations, total consolidated operating cash inflows were $37.4 million compared to outflows of $8.3 million last year, validation of our efforts to focus on cash generation. Capital expenditures were $15.2 million in fiscal 2026 and primarily reflect efforts to build out cloud-based computer networks and internal use software applications, along with investments and building improvements associated with our leased facilities, including our new Gatineau location Jeff mentioned. We expect continued investment in these initiatives in fiscal 2027. Now turning to our fourth quarter. Net sales for the fourth quarter of fiscal 2026 were $66.2 million. This compares to $75.3 million in the fourth quarter of last year. However, similar in concept for the year-over-year comparisons I just discussed, Q4 of last year included about $8 million of net sales and $0.5 million of gross profit related to the legacy VSAT contract. Excluding that contract, the change in net sales reflects lower sales of location-based and call handling solutions but offset in part by higher net sales of our NG9-1-1 solutions and cybersecurity training services. Gross profit in the fourth quarter of fiscal 2026 was $26.9 million or 40.6% of net sales compared to $26.2 million or 34.7% of net sales in the fourth quarter of last year. Excluding the VSAT contract, the improvement in the gross profit percentage in the more recent period reflects the continued adoption of our solutions by customers and the migration on to recurring services. For context, net sales in our third quarter of fiscal 2026 were approximately $61 million and gross profit was approximately $24 million or around 39% of net sales. So sequentially, in terms of sales and gross profit, we had a better Q4 relative to Q3, and such increase reflects growth in all 4 product areas. In our fourth quarter of fiscal 2026, we reported an operating loss of $3.9 million, which compares to an operating loss of $0.8 million in the fourth quarter of last year. Our fourth quarter of fiscal 2026 reflects $5.7 million of restructuring costs, $3.6 million of amortization of intangibles, $1 million of stock-based compensation and $100,000 in CEO transition costs. Excluding such items, operating income for the fourth quarter would have been $6.5 million or almost 10% of net sales as compared to $5.1 million or 6.7% in the prior year period when excluding similar items. The improvement in fiscal 2026 primarily reflects higher gross profit, both in dollars and as a percentage of net sales and lower core SG&A. Restructuring costs during the fourth quarter of 2026, principally related to our strategic alternatives process, which concluded with the sale of most of the S&S business to Gilat, announced on June 15, 2026. Following the expected closing of the sale transaction in calendar 2026, we plan to align our operations strategy and brand with Allerium's public safety focus. Adjusted EBITDA for the fourth quarter of 2026 was $9.2 million or 13.9% of net sales compared to $7.5 million or 10% of net sales in the fourth quarter of last year, reflecting higher gross profit again and lower core SG&A. Cash provided by operating activities was $18.5 million for the fourth quarter of fiscal 2026 and as compared to $1.2 million of cash used in operating activities in the fourth quarter of last year. Q4 fiscal 2026 marks our sixth consecutive quarter of positive operating cash flows. Operating cash flows in the fourth quarter of fiscal 2026 included aggregate net payments of $0.9 million, principally for interest. And as for restructuring costs, including severance, CEO transition costs and third-party professional fees, net payments were nominal due mainly to recoveries from insurance. Now turning to the balance sheet. As Ken mentioned, contemporaneously with signing the agreement to sell most of the S&S business to Gilat at a time when we were in compliance with the terms of -- and conditions of our credit facilities, we entered into various amendments to our credit facility, subordinated credit facility and convertible preferred stock agreements, which enhance our overall financial flexibility and reduced our anticipated cost of capital. Upon closing the sale transaction with Gilat, we will use the net cash proceeds to substantially reduce debt and then seek a comprehensive recapitalization of the business with the intention to further enhance our financial flexibility and reduce our cost of capital. Under our credit agreement, 65% of the net proceeds from the Gilat transaction will be applied to prepay the credit facility, which should retire the substantial majority of that facility, and the remaining 35% will prepay subordinated debt beginning with the remaining portion of the $35 million subordinated priority term loan. In addition to the $10 million advance payment we received at signing, we estimate that we will receive an additional $128.3 million in net cash proceeds at closing after deducting sale-related expenses and funding a customary $3 million escrow obligation related to post-closing net working capital adjustments. Such amount also excludes potential proceeds from S&S assets that we are retaining. Because the business being sold to Gilat is considered held for sale and given the terms of our debt agreements, which require the use of net proceeds to prepay debt, $85.3 million of our senior term loan principal and $46 million of our subordinated term loan principal including PIK interest and applicable make-whole adjustments are classified as current liabilities. As of year-end and as of October 13, 2026, respectively, total outstanding borrowings under our edit facility were $108.5 million at each such date. Total outstanding borrowings under the subordinated credit facility were $102 million and $103.1 million, respectively, including interest on a subordinated priority term loan outstanding at each date. These amounts not include the 50% or $32.5 million make-whole amount associated with the $65 million portion of the subordinated credit facility. The liquidation preference of our outstanding convertible preferred stock was $223.2 million and $227.1 million, respectively, excluding potential increases in the liquidation preference and other obligations that could be triggered by, among other things, breaches of covenants and our asset sales, resulting in a change in control of the company. And our available sources of liquidity, as Ken mentioned, totaled $61.3 million at July 31, 2026, consisting of $34 million of qualified cash and cash equivalents and $27.3 million of remaining available revolver loan capacity. As of October 13, 2026, our liquidity approximated $51.3 million and the remaining available portion of the [indiscernible] loan was $27.3 million. Okay. And one update that I would like to provide at this time, it's a brief update on our pro forma disclosures included in our earnings announcement today. In connection with aligning our operations, strategy and brand with a public safety focus, we anticipate investing between approximately $13 million and $15 million for transition-related costs. Such costs are expected to be incurred mostly in fiscal 2027 and some in 2028 and associated with business system tools, capabilities, personnel and reporting functions. After completing the sale of most of the S&S business and after approximately 1 year of transition implementation, we anticipate annual cost savings to range from approximately [ $16 million ] to $18 million. Based on these assumptions, we estimate that pro forma adjusted EBITDA would have been between approximately $37 million and $39 million for fiscal 2026. And keep in mind, such amounts are unaudited estimates. And for additional context, while the midpoint of the investment increased about $1 million from our prior estimate in June, the midpoint of our pro forma adjusted EBITDA increased by $4 million now to $38 million. And okay, one last item before turning the call back over to Ken. On a personal note, I would like to take a brief moment to personally thank Ken, the entire management team, the Audit Committee and the full Board of Directors and all of our employees throughout the organization for your partnership over these past, call it, 23 years at Comtech. It's truly been an amazing journey, and I could not be more excited for the business going forward. We have successfully emerged from our transformation as a stronger company, and I am very proud of what we have accomplished together. I am already working together with Rich and my team to ensure a seamless transition, and I am confident that Allerium is in capable hands. Now with that, let me turn the call back over to Ken. Ken?

Thank you, Mike, and you really should be proud. To sum up briefly, Comtech is now a much stronger company operationally, financially, organizationally and strategically. Assuming we obtain regulatory approval and close the strategic sale transaction of our S&S business, we will not only have a stronger capital structure, but we will be focused and aligned around Allerium's market-leading public safety business that Jeff has been building. This is a business that not only has an attractive financial profile today with high recurring revenue and long-term customer contracts but exciting opportunities to grow through our innovations and increasing market demand for next-generation public safety solutions. I want to close by thanking our entire team, the dedication, discipline and pride I have seen across this organization, in satellite and space, in Allerium, in our finance, legal, IT and people operations teams is what made all of our accomplishments possible. I am so proud of this team and what we are accomplishing together. I am particularly grateful to Mike and Don for their dedication, their loyalty and their contributions to Comtech. It really has been a pleasure to work with both of them, and I have great respect and appreciation for all you are doing, Mike as well as Don. We look forward to working with you both through this transition and wish them well in all of their future endeavors. Now as a reminder, both Jeff and Mike will be joining me for Q&A. With that, operator, please open the call to any questions.

[Operator Instructions] And we'll take our first question today from Mike Crawford with B. Riley Securities.

Can you characterize any awards you won 11 weeks into this 13-week October quarter and whether some forms, whether top line might be flat up or down from a July level?

Mike, just to make sure that we captured your question correctly, you're looking for some update on awards post July?

Yes.

Okay. Great. Yes. In our business outlook in the 10-K, we did update for some subsequent events or insight on some key bookings that we thought were appropriate to put in there. That's not to imply that those are all the awards. Certainly, Jeff's team is hard at work. And I don't know, Jeff, if there's any color you want to provide on opportunities that were secured out.

Yes, we'd like to be because a lot of those opportunities are government related. We'd like to make sure that we clear before making on public announcements, but suffice it to say, there were some awards after there that were that we're proud of and are highlighted in some of the 10-K but before publicly announce them. I'd want to clear with them first.

What we did disclose today was a $3 million order from the Canadian government for deployment of Guardian. And we also had over $2.3 million from a domestic Tier 1 mobile network carrier for security features and enhancements, which is a recurring type of order we do get from our customer. Does that satisfy your question, Mike?

The first part. I guess the second part was on whether that informs top line direction versus July.

Yes. In terms of guidance, we're not going to put out guidance, but I would point to our updated disclosures in our financials. We have about $520 million of backlog. We expect that backlog to give us a nice foundation of revenue somewhat evenly over the next 3 years. And we're expecting that about 40% of that backlog is going to turn to revenue inside of fiscal '27. So it's really a strong base to build upon.

Okay. Great.

Mike, as you look at our business going forward, it's going to be a much more predictable business, right? The satellite space business, as you know, has been a lumpier, more volatile business for us to be in. As we focus on our public safety, more than 80% of our revenue is recurring in nature. So that forms a good base. And the balance, we have long-term customer relationships that we know that we'll be building around. We think that there's going -- that our public safety business has been hamstrung to some extent by being part of a corporate organization that included satellite and space and had satellite and space had a recent history of challenges. Fortunately, we've overcome those challenges. And now the consolidated company is much stronger, and we're able to invest and support Allerium the way it should be supported, that gives us greater confidence to build around that base and support the growth of the company going forward.

That makes a lot of sense. And just a final question for me is given base, but you're building around now, can you characterize the size of your current pipeline and what recompetes and/or RFPs are in play this fiscal year?

I mean typically, again, in giving forward guidance, but I would tell you that our pipeline and many of the RFPs that we are going after are government procurement RFPs that are public. I wouldn't want to comment on them right now as we're in different stages of them right now. But suffice it to say, this should be one of the stronger years for government procurements along the next-gen 9-1-1 cycle, not only in the United States, but in the other countries we serve both in Canada and Australia, where you'll see a strong pipeline from us.

And Mike, something to add to that. In addition to winning new accounts, the cross-selling is an important element of our growth. We already have established relationships with a large customer base and we have more opportunity to sell more to them than what we've been selling in the past. So we -- so it's not just about winning the next procurement. It's about building around existing customers.

It's a great point, Ken. I should have probably mentioned it, Mike, but these networks that we've deployed, once we deploy them, there's a financial profile that the company benefits from. But once the network deploys the services we can run on top of those networks. So Mira, you heard me talk about our new product, that runs over the network and could be resold to those customers to improve revenues as well as Coral. So we have many of those customers already looking at those products now in play that will hit the fiscal 2027 time frame for decisions. So thanks, Ken, for running with that.