CMTL — FY2026 Annual Financial Report Analysis

Comtech's fiscal 2026 annual report (the year to July 31, 2026) is the first one that shows the company as it will look after it sells most of its satellite business to Gilat. That business is now reported separately as "discontinued operations," so the headline figures cover only what Comtech keeps: Allerium (9-1-1 and public-safety software and services), its cybersecurity training work and corporate costs. On that basis, revenue fell 17.0% to $249.6 million, but almost all of the drop came from an Army satellite services contract Comtech chose to let run off. Excluding it, sales were flat, while gross margin rose to 38.9% from 31.6%. The business still lost money on a GAAP basis, and the sale, which has not closed yet, is still what the equity story depends on.

At a glance

• $249.6M revenue, down 17.0%, but flat on a like-for-like basis. $48.2 million of the $51.3 million decline came from legacy U.S. Army VSAT (small satellite dish) and field-service contracts that wound down ($48.5M of sales last year, $0.3M this year). Without them, sales were about $249.3M against $252.4M, down roughly 1%.
• 38.9% gross margin, up 7.3 points. Gross margin is the share of revenue left after the direct cost of delivering the product. Some of the gain is mix: the expiring contracts earned almost nothing (a $1.7M gross profit on $48.5M of sales). Even excluding them, margin rose to about 38.9% from about 37.0% as 9-1-1 call centers moved onto Comtech's recurring-fee platforms.
• $10.8M adjusted operating income vs $21.3M of interest. Before amortization, restructuring, stock pay and CEO-transition costs, the retained business earned $10.8 million (4.3% of sales, up from $7.6M). That is about half the interest charged to these operations, and less than a quarter of the company's $48.3 million total interest bill.

The year in numbers (continuing operations)

All figures below exclude the satellite business being sold. Prior-year figures are restated on the same basis, so they differ from what Comtech originally reported for fiscal 2025, and from our Q3 report, which still included the satellite business.

"Adjusted" figures are Comtech's own non-GAAP measures. They add back $14.8M of intangible amortization (a non-cash charge for the value of past acquisitions), $10.0M of restructuring, $3.1M of stock-based compensation and $1.2M of CEO-transition costs, plus $9.8M of depreciation for EBITDA. Book-to-bill is new orders divided by revenue: above 1.0x means the company booked more work than it delivered.

The fourth quarter alone (May–July 2026), from the earnings release filed with the 10-K, showed the same pattern. Sales were $66.2M, down 12.1% (the prior-year quarter had $8.4M of VSAT sales). Gross margin was 40.6%, adjusted operating income $6.5M (9.9% of sales, up from 6.7%), and adjusted EBITDA $9.2M. Orders, however, were only $32.0M, a 0.48x book-to-bill.

Takeaway: The business Comtech is keeping has become steadier: flat sales, a gross margin near 39%, about 80% of revenue recurring by management's estimate, and positive cash flow. But it still earns well under its interest bill, the full-year order number rests on one $130M+ contract extension, and the common shares sit behind about $210 million of debt plus a $223 million preferred stock that grows every quarter. Fiscal 2026 proved the operating repair. Whether common shareholders benefit depends on the Gilat sale closing and the refinancing that follows.

What drove the year

Sales: a planned exit, not lost customers. The MD&A ties the drop to "our decision to phase out and eliminate certain low margin and capital intensive revenues." Those contracts are not part of the Gilat sale, which is why they show up in continuing operations. Excluding them, the filing says sales "are comparable to fiscal 2025, but reflect timing considerations as call handling solutions transition to recurring maintenance revenue." In plain terms, one-time installation revenue is giving way to smaller monthly fees. The U.S. government's share of sales fell to 9.0% from 23.3% as the Army work ended. Concentration rose: one large U.S. mobile network operator accounted for 17.0% of sales, and a Northeastern state for 12.6%.

Margin: mix plus migration. Gross profit rose $2.0M to $97.2M on $51.3M less revenue. Comtech credits "the migration of PSAPs onto our NG9-1-1 core services and call handling platforms." PSAPs are 9-1-1 call centers. NG9-1-1 is the move of 9-1-1 networks from analog voice lines to internet-based systems that can carry text, data and precise caller location.

Costs: flat in dollars, heavier as a share of sales. Selling, general and administrative costs were $87.9M against $88.1M. That includes $10.0M of restructuring in each year, mostly legal and advisory fees for the strategic review that produced the Gilat sale. Excluding restructuring, SG&A rose to 31.2% of sales from 26.0%, because the revenue base shrank. Research and development was flat at $11.6M. Separately, Comtech capitalized $6.3M of software engineering (up from $3.9M). That spending goes on the balance sheet and is expensed gradually, which flatters the current-year income statement.

What the headline numbers hide

A $22.1M accounting gain is propping up the bottom line. Pre-tax loss from continuing operations was only $17.4M, smaller than the $18.2M operating loss, even after $21.3M of interest. The reason is a $22.1M non-cash gain from revaluing warrants and derivatives tied to Comtech's debt and preferred stock (last year: $38.5M). These liabilities shrink on paper when the share price falls. Without that gain, pre-tax loss would have been about $39.5M.

Most of the interest isn't paid in cash yet; it's added to the debt. Total interest expense was $48.3M ($21.3M allocated to continuing operations, $27.0M to the satellite business), but cash interest paid across the whole company was $18.3M. The gap is mainly "paid-in-kind" interest and make-whole accretion on the subordinated loans. Paid-in-kind means the interest is added to the loan balance instead of being paid. The cash-flow statement shows $14.4M of such non-cash subordinated-debt charges in continuing operations alone. That makes operating cash flow look better than the underlying economics, because the cost is deferred, not avoided. Comtech's effective interest rate for the year was about 19.7%.

Cash flow leaned on collecting receivables. Continuing operations generated $25.0M of operating cash, a $54.2M swing from last year. But $19.7M of it came from a fall in receivables, partly because the VSAT contract ended and its bills were collected. Capital spending nearly doubled to $15.2M (cloud networks and internal software for Allerium). Free cash flow, meaning operating cash flow minus capital spending, was about $9.8M, and it would have been negative without the receivables release. On the other side, inventories rose to $10.5M from $6.9M while sales fell.

Restructuring is "one-off" two years running. $10.0M in fiscal 2026 and $10.0M in fiscal 2025, plus $5.7M in Q4 alone. The earnings release adds $13–15M of planned transition costs, mostly in fiscal 2027 and 2028. Treat these as a recurring cost of the turnaround for now, not a one-time item.

Preferred dividends, not operations, explain most of the per-share loss. Continuing-operations net loss was $18.3M, but the loss to common stockholders was $51.0M because $32.8M of preferred-stock dividends accrued. These dividends are not paid in cash. They are added to what preferred holders are owed ahead of common shareholders, called the liquidation preference, which reached $223.2M at July 31 (from $204.2M a year earlier) and $227.1M by October 13. Stockholders' equity fell to $38.9M from $104.4M.

The order book needed one big contract. The 1.06x book-to-bill includes a multi-year extension worth more than $130M from Allerium's largest customer, a top U.S. telecom carrier. Without it, bookings would have been roughly $134M, about 0.54x of sales. Backlog grew only 2.8%, to $520.4M.

Cash fell after year-end. Qualified cash (the cash the lenders count toward liquidity) dropped to $24.0M on October 13 from $34.0M at July 31. Total liquidity fell to $51.3M from $61.3M. The filing doesn't explain the drop. Some seasonal swing is normal, but it's worth watching while the sale is pending.

Did last time's read hold up?

Our Q3 report named three things to watch in this 10-K:

• Deal closing: not yet. Comtech still expects to close "in calendar 2026," and CFIUS (the U.S. foreign-investment review) is still listed as a condition. Comtech used the $10.0M advance to prepay debt in July. It now expects a further $128.3M of net cash at closing, after sale costs and a $3.0M escrow. That is about $138M in total, a little below the roughly $143–145M of net proceeds cited in June (the new figure excludes the escrow).
• Allerium's standalone economics: better. Continuing operations earned 9.9% adjusted operating margin in Q4, up from 6.7% a year earlier. For the year, adjusted EBITDA was $20.6M. Management now puts pro forma adjusted EBITDA (as if the sale and planned cost cuts were already in place) at $37–39M for fiscal 2026. That is roughly this year's $20.6M plus the $16–18M of annual savings it expects about a year after closing, so it is a target, not a result.
• Allerium orders recovering toward 1.0x: didn't happen. After a 0.32x Allerium book-to-bill in Q3, continuing-operations bookings in Q4 were $32.0M (0.48x). Management again blames the timing of large multi-year awards. That may be true, but it is now two weak quarters in a row.

Outlook

Comtech gives no revenue or earnings guidance. What the filing does lay out is the sequence of events.

1. Sale closes (expected by end of calendar 2026). By contract, 65% of net proceeds goes to the senior credit facility and 35% to the subordinated loans. Because the sale was "held for sale" at year-end, $85.3M of senior and $46.0M of subordinated debt are now shown as due within a year.
2. What's left. At July 31 the senior facility was $108.5M, the subordinated facility $102.0M (including paid-in-kind interest), plus a $32.5M make-whole premium on part of it. The 10-K's contractual-obligations table shows roughly $110M of debt principal and make-whole amounts still due after the next 12 months, plus the $223M+ preferred stock. Its make-whole terms were deferred to April 1, 2027, and holders can't demand cash dividends before October 31, 2028.
3. Then a refinancing. Management says it will "seek a comprehensive recapitalization" to cut its cost of capital. The terms of that refinancing, more than any quarterly result, will decide what is left for common shareholders.

The covenant tests (lender limits on debt relative to earnings) remain suspended through July 31, 2027. The 10-K says management believes cash flow and the $27.3M undrawn revolving credit line are enough for the next year. The CFO and chief legal officer are both being replaced as part of the transition.

Our read: fiscal 2026 showed that the business Comtech keeps is a real, if small, business: about $250M of mostly recurring revenue at a near-39% gross margin and a rising adjusted margin in Q4. The weak points are orders and the capital structure. Q4's 0.48x book-to-bill needs to recover in fiscal 2027, or flat sales will turn into falling sales once the big carrier extension is worked through. Even after the sale, a business with $20–40M of EBITDA will still carry over $100M of high-cost debt and a preferred stock whose claim grew by $19M in fiscal 2026 alone ($204.2M to $223.2M). Watch the first-quarter fiscal 2027 10-Q (quarter ending October 31, 2026; last year's equivalent was filed December 11) for Allerium orders and any word on CFIUS approval.