
Q4 2024 First Advantage Corp Earnings Call
Stephanie Gorman; Vice President - Investor Relations; First Advantage Corp
Scott Staples; Chief Executive Officer, Director; First Advantage Corp
Steven Marks; Executive Vice President, Chief Financial Officer; First Advantage Corp
Shlomo Rosenbaum; Analyst; Stifel
Andrew Steinerman; Analyst; JPMorgan
Daniel Maxwell; Analyst; William Blair
Manav Patnaik; Analyst; Barclays
Jeff Silber; Analyst; BMO Capital Markets
Kyle Peterson; Analyst; Needham & Company LLC
Scott Wurtzel; Analyst; Wolfe Research
Operator
Good day everyone. My name is David and I'll be your conference operator today. I would like to welcome you to the first advantage, fourth quarter and full year 2024 earnings conference call and webcast. Hosting today's call from First Advantage is Stephanie Gorman, Vice President of Investor relations. At this time, all participants have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions) Please note today's event is being recorded. It is now my pleasure to turn the call over to Stephanie Gorman. You may begin.
Stephanie Gorman
Thank you, David. Good morning, everyone, and welcome to First Advantage's fourth quarter and full year 2024 earnings conference call. In the investors section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our investor relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the FEC, including our 2023 Form 10k and our 2024 Form 10k to be filed with the FEC. Such factors may be updated from time to time in our periodic filings with the FEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-gap financial measures, reconciliations of our non-gap financial measures to their most directly comparable GAAP financial measures, to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our investor relations website. To facilitate comparability, we will also discuss pro forma combined company results consisting of first advantage and sterling Check Corp, historical results, and certain pro forma adjustments as if the acquisition of Sterling had occurred on January 1, 2023. The pro forma information does not constitute Article 11 pro forma information. I'm joined on our call today by Scott Staples, our Chief Executive Officer, and Stephen Marks, our Chief Financial Officer. After our prepared remarks, we will take your question. I will now hand the call over to Scott.
Scott Staples
Thank you, Stephanie, and good morning everyone. Thank you for joining our call. 2024 was a big year for first advantage as we advanced on our strategy and announced and closed on the sterling acquisition. I am very proud of our team's dedication to execution and consistently delivering results, keeping our customers at the center of everything we do. I am also excited to provide an update on our fourth quarter and full year accomplishments and to discuss our outlook for 2025. We have four key messages for today. First, we generated solid results for the fourth quarter and full year amid an uncertain macro environment. We also maintained our cost discipline to sustain robust margins within the legacy first advantage business and produce strong cash flow. Second, as we closed on our $2.2 billion strategic acquisition of sterling. Which leads me to the third point that we are underway in rolling out our updated strategy which we call FA 5.0. And as we discussed last quarter, our organization and management team have been optimized to deliver growth. With the additional scale and capabilities of Sterling and FA 5.0, we are accelerating our strategic progress. Our key strategic objectives in 2025 are to action our synergy targets, deleverage our balance sheet, successfully execute our integration plan, and accelerate our go to market strategy focused on product, technology, and innovation. We are tracking well on our synergy execution, and today we are pleased to be increasing the lower end of our targeted range with our updated net cost synergy target range of $60 million to $70 million and improvement from our previous target range of $50 million to $70 million. Over time, our synergy realization will help to stabilize and expand sterling margins. We are focused on deleveraging our balance sheet and have gotten a fast start on the sterling integration while continuing to provide our customers with the service and quality they know they can expect from us. At the same time, we are maintaining our focus on innovation in order to position our business for future growth. And fourth, we are introducing our full year 2025 guidance. We are entering 2025 in a strong business position encouraged by recent pipeline success, reducing headwinds as recent jolts data continues to normalize and feedback from our customers. That said, in view of the current macro environment, which continues to be uncertain, we are maintaining a cautiously optimistic outlook. Steven will cover our guidance and key assumptions in greater detail in the financial section shortly. We remain confident in our strategy and our position to create long-term shareholder value in 2025 and beyond. In view of the new US administration, I also wanted to share a few comments on potential policy impacts on our business. We do not have meaningful direct exposure to federal government hiring and therefore do not expect to be directly impacted by efforts to streamline federal government spending. In some respects, government efficiency efforts could potentially be a tailwind for first advantage if there are efforts to outsource and privatize work that is currently done by the government. To date, there has not been a noticeable impact from government efficiency efforts on our business. While tariffs may impact our customers and overall economic growth, we do not have any significant direct exposure to tariffs. And as a reminder, 87% of our 2024 pro forma revenues were generated in the US. Turning to slide 5 and an updated view of our enhanced profile with the addition of sterling. Our combined capabilities position us as a leader and increase our customer value proposition, offering differentiated technology platforms and a broad collection of innovative solutions across a comprehensive range of verticals. As a reminder, with the closing of Sterling on October 31, our reported fourth quarter and full year results include two months of Sterling's performance. In order to provide comparability to previous periods, we are showing first advantage and sterling on a pro forma basis with combined financial data for 2023 and 2024 throughout this presentation and plan to continue to do so in the future. In 2024 we delivered sustained profitability while managing through the sterling closing and kicking off integration. Our pro forma full year revenues were approximately $1.5 billion with $397 million in pro forma adjusted EBITDA or $458 million on a synergized basis. In 2024, our approximately 10,000 team members completed nearly $190 million sceens on behalf of our 80,000 active customers across 200 countries and territories. This includes over 2/3 of Fortune 100 companies and approximately one half of Fortune 500 companies. Our gross retention remains at approximately 96%. We now have over $900 million records in our proprietary databases, and we have over 100 integrations with applicant tracking systems and human capital management partners giving us a unique competitive advantage for the fourth quarter and full year, combined upsell, cross-sell, and new logo rates performed in line or better than Legacy, first advantage, and Sterling's historical growth algorithms. Retention rates also performed in line for both businesses. Together we had 25 enterprise bookings in the fourth quarter and 88 in the last 12 months, each with $500,000 or more of expected annual contract value, including two notably large US deals. Looking into 2025, we have been seeing our pipeline momentum continue. We have recently won a large deal with a significant retail customer in the gig economy. We were able to leverage existing relationships and trust to unlock critical business issues, drive the business to RFP, and ultimately be awarded this deal. Also in 2025, we won our largest international contract in the past years with a new logo in Australia. As you can see, our sales engine continues to deliver consistent results. Additionally, our verticalized go to market approach remains a differentiator and a key driver of our growth strategy. We offer deep subject matter expertise in our industry segments, and we use industry specific data to advise our customers on topics such as leading practices and product optimization. Our largest verticals are healthcare, transportation, and retail and e-commerce. While First Advantage has historically been more oriented to hourly workers within high volume hiring verticals, Sterling brings a strong portfolio of verticals focused on salaried workers, resulting in our pro forma revenue mix being more equally weighted between the two. Our balance across a diverse range of verticals and between hourly and hourly focused customers enables us to weather a variety of macroeconomic scenarios and makes us less dependent on any one sector or customer. On the slide, we have provided an updated view of our verticals for 2024 on a pro forma basis. During the year, we grew our footprint in healthcare and transportation as both verticals, particularly healthcare, proved themselves to be resilient through the macro and had strong upsell cross results. Our other verticals changed only modestly from the prior year with some headwinds experienced in our retail and staffing verticals. Steven will share more about the underlying dynamics shortly. Turning to 56. Since closing, we have been laser focused on executing our strategic post closed priorities, enabling enabled by our integration playbook. These priorities are focused on continuity with our customers, a smooth integration process, synergies, and deleveraging our balance sheet. We have seen early success in leveraging each legacy company's technology and processes since closing. Fundamentally, we are applying a best of breed approach on tech and product stacks to meet the needs of our customers. For example, First Advantage was recently awarded a large deal in the healthcare protocol, and we determined that Sterling's platform. Was actually best suited to this customer's requirements. So, this is the tech platform they will go on. This type of flexibility enhances our customer value proposition, offering more options for our customers and the market. We have also identified automation opportunities where one company may have automated criminal court records in a jurisdiction that the other had not yet, allowing us to simply turn on that service for all of our customers, creating synergy opportunities and expanding our combined capabilities. We are also very pleased that there have not been disruptions to customers throughout the integration process. Our executive team has communicated regularly with our large customers who have shared that they are excited to be able to benefit from the best of both worlds from first advantage and sterling. They are optimistic about our approach to integration. And what it means for their background screening programs, including improved turnaround times, new products and services, and enhanced platform functionality. They are eager to see new technology as it becomes available and experience performance improvements from our combined capabilities. We are also getting strong traction with prospects who are excited about our deeper global presence and our ability to leverage regional skills from both organizations. In addition, our increased vertical expertise is compelling for prospects who are looking for thought leadership and want to work with experts who understand their businesses. Prospects are also intrigued to hear how we will leverage our large amounts of data and how the work we are doing to innovate within verifications will benefit them. We continue to drive innovation to maintain our competitive advantage and ensure we are offering the best solutions to our customers, and we're doing all of this under our high performing culture. Our commitment to innovation supports our customers' priorities of speed, cost, and efficiency. We continue to integrate AI capabilities into our workflow, helping us increase our efficiency and provide greater customer service. By streamlining workflows and automating processes, we can leverage technology to meet business needs without increasing headcount. Our combined technologies distinguish us from the competition and are a clear competitive advantage that enables us to expand our businesses by offering a unique customer experience. And with that, I will now turn the call over to Stephen.
Steven Marks
Thank you, Scott, and good morning, everyone. Today I will provide color on our results, an update on our synergy progress and targets, and walk you through our guidance for full year 2025. I'll start with our fourth quarter results on slide 8. Please note that as we continue to swiftly execute our integration program, we plan to focus on the consolidated business, particularly with the implementation of our FA 5.0 strategy. Our fourth quarter pro forma revenues were $375 million up 0.9% year over year. Our combined business continued to face year on year base headwinds as hiring volumes continued to stabilize, with base remaining negative on a year-on-year basis. This aligned to the trends in the jolts and other data over the last number of quarters. In our legacy first advantage segment America's segment, revenues of $172 million were down 5.5% from the prior year. These results were impacted by the uncertainty among American consumers during 24, which affected our retail and transportation customers' hiring levels. As such, seasonal hiring revenues in Q4 were slightly weaker than expected and lasted for a notably shorter duration compared to prior year and our expectations. Going forward on a total company basis, we expect that our increased diversification with the broader sterling base will help mitigate seasonality impacts on our business. Our legacy first advantage international segment continued to show green shoots across all regions and performed better than we anticipated, with revenues increasing 8.9% to $24 million on a constant currency basis, Legacy first advantage international revenues were up 7.0% year over year. In our legacy sterling segment, pro forma revenues for Q4 were $181 million up 7% year over year, with a 6% contribution from the vault acquisition. These trends in the legacy sterling business largely performed in line with Legacy first advantage America's. Pro forma adjusted EBITDA for the fourth quarter was $100 million and our pro forma adjusted IATA margin was 26.7%. Down approximately 300 basis points versus the prior year. Legacy first advantage continued to drive margins of nearly 32% as we focus on maintaining our variable cost structure consistent with our historical approach, despite the base and seasonal peak headwinds I previously mentioned. Legacy sterling continued to operate at a lower margin relative to Legacy first advantage as a result of its continued shifting mix to lower margin services, its lower margin from the vault acquisition and its historical operating methodology that results in a more fixed cost approach to fulfillment than legacy first advantage. As part of our integration plans, we are working to adapt the legacy sterling business to have a more variable cost structure, including FA's historical model for fulfillment workforce management. During the fourth quarter, we also identified cost savings above and beyond our normal levers through headcount management, even while diligently integrating Sterling. Turning to full year results on slide 9, our overall annual performance was solid and closely in line with our combined company 2024 guidance ranges for reported revenues, adjusted EPEA, adjusted net income, and adjusted diluted EPS. This is further evidence that we continue to be diligent and successful at controlling what can be controlled within our business despite the uncertain macro environment and its impact on our base volumes. Total pro forma revenues were $1.5 billion up approximately 2% year over year. In our legacy First Advantage America segment for 2024, revenues of $659 million were down 2.1% from the prior year. In our legacy First Advantage International segment, revenues of $97 million were flat first the prior year. But on a constant currency basis, Legacy first advantage international revenues were $96 million or 0.7% or 0.7% year over year. In total, Legacy first advantage revenues were down 2.2%. And in our legacy sterling segment, pro forma revenues were $763 million up 6% year over year, with 6.9% growth from the vault acquisition. Pro forma adjusted EBITDA for the year with $397 million and our pro forma adjusted EBITDA margin was 26.3%, approximately 220 basis points lower year over year. This decline, as previously noted, was driven by Sterling's revenue mix towards lower margin products and the margin impact of the vault acquisition. Turning to slide 10, we are showing a detailed adjusted diluted EPS bridge from full year 2023 to full year 2024, given all of the unique moving parts. Our full year 2024 adjusted net income was $124 million. Adjusted diluted EPS was $0.02, and our adjusted effective tax rate was 24.9%. As noted, when we gave our initial 2024 guidance last year, 2024, adjusted diluted EPS growth was impacted by several of our historical capital allocation actions, including our 2023 one-time special dividend, our 2023 share repurchases, and an expiration of favorable interest rate swaps. Also, as we noted during last quarter's call, the Sterling acquisition was not expected to provide immediate adjusted diluted EPS accretion, as the sterling results were initially more than offset by the incremental interest on the transaction financing and the impact of the share dilution from the issuance of the acquisition shares. All these items were in line with our previous commentary. Over time, as we realize synergies, we continue to anticipate delivering double-digit adjusted diluted EPS secretion as mentioned in previous quarters. On slide 11, you can see how we are making great progress on actioning our synergy program. We previously communicated a goal of achieving $50 million to $70 million in run rate target synergies, which was updated from our original target of $50 million plus. Today we are again updating our target range to $60 million to $70 million of expected synergies to be actioned within two years of close. When we presented last quarter, we highlighted $10 million of synergies already actioned, and we finished 2024 at approximately $20 million and $0.20 million dollars actions representing substantial progress towards our synergy goals. Our dedicated integration management functions, led by product and operations leaders are driving the execution of our plans. As we have been actioning synergies in our integration plans, we have uncovered additional opportunities for cost savings, giving us confidence to raise the lower end of our target range today. Our current focus has been on reducing duplicative costs in our corporate and internal functions and reducing certain redundancies in our fulfillment and commercial departments, and we have been able to action these savings more quickly than previously expected. As a result, we now expect to action 50% plus of our target synergies within the first six months post-closing, a meaningful acceleration from our previous objective of achieving the same goal within the first year. On slide 12, we are showing key growth metrics for legacy first advantage and legacy sterling. Over time, both businesses have consistently delivered strong historical performance for upsell and cross-sell, new customer logos, and attrition, demonstrating our ability to manage and deliver on what we can control with the variation being driven by base. This has been true throughout 2024, including the fourth quarter. And we have been pleased that both businesses combined upsell, cross-sell, and new logo performance, as well as retention have broadly aligned with historical revenue growth rates. This was this was propelled by our go to market momentum throughout the year and ending the year with a strong pipeline, and gross retention remained healthy and stable. In the fourth quarter, revenues continued to be a headwind, with legacy first advantage impacted by weaker than expected Q4 seasonal hiring as the softer hiring peak ended or ended earlier than normal in mid-November. Legacy Sterling saw parallel headwinds as similar late Q4ba softness was seen in Legacy Sterling's America's Business. Base growth at legacy sterling has lagged legacy first advantages as legacy sterling vertical have been more impacted by the normalization of hiring patterns. We believe that when the macro environment stabilizes, our base growth will normalize towards our historical rates. Now turning to cash flow and net leverage on slide 13. Over the last 12 months, we generated adjusted operating cash flows of $165 million a 1% increase on a year over year basis as we continue to closely manage our working capital and focus on cash flow conversion with our VSOs remaining in check. Our cash balance at December 31, 2024 was $169 million finishing above our desired minimum cash level of $150 million. During the quarter we used $10 million for purchases of property and equipment and capitalized software development costs. This was $32 million for the full year. Our synergized pro forma adjusted IAA net leverage ratio at year end was 4.4 times. We remain committed to our goal of reducing net leverage towards approximately three times synergized pro forma adjusted EBITDA within 24 months post close and to our long-term net leverage target of two to three times. Moving to slide 14 in our 2025 guidance, I'll start by noting that all year over year comparisons are on a pro forma basis to allow for easy comparability. We expect 2025 total revenues in the range of $1.5 billion to $1.6 billion adjusted EBITDA of $410 million to $450 million and adjusted diluted EPS of $0.86 to $1.03. For revenue, this range represents flat to a little over 5% year over year pro forma growth. At our guidance midpoint, we expect to expand full year adjusted EBITDA margins by approximately 150 basis points. Also factored into our 2025 guidance are our current assumptions related to sustained mixed shifts within our business, primarily within the sterling segment, which do impact adjusted Ear margins. Our guidance reflects 2025 in-year realization synergies in the range of $25 million to $30 million with our focus being to accelerate our savings wherever possible. Our guidance also includes our latest view on the macro environment and labor market. While labor market broadly looks to be more stable entering 2025, we have not yet seen a return of investment hiring in our verticals. As such, our guidance reflects a prudent posture towards growth in 2025, particularly in the first half of the year. Looking at our growth algorithm in more detail, we do not expect to fully lapse prior year based declines until the middle of 2025. Therefore, our guidance is based on the expectation that base will remain a growth headwind through the middle of the year, improving sequentially and turning to neutral and then slightly positive later in the year. Said more simply, we are modelling slight to modest full year base revenue declines across our entire guidance range. With that said, we do expect continued productivity of upsell and cross sales and new logo growth consistent with historical trends. We also expect customer retention to remain in line with our strong historical performance of around 96% to 97%, even as we continue to integrate the sterling acquisition. While recently FX has not been a big headwind for our business, recent strengthening of the US dollar has led to an expectation that FX will have a slightly larger impact on our business in 2025, an important factor as we have seen our international markets stabilize and return to growth. Looking now at the quarterly phasing of our 2025 guidance, we expect Q1 year over year revenues to decline by approximately 1% to 4% and expect quarterly, year over year revenue growth to sequentially approve for the first three quarters of 2025, with the fourth quarter more on par with the third. This change in anticipated sequential and seasonal growth dynamics is a result of our sterling acquisition, the diversification of vertical exposure, and how that project over the year. We expect our Q1 adjusted IA margin to be in the mid 23% to mid 24% range, which reflects the blended impact of legacy first advantage margins historically in the high 20s and legacy sterling's margins, which have been closer to 20% during the first quarter as seasonal revenues have yet to ramp. Additionally, our pace of synergy realization is expected to drive additional sequential adjusted margin expansion during the year. Starting with Q2, we expect adjusted Eton margins to be above 28%. Overall, we believe that we are extremely well positioned to benefit when the macro environment improves. We expect Q1 adjusted diluted EPS to be between $12.15 due to the seasonality I just mentioned and the impact of the full $2.2 billion dollar acquisition financing. After Q1, we expect considerable adjusted diluted EPS improvement as revenue ramps. We recognize that this guidance implies a meaningful improvement during the year, which is primarily driven by the impacts of the sterling acquisition and our new seasonality and to a much lesser extent, the evolution of our expected macro stabilization. We expect our adjusted diluted EPS to range between the mid to low 20% to 30% to $0.30 per share for each of the last three quarters. We have also provided a summary of selected 2025 modelling assumptions in the presentation appendix. Moving to slide 15, we have provided an adjusted diluted EPS bridge, which illustrates the puts and takes from our 2024 adjusted diluted EPS to our 2025 guidance I just mentioned. This is very important to understand, as the sterling financing and share issuance have 10 months of year over year impact in 2025. Even in our projected neutral macro environment and after adjusting for the sterling acquisition items expected synergy realization in 2025 growth in investments, we expect 2025 adjusted diluted EPS expansion of over 15% at the midpoint. This sets us up well to continue expanding adjusted diluted EPS in the coming years, which is aligned to our previous messaging. With that, let me turn it back to Scott for closing remarks before we open the line for questions. Thank you, Stephen.
Scott Staples
Moving to slide 17 and a few closing comments. First, we are excited to be hosting our inaugural Investor Day on May 28. At that event, we plan to share more about our FA 5.0 strategy and update on our integration program, as well as long-term targets that will guide our business over the coming years. I hope you will be able to participate. Look for more information coming soon. Second, I would like to emphasize our consistent focus at first advantage. We continue to deliver solid results and execute on priorities. We remain focused on delivering on our value creation playbook and shaping the future of our company to better serve our customers. With that, we will open the line for questions.
Operator
Thank you. We will now begin the question-and-answer session at this time. (Operator Instructions) We'll take our first question from Shlomo Rosenbaum with Steel. Please go ahead. Your line is open.
Shlomo Rosenbaum
Hi, good morning. Thank you for taking my questions. Could you provide a little bit more detail about some of the weakness in seasonal hiring in retail and transportation, just a little bit more of part of what your clients were telling you about why it happened, the duration, and is this something that you're, is this translating into other areas at all through, the first quarter of the year, or, and then I'd like to ask you a follow up.
Scott Staples
Yes, I think I think it's a great point because this, let's call it a trend has now happened for the last couple of years where we're basically seeing is less of that of the peaks in the valleys and a little bit just more of more normalization as we go into the seasonal hiring period. And what we've seen over the last couple of years is that hiring is starting to slow down around mid-November and continues all the way through the month of December but then picks back up in January. As if we're back on to normal course. So, for the last couple of years what we've seen is, fairly slow half of November, most of December, but no impact going into Q1 as hiring then continues to ramp back up. So, we have factored that into our 2025 guidance that we expect something similar again later this year. So that is definitely factored into our guidance.
Shlomo Rosenbaum
Okay, thanks. And then just the comment that you made about the big win in the healthcare space using the sterling platform, I think what we discussed in the past was the thought that you would move clients, or incremental clients would be on the first advantage platform but using kind of the sterling front end. And I guess the question I've got is that it's great to win with the Sterling platform. Does that mean that you're going to indefinitely be supporting really the back end of Sterling for a long period of time.
Scott Staples
Yeah, so, I got to give a huge shout out to our product and tech teams for coming up with some great innovative ideas here. The whole goal of this integration with Sterling was, no disruption to customers, and I think you can see that in our retention numbers that we that we've put out, we, our retention has been in line with normal, so we are not seeing. Any client disruption as part of this acquisition and that's primarily because of the technology and product vision that our teams have created. So they have it's a very complicated in-depth thing, but I'll give you a high level here. They have come up with a very innovative way for customers to leverage the best of both worlds from both platforms. Regardless of where they are around the world and essentially the technology solutions that we're going to be recreating will allow us to tap in to both platforms and the best in breed approach from both platforms without the clients having to do any migrations. So consider this as a series of upgrades. And yes, that does mean we have to maintain both platforms but not in the same way they're being maintained today so we can. Effectively reduce our headcount and overheads in supporting of the platforms by because of the solution the tech team has come up with. So that'll continue to drive our synergies with no impact to our original plan there, but we just think this is going to be a great experience for clients and for the client's candidates. Thank you.
Operator
We'll take our next question from Andrew Steinerman with JP Morgan. Please go ahead. Your line is open.
Andrew Steinerman
Hi, I definitely heard your comments how you know flexible the client approach in post-merger. I was wondering if you're tracking a net promoter score and particularly kind of pre-merger, post-merger so that we could keep. An eye on that and also if you could go back to talking about your verified database now that you know that you have of Sterling's information in that database, could you talk about how much revenues or savings the verified database is producing.
Scott Staples
Yeah, and Andrew, we will continue. First advantage has always been a big believer in net promoter scores on not just our, customers but also their candidates' experience. So, we continue to measure that. Candidate experience we measure the onboarding experience of new logos and we measure the ongoing net promoter scores and I think we've taken it a step further because of the acquisition that we are actively in front of especially the sterling customer base on a on a regular basis, more than usual just to make sure we're hearing all of their needs and concerns and addressing things, And I will tell you they are extremely excited about this acquisition because they are now going to be able to tap into. The best of breed stuff from first advantage, which is, kind of what I was talking about with Shlomo's question. So, customers are definitely anticipating getting the great products and service from First Advantage on the Sterling platform, So, they're going to get the best of both worlds, which is going to be a great situation for them. So that's where we're pretty bullish on our retention numbers and our client satisfaction numbers on the. On the database on the verified side, you heard in my prepared remarks that our proprietary database records are now up to $900 million. The breakdown of that is that Verified is now up to $120 million and our national criminal database is 780. Interesting point about that number is that none of that increase includes the sterling data yet. We haven't, we have not we have not tapped into that yet. There are teams working on it, but we haven't used that. We haven't tapped the sterling data into the databases. The database increases are because of new third party data provider partnerships that we've formed across multiple areas, and that's allowed us to increase the size of the database, but ultimately we also will be adding the sterling data to this, but we just that'll probably be a later in the year project because it takes a long time to clean and format and move over data, but that's what the teams are working on. Great, thank.
Operator
We'll take our next question from Andrew Nicholas with William Blair. Please go ahead. Your line is open.
Daniel Maxwell
Hey guys, this is Daniel Maxwell on for Andrew today. I appreciate all the commentary on guidance and cadence and everything, maybe. On the on the top line range, do you feel that the low end of the guide embeds, some leeway for a slower than expected recovery in base growth? It seems like a fairly quick recovery that's being embedded from the lower-than-expected Q4 to the breakeven point in the second half. So maybe your thoughts there.
Steven Marks
Yeah, and Daniel, a couple things to keep in mind, as I mentioned in the remarks, across all ranges of our guidance we still expect to be negative for the year. And when you really start to break that down and sequentially, it is a little bit more fun weed to your point, but if you've been following first advantage and sterling long enough, our base decline really started 23 of 2022. So, this is kind of a three-year evolution cycle where, we start to have, the steady. Cos when we get to the back half of the year that have those three years of compounded based declines in them already, and then when you also look at, the macro data and just, kind of the stabilization cycle that's been going on, the pace of change and the hiring trend has flattened out a lot. So, when we looked at our guidance and our budget and our modelling for 2025. We feel good. It's in terms of our base range in there that we've got kind of a fairly wide range of scenarios covered. Obviously, it projects the current stabilization trend to keep going on, but as you get towards the middle of the year, you have those compounding comps, from the prior years, and then, like I mentioned in the call earlier. And then like Scott's mentioned, we've got great productivity out of pipeline, new logo, upsell cost sell, those are triggering, as they always have for both client bases and our combined client base. And as Scott just mentioned a few minutes ago, we're laser focused on retention and those 96 97% retention levels are now our norm.
Scott Staples
And then, I'll add a few things. We're entering 2025 in a very strong position with macro normalization plus strong pipeline conversion. So let's just relook at some of the things we talked about in the opening script. If you look at a year ago, Q4 2023, stand-alone first advantage, landed 10. New winds with ACV of 500k or more. The combined sterling first advantage team landed 25 wins in Q4, and we're having very, a very good start from a pipeline standpoint of 2025, which, gives us confidence in the guidance. In fact, we did mention the large healthcare win which Shlomo asked about, but in the script, we also talked about two other very large US wins which were not that healthcare win. These are two other ones. Those two, wins have a potential to be both of them to be TOP10 customers of first advantage, and probably it'll take a few months to get revenue going, but we expect that revenue to start coming in second half. So again, when you can start a year as fast as we have from a sales and pipeline standpoint. And you can land two deals that potentially could be TOP10 customers for you, that gives us really strong confidence in the second half of the year.
Daniel Maxwell
Great, super helpful. And then if I can squeeze in one follow up maybe more broadly, have you guys gotten any significant insights from customer conversations so far in 2025 and any changes you're seeing to package density or more broadly any changes to client behavior sort of post selection.
Scott Staples
Yeah, we're probably talking to customers more now than we ever did, because as we've said a couple times, our laser focuses on customer retention, and we want to make sure that the communication is. Crystal clear about our product strategy, about our platform strategy, and that how it'll benefit our customers. So yes, we are having more discussions with our customers, and I assume your question is more around what are we hearing from the hiring side and we are hearing normal hiring. We are hearing that, customers are planning on, normal hiring. But again, it's the new normal hiring. It's not the, post pandemic hiring, it's the pre-pandemic hiring. It's, normal cycles. They're anticipating, normal growth. And I don't think the administration has had any impact on their hiring strategies because there's nothing that's really been rolled out from the new administration yet, so we're not hearing anything negative or even positive about that. It's really kind of a non-event in our customers' eyes right now and until the government rolls out something, then we'll obviously react.
Daniel Maxwell
Great, thanks.
Operator
We'll take our next question from Maova Patnier with Barclays. Please go ahead. Your line is open.
Manav Patnaik
Hi, good morning. This is Ronan Kennedy. I'm from Manna. Thank you for taking my question. Can I just confirm with the acceleration of the realization for synergies, where the bulk of those are coming from, and if the actions going forward within, the target areas of internal ops fulfillment, product and commercial have changed or the expectation for real realization of benefits there.
Steven Marks
Yeah, Ronan, I mean the acceleration almost was across the board, we talked last call, our initial focus was on those kind of public company costs, dedu de duping executive leadership, some of those baseline M&A 101 type items. As a management team, we kind of challenged ourselves to find avenues to accelerate those synergies and also just it helps with some of the internal integration efforts. So, quite literally it contributed almost from every line of the P&L. We got at the actions, it was a lot of our identified playbook. That's why we didn't take the full range up. We were just able to get confidence in some of the programs we had and then TRY to accelerate as many of them as we could either into 24 or earlier into 25, which is why we know, we now think we're over 50% actioned by the six-month mark. That was the year that was the one-year mark when we had talked previously. I mean you don't get there by just one by one function contributing. It was across all of our work streams.
Manav Patnaik
Got it thank you. That's helpful. And then I guess more broadly speaking with regards to the sterling acquisition and integration progress thus far, that's positive development with regards to acceleration of the synergies. Any other positive developments or surprises, whether it's enhanced customer value prop, the innovation, the product, the resilience, seasonality, and then anything that has been potentially an unpleasant surprise or your kind of learning versus your expectations.
Scott Staples
Yeah, I think, listen, it's been a big effort. We've got a lot of people working on this and obviously, we closed on Halloween, so we really couldn't get under the hood until November first. I'd say the biggest, pleasant surprise by far has been the culture match. It's just amazing how well these teams are working together, especially on the go to market side and on the product side and operation side. Those are three big areas. Where the teams are working so well together and it's really because there's a culture match. I think that the biggest thing that can derail any M&A is cultures that don't match and we've got two high performing cultures that are working, really well together. We're also finding a lot of good, like I would call them nuggets on the product side and on the API integration sides with data. So again, this goes back to the best of breed comment where we have found that Sterling was doing some good things on the tech and product side. Obviously first advantage is doing a lot of great things on the tech product and automation side. And what we'll be able to do is turn on those things for legacy first advantage customers that we feel that Sterling was doing a good job on and legacy sterling customers for the things that first advantage. A good job on and these will all be behind the scenes type of upgrades that client really won't see but will feel and they'll feel in output in terms of faster turnaround times, higher quality, etc. So that's why the clients are so excited about, where this tech journey can bring them because they're seeing. The best of both world products that are platforms that are out there and they're going to have they're going to start tapping into these and we're already rolling these out. These are things that you know we've already started rolling out to legacy sterling clients and legacy first advantage clients and you know we have, product road maps where you know we're going to be rolling out nice upgrades almost monthly now so clients will really start to feel and see this. On the negative side, not really, obviously, the big concern is margins, and you know that's still going to, drag a bit for us, but we've got a good plan and obviously you guys know our track record on margins. I mean look at Q4 alone, it was down from a base standpoint, but we delivered 32%. Even a margin on legacy first advantage. So, we know how to improve margin, and we've just got some work to do on it, but we've got a great plan in place.
Manav Patnaik
Thank you, appreciate it.
Operator
We'll take our next question from Jeff Silber with BMO Capital Markets. Please go ahead. Your line is open.
Jeff Silber
Thank you so much. Just wanted to go back to the synergy. You talked about first advantage being more of a variable model than what you've seen in Sterling. Can you give some examples of, how you're doing that, what you're doing from Sterling's legacy business to change that?
Scott Staples
Yeah, Jeff, and welcome to the calls. Certainly, first advantage we've always looked at our fulfillment and operations functions as having a highly variable nature to them. Our third-party cost of sales, and that's fairly consistent with sterling, are almost 100% volume variable, but certainly on the labor side we have a very flexible staffing approach where, we do our modelling on. And then staff to a metric related to that and then use overtime variable shifts, weekends, etc. To modulate the available labor to the inbound orders in a pretty one to one matching ratio. I think a lot of others in our industry and Sterling included, had a little bit more of a fixed cost mindset where they staff to a kind of an underlying assumption. And then it was a fixed cost. They had 40 hours per week per employee, if you will, and we've looked at some of that that margin there, that tail end of the of the base volumes as we can use that variable function of our labor and that workforce management, it takes some time to adapt and kind of put the right tracking tools and forecasting tools and then planning tools in place, but that's been a focus. Of the operations team since day one, we're called 120 days in and we're getting very close to having some of those methodologies across the board. So that's how we handle it from a staffing standpoint. And then, I think the other big margin difference between first advantage and sterling has just been some of the shift in mix and as we've talked about a couple times, and this is coupled into our integration and synergy program. Sterling with their vault acquisition had their legacy, drug and healthcare wellness program. They had the one they acquired from Vault. First Advantage has all of that in our wellness platform as well. So, part of our synergy and integration program is harmonizing that down instead of having three of everything effectively to get to one best in class. so Between instilling that workforce management and then kind of duplicating the fulfillment of some of those wellness which are the lower mix services that we've been referring to, lower margin mix that we've been referring to, that's all on our game plan for 2025 and part of that, 150 basis point lift up at the margin at the midpoint.
Steven Marks
And Jeff, let me add that, we'll, we also have a, plan to, reduce headcount on the sterling side through automation. First advantage was, highly automated and, as we again roll out that best of breed automation to legacy sterling clients that will allow us to give some flexibility on the headcount side and a great example of that is, I think you guys have heard, for over a year now about our click chat call functionality on customer care. And Sterling didn't doesn't have that and so we'll be rolling that out, in the very near term to legacy Sterling customers which will give them the advantage of using chat, AI chat to get order status and things like that which will allow us to, rationalize some of the headcount on that side and as we roll out, even, things like agentic AI, we expect, even, further synergies on the headcount side. So, we're feeling pretty good about how we can, optimize, both organizations headcount with automation.
Jeff Silber
Right, that's really helpful. And then in your press release, you say the expected dates will remain a headwind through the middle of the year. Is it just that the comps get easier in the back half of the year? Are you expecting any major changes from a macro perspective? Any color would be great.
Scott Staples
Yeah, I mean, Jeff, that the fundamentals of it is a, you've got easier comps and as I mentioned a little while ago, right, it's your third year of compounded base declines when you get to the middle of the year. So that certainly is a major factor. And then also it's just there has been a broad stabilization trend and we're just seeing that start to play out, when you look at the hiring volumes and some of the other metrics, those have all been declining now for a couple of years, but the pace of decline has flattened out a lot over the last three to six months. And we kind of expect that normalization and stabilization to continue and then once you get to the middle of the year, you've got that stabilization trend compounded with those easier comps is kind of what drives it. But like I said a couple of times, when you zoom out and look at the year as a total, we still accept, in all parts of our range face to be negative.
Steven Marks
The only thing I would throw in there too is, that the sales engine has been, firing at all cylinders for a while now, so we will be, we'll get some revenue conversion, that things that go from new logo or upsell cross sale into base, that will start helping us, in the latter half of the year as well.
Jeff Silber
All right, thanks so much.
Operator
And as a reminder, if you'd like to ask a question today, (Operator Instructions) We'll take our next question from Kyle Peterson with Needham. Please go ahead. Your line is open.
Kyle Peterson
Great, good morning, guys. Thanks for taking the questions. Wanted to start off on, some of the expectations for, vertical performance this year. I know there's some. Some moving pieces and different mix, especially between, legacy first advantage and sterling. So, I guess any color, or any assumptions embedded in your guidance for whether it's vertical, so you expect to be particularly strong or bigger headwinds, in 2025, I think would be really helpful.
Steven Marks
Yeah, Kyle, I think not a lot of specific verticals to call out from a base perspective because you know that normalization trend and now that we're kind of hitting year three, it's kind of made its way through all of them. I know you know in the past on the legacy FA side we've highlighted the strength of retail and transportation, but like Scott mentioned not that long ago, the updated assumptions and trends around peak are certainly baked into our guidance, and I think that, guidance pretty well now has its. And across all verticals that stabilization trend, I think the call out that I would say and like Scott just mentioned is, the pipeline and momentum and go to market, we highlighted the deal in retail, the deal in health care that Scott's talked about. Those will help drive strengthen those, obviously, but from that controllable revenue standpoint, that upsell, cross sell new logo, and then retention trends are strong across all verticals.
Scott Staples
And also, Kyle, we expect that international rebound will continue. You know what we've seen out of international in the last two quarters has been very encouraging. So we expect international, even though even though it's only 13% of the business, we expect that to continue to rebound nicely. Got it. That's really helpful, and I guess just a follow up and kind of switching over into the balance sheet and leverage, appreciate all the color and the margins are solid and should get better as the year progresses. How are you guys thinking about, the pace of, deleveraging and, priorities here whether it's just, building cash and scaling you or you guys looking at, potentially. Pre-paying some debt, like, how should we kind of think about, your plans for the balance sheet, over the next, few quarters here. Yeah, well, certainly, Kyle, to start right, we do have some, a little about $5 million mandatory prepayments that we'll make on schedule at the end of every quarter that starts here in March. So, there'll be there's about $22 million of that, baked into our model and should be baked into assumptions at a minimum, we do expect, free cash flow, to be positive obviously in the year somewhere in the $55 million to $85 million dollar range is based on our guidance. And then when you kind of convert that over to leverage, there will be some deleveraging, but the synergy programs, even if we've got half of those executed midway through the year, let's call it 2026 will be the real year of deleveraging because you'll have the full year run rate benefit of those in your actual results and in your cash flow, but there will be some modesty leveraging in 2025.
Kyle Peterson
Okay. Appreciate all the color and thanks for taking the questions guys.
Operator
We'll take our next question from Scott Wertzel with Woolf Research. Please go ahead. Your line is open.
Scott Wurtzel
Hey, good morning, guys. Thank you for taking my questions. I just wanted to touch on the acceleration and growth on the legacy sterling upsell cross sale, and if you can touch on what has driven that over the last couple of quarters and then if there is anything, on their go to market side that they're executing on that you may think you can maybe fold into the FA sales force to, maybe realize some incremental, upsell, cross sale acceleration growth on your side as well. Thanks.
Steven Marks
Yeah, so Scott, mechanically on the on the legacy sterling side they had a couple larger upsells. I think they announced it the last time they did earnings, but it was the end of 2023 that went live in 2024 that was on their healthcare spaces and in some of those medical services that was their largest ever upsell. So obviously we got the full year. Benefit of that essentially in their 2024 results and I'll let Scott give some more color on in a second, but the Sterling, productivity out of frankly the entire sales force, including the Sterling team, has been phenomenal. We've got, even if you look at the more recent success, 25 enterprise bookings in Q4. If you look at last year's stand-alone FA was only 10. So not only did the transaction not distract the teams from productivity, but we've actually outperformed the prior year, if you will. I mean you just double them up from kind of the relative scale. So I think, the vault acquisition they did, while the margins aren't what we would desire, it gave Sterling a couple new avenues to cross sell into their base, and they've done a really nice job of executing on that plan.
Scott Staples
Scott, the only thing I would add is, as I mentioned earlier, especially the go to market teams are working extremely well together. It's almost like, we've been together for years now, not months, and I think, one, it's important to talk about numbers like 25 wins last quarter and obviously a great start to the year. So, the numbers are significant. But what's more important is that that shows that there's no hesitation in the market about this acquisition, that new logos are still coming to us and actually now maybe are coming to us at an accelerated rate because of The combined entity, the tech story, the best of breed story that's out there, the deep vertical story that we've got. So, we're obviously encouraged by the numbers themselves, but what's more important is that the sentiment in the in the new logo space, is certainly in favor of the merger.
Scott Wurtzel
Yeah, that's super helpful. And then just as a quick follow up on guidance, I know you're orienting towards the pro forma growth, but just wondering if there's any color you can give on your expectations for legacy first advantage growth for the year. Thanks
Steven Marks
Yeah, I mean, largely, Scott, I mean the two segments of the two, historical businesses are relatively in line, as I mentioned, we're kind of expecting the historical growth algorithms upsell, cross sell, new logo and retention to be in line. Candidly, like you've heard the story Scott mentioned, the lines get a little blurred because, there's a pipeline op. That developed out of legacy first advantage that the legacy sterling, front end platform may be the best solution, and we've had situations where the opposite is true too. So that's kind of why we're starting to look at things on a consolidated basis because it's we're able to leverage our combined strengths to impact the consolidated customer base versus kind of looking at the businesses and, as two stand-alone but I would, just looking at the trends, largely, the base trends are in line and, new logo cross sell, between the two legacy businesses are largely in line. There's nothing distinct between the two that makes you say one's going to completely perform differently than the other.
Scott Staples
I would just add that you know I think it's important to note we're not thinking that way anymore. I think what what's given us a lot of success in the early days of this integration is to not think about legacy first advantage and legacy sterling. In fact, those are words we don't use anymore internally. We'll use them with you today because obviously there's financial things we need to separate, but we don't say those words anymore internally. We're operating as one company. So, I think when you look at, what's going to happen in these businesses, we see it as one business going forward and that's you can also see in our arch structures and if you look at our go to market team, for example, it's about 50/50 sterling leaders, first advantage leaders, and you know we've got sterling leaders now running first advantage accounts and first advantage leaders running sterling accounts. It's one company going forward. It's this new co mentality that has really galvanized the team and has given us a lot of momentum. So I appreciate the question, but I just think it's important to note that culturally and organically and structurally we are not thinking legacy anything anymore.
Scott Wurtzel
Got it. Thanks, Chris.
Operator
And there are no further questions on the line at this time. I'll return the programs to our speakers for any closing remarks.
Scott Staples
Well, listen, I want to thank everybody for joining the call today. Thanks for the continued support and the first advantage story. Look forward to connecting. Take care.
Operator
Thank you all for joining us today and thank you for your participation. This concludes the first advantage; fourth quarter and full year 2024 earnings conference call and webcast. At this time, you may disconnect your line and have a wonderful day.
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5 hours ago
- Business Wire
Comtech Announces Financial Results for Third Quarter of Fiscal 2025
CHANDLER, Ariz.--(BUSINESS WIRE)--June 9, 2025-- Comtech Telecommunications Corp. (NASDAQ: CMTL) ('Comtech' or the 'Company'), a global communications technology leader, today reported financial results for its third quarter ended April 30, 2025. Consolidated Financial Results Net sales of $126.8 million Gross margin of 30.7% Operating loss of $1.5 million and net loss attributable to common shareholders of $14.5 million Adjusted EBITDA (a Non-GAAP measure) of $12.6 million, or 9.9% Net bookings of $71.0 million, representing a book-to-bill ratio of 0.56x (as described below, gross bookings during the third quarter were $107.4 million, representing a book-to-bill ratio of 0.85x) Funded backlog of $708.1 million and revenue visibility of approximately $1.2 billion GAAP cash flows provided by operations of $2.3 million Ken Traub, Chairman, President and CEO, stated: 'We are pleased to report that our transformation plan is gaining traction and notable progress is already evident in our improved performance. In the third quarter, we secured a $40 million capital infusion that enabled us to re-negotiate terms with our senior secured lenders, which not only waived prior covenant breaches but also provided for more financial flexibility going forward. In addition, we have implemented measures to align accountability throughout the organization, improve operational efficiency, streamline our product lines, increase gross margins and reduce administrative costs. With a more targeted product-market focus, we have strengthened customer relationships and notched important new business wins. Nevertheless, we recognize Comtech has long-standing and lingering challenges, and while we have made significant progress, our transformation is still in the early innings. I am grateful to our entire dedicated team as well as all of our stakeholders for their loyalty, perseverance and contributions in helping us on the journey in building a strong, successful future for Comtech.' Third Quarter Fiscal 2025 Consolidated Results Commentary Consolidated net sales were $126.8 million in the third quarter, a decrease of 1.0% compared to the prior year period and an increase of 0.2% sequentially from last quarter. Net sales in the Terrestrial and Wireless Networks ('T&W') segment were higher compared to the prior year period due to changes in products and services mix, including approximately $3.0 million of incremental NG-911 services revenue in the more recent period due to reaching an agreement with a statewide customer to retroactively invoice for certain recurring services provided in the past. Net sales in the Satellite and Space Communications ('S&S') segment were lower compared to the prior year period due to decreased net sales of troposcatter solutions to the U.S. Marine Corps and U.S. Army, as both contracts wind down as anticipated. This was offset in part by higher net sales of SATCOM solutions, including VSAT and similar equipment sales to the U.S. Army and satellite ground infrastructure solutions. Consolidated gross profit was $38.9 million, or 30.7% of consolidated net sales, in the third quarter, in line with the prior year period gross profit of $39.0 million, or 30.4%. The third quarter gross profit is a sequential increase from the $33.7 million, or 26.7%, reported in the immediately preceding quarter. The sequential improvement is primarily due to a more favorable sales mix and production efficiencies, as well as the inclusion of the incremental NG-911 services revenue discussed above in which most of the expenses were previously incurred. Consolidated operating loss was $1.5 million in the third quarter, compared to an operating loss of $3.5 million in the prior year period. Operating loss improvement from the prior year period is primarily the result of cost reduction initiatives which have reduced operating expenses. Operating loss in the third quarter significantly improved from the $10.3 million operating loss reported in the second quarter. The sequential improvement in the more recent quarter is due to the above improvements in gross profit and the benefit of cost reduction initiatives, lowering the Company's overall operating expenses. Operating loss in the more recent period includes, among other things: $5.0 million of amortization of intangibles; $4.3 million of restructuring costs (mainly at the parent level); $1.2 million of amortization of stock-based compensation; and $0.8 million of CEO transition costs. Consolidated net loss attributable to common shareholders was $14.5 million in the third quarter, compared to net loss attributable to common shareholders of $1.0 million in the prior year period and net loss attributable to common shareholders of $22.4 million in the immediately preceding quarter. In addition to those items discussed above, and as more fully discussed in the Company's SEC filings, net loss attributable to common shareholders in the more recent period was impacted by higher interest expense, changes in the estimated fair values of derivatives and warrants, the write-off of deferred financing costs and debt discounts and accrued dividends related to the Company's Convertible Preferred Stock. Consolidated Adjusted EBITDA (a non-GAAP measure) was $12.6 million in the third quarter, compared to Adjusted EBITDA of $11.9 million in the prior year period and Adjusted EBITDA of $2.9 million in the immediately preceding quarter. The improvements in Adjusted EBITDA are due to the factors and initiatives described above. Consolidated net bookings were $71.0 million in the third quarter, a decrease of 30.2% and 10.5%, respectively, compared to the prior year period and immediately preceding quarter. The book-to-bill ratio in the more recent quarter was 0.56x. Consolidated net bookings reflect a $36.4 million debooking related to the low margin U.S. Army GFSR contract that was protested by and ultimately awarded to the incumbent in May 2025; gross bookings for the third quarter, excluding such debooking, were $107.4 million, an increase of 5.6% and 35.3%, respectively, compared to the prior year period and immediately preceding quarter, representing a quarterly book-to-bill ratio of 0.85x. The reduction in bookings reflects, in part, a more focused product positioning and sales approach. Consolidated backlog was $708.1 million as of April 30, 2025, compared to $763.8 million as of January 31, 2025 and $798.9 million as of July 31, 2024. Revenue visibility, measured as the sum of funded backlog and the total unfunded value of certain multi-year contracts, was approximately $1.2 billion at the end of the third quarter. GAAP cash flows from operations were $2.3 million in the third quarter, an improvement from both the prior year period's cash outflows of $3.8 million and the prior quarter's cash outflows of $0.2 million, and are due primarily to the combination of the improvements in GAAP operating performance, as described above, together with improved working capital management which includes progress toward completion of contracts that are accounted for over time (that previously led to high levels of unbilled accounts receivable), including related shipments, billings and collections from customers. Satellite and Space Communications ('S&S') Segment Commentary S&S net sales were $67.6 million in the third quarter, a decrease of 5.3% compared to the prior year period and 8.3% sequentially from last quarter. Compared to the prior year period, S&S experienced lower net sales of troposcatter solutions to the U.S. Marine Corps and U.S. Army as those two contracts wind down as anticipated, offset in part by higher net sales of SATCOM solutions (including VSAT and similar equipment sales to the U.S. Army and satellite ground infrastructure solutions). Sequentially, S&S experienced lower net sales of troposcatter solutions to the U.S. Marine Corps and U.S. Army, offset in part by higher net sales of SATCOM solutions (primarily satellite ground infrastructure solutions). The S&S segment is executing on initiatives to grow sales of next generation products, improve gross margins and reduce operating expenses. With recent strategic wins in digital satellite communication infrastructure, resilient communications programs and multi-orbit connectivity, the S&S segment is capitalizing on its differentiated technologies and extensive customer relationships to develop new vectors for growth. As part of the Company's commitment to improve operational discipline, Steve Black recently joined the S&S leadership team from General Dynamics as the new segment Chief Operating Officer reporting to Daniel Gizinski. S&S operating income was $2.7 million in the third quarter, compared to operating income of $2.8 million in the prior year period and $1.2 million in the immediately preceding quarter. S&S operating income in the third quarter was impacted by $0.9 million of restructuring costs, compared to $0.6 million and $1.4 million, respectively, in the prior year period and immediately preceding quarter. The sequential increase in quarterly operating income primarily reflects lower selling, general and administrative expenses (due to cost reduction actions), partially offset by lower net sales and gross profit. These cost reductions represent the results of actions that have been implemented to rationalize product lines and streamline the organization, which in addition to generating cost savings, have helped to improve accountability at the site level and enhance focus on priority products, production and customer commitments. S&S net income was $2.9 million for the third quarter, compared to a net income of $1.8 million in the prior year period and $1.6 million in the immediately preceding quarter. S&S Adjusted EBITDA was $5.7 million in the third quarter, compared to Adjusted EBITDA of $7.2 million in the prior year period and $4.7 million in the immediately preceding quarter. Compared to the prior year period, Adjusted EBITDA reflects lower net sales and gross profit (both in dollars and as a percentage of related segment net sales), offset in part by lower selling, general and administrative expenses and research and development expenses. The sequential increase in Adjusted EBITDA primarily reflects lower selling, general and administrative expenses, offset in part by lower net sales and gross profit. S&S book-to-bill ratio for the third quarter was 0.26x. Excluding the aforementioned $36.4 million debooking associated with the U.S. Army GFSR contract, the segment's book-to-bill ratio was 0.80x. This ratio compares to 0.85x in the prior year period and 0.64x in the second quarter. The reduction in bookings reflects, in part, a more focused product positioning and sales approach. Key S&S contract awards and product milestones during the third quarter included: Completed initial deliveries of next generation VSAT systems to a strategically significant allied Navy partner, an important step for a comprehensive fleet modernization program that includes ships, submarines and ground-based stations – deliveries are expected to continue over a two-year period; $8.5 million in aggregate orders from three commercial customers for high-power amplifiers and frequency converters for use in airborne related applications; Incremental funding of approximately $6.8 million for continued, ongoing training and support of complex cybersecurity operations for U.S. government customers; Additional funding of approximately $5.8 million from a major U.S. prime contractor in support of NASA's Orion Production and Operations Contract ('OPOC'), commonly known as the Artemis project; Approximately $5.0 million in funded orders from a long-time international customer for the procurement of ongoing maintenance and support services related to long-range missile and rocket launch tracking systems; and In excess of $3.6 million in funded orders calling for the supply of VSAT equipment and related services for the U.S. Army. Terrestrial & Wireless Networks ('T&W') Segment Commentary T&W net sales were $59.2 million in the third quarter, an increase of 4.6% and 12.0%, respectively, compared to the prior year period and immediately preceding quarter. Compared to the prior year period, as well as sequentially, T&W experienced higher net sales of next-generation 911 ("NG-911") services and location-based solutions, offset in part by lower net sales of call handling solutions. Third quarter net sales and gross profit benefited from approximately $3.0 million of incremental NG-911 services revenue due to reaching an agreement with a statewide customer to retroactively invoice for certain recurring services provided in the past. Key growth drivers for the T&W segment are expected to include customer upgrades to next-generation core services, new cloud-based emergency response products and increasing interest from international carriers for 5G location technologies. T&W operating income was $8.4 million in the third quarter, compared to operating income of $5.7 million in the prior year period and operating income of $3.4 million in the immediately preceding quarter. Compared to the prior year period, as well as sequentially, the increase in quarterly operating income primarily reflects higher net sales and gross profit, both in dollars and as a percentage of related segment net sales and including the NG-911 services revenue discussed above in which most of the expenses were previously incurred, offset in part by higher selling, general and administrative expenses and research and development expenses. T&W net income was $8.6 million in the third quarter, compared to net income of $5.3 million in the prior year period and $3.4 million in the immediately preceding quarter. T&W Adjusted EBITDA was $13.9 million in the third quarter, compared to Adjusted EBITDA of $11.3 million in the prior year period and $8.9 million in the immediately preceding quarter. Compared to the prior year period, as well as sequentially, Adjusted EBITDA reflects those factors discussed above. T&W book-to-bill ratio in the third quarter was 0.91x, compared to 0.72x in the prior year period and 0.61x in the second quarter. Key T&W contract awards and product milestones during the third quarter included: A new contract, valued at over $27.0 million during the initial five-year term, for statewide NG-911 services for a Southeastern state; Various funded orders totaling $9.0 million for wireless location-based messaging services; Over $2.5 million of initial funding from a new international customer for location-based messaging services; More than $2.5 million of incremental funding for an existing NG-911 customer in a Midwestern state; Various funded orders, aggregating $1.4 million, primarily for location and maintenance and support services for a large wireless carrier in the U.S.; and Additional funding from a Mid-Atlantic state for ancillary network and call handling services. Additionally, T&W announced that it is nearing the completion of the development of its latest NG-911 call handling solution, which features a new architecture leveraging cloud and AI capabilities and designed to serve first responders in the U.S., Canada and Australia even better. The Company anticipates launching its revolutionary new product at this year's upcoming National Emergency Number Association ('NENA') conference. Cost-Savings and Profit Improvement Initiatives Comtech continues to execute on its transformation plan which includes a thorough review of processes, product lines, staffing levels and cost structures to implement actions to reduce costs, enable a more efficient and effective organization and improve the Company's cash conversion cycle. Comtech has ceased manufacturing operations in the U.K. More than 70 products within the S&S segment have been discontinued, and the Company is completing the final deliveries of outstanding orders for these discontinued products over the next few months. Further, the Company has reduced its global workforce by approximately 15% since July 31, 2024, which represents approximately $33.0 million in annualized labor costs. Over the course of the nine months ended April 30, 2025, severance associated with such actions approximated $2.7 million (primarily within selling, general and administrative expenses). The Company continues to evaluate additional opportunities to improve operational efficiency, reduce costs and improve profitability. While the Company continues to invest in R&D, it is obtaining customer funding for research and development to adapt its products to specialized customer requirements. During the third quarter, customers reimbursed the Company $5.9 million in connection with R&D efforts. Such amount is in addition to the $4.4 million of Comtech funded R&D reported in the third quarter of fiscal 2025. This customer-funded R&D not only offsets the Company's expenditures, but helps to ensure that R&D expenditures are aligned with customer and market demand. Capital Structure and Liquidity As previously disclosed on March 3, 2025, the Company amended its Credit Facility and Subordinated Credit Facility to, among other things, waive existing breaches under the facilities, and suspend testing of the Net Leverage Ratio and Fixed Charge Coverage Ratio covenants until the quarter ending on October 31, 2025. As of June 6, 2025, Comtech's available sources of liquidity approximate $27.3 million, consisting of qualified cash and cash equivalents and the remaining available portion of the committed Revolver Loan. At both April 30, 2025 and June 6, 2025, total outstanding borrowings under the Credit Facility were $168.0 million, including $23.4 million drawn on the Revolver Loan. As of April 30, 2025, total outstanding borrowings under the Amended Subordinated Credit Facility were $65.0 million (excluding accreted interest and make whole adjustments), and the liquidation preference of the Company's outstanding convertible preferred stock was $199.7 million (excluding potential increases in the liquidation preference and other obligations that could be triggered by, among other things, breaches of covenants, asset sales and/or change in control of the Company). Conference Call and Webcast Information Comtech will host a conference call with investors and analysts on Monday, June 9, 2025 at 5:00 pm Eastern Time. A live webcast of the conference call will be accessible on the Investor Relations section of Comtech's website at Alternatively, investors can access the conference call by dialing (800) 225-9448 (primary) or (203) 518-9708 (alternate) and using the conference I.D. of 'Comtech.' A replay will be available through Monday, June 23, 2025, by dialing (800) 934-2123 or (402) 220-1137. About Comtech Comtech Telecommunications Corp. is a leading provider of satellite and space communications technologies; terrestrial and wireless network solutions; Next Generation 911 ('NG-911') and emergency services; and cloud native capabilities to commercial and government customers around the world. Through its culture of innovation and employee empowerment, Comtech leverages its global presence and decades of technology leadership and experience to create some of the world's most innovative solutions for mission-critical communications. For more information, please visit Cautionary Note Regarding Forward-Looking Statements Certain information in this press release contains, and oral statements made by the Company's representatives from time to time may contain, forward-looking statements. Forward-looking statements can be identified by words such as: "anticipate," "believe," "continue," "could," "estimate," "expect," "future," "goal," "outlook," "intend," "likely," "may," "plan," "potential," "predict," "project," "seek," "should," "strategy," "target," "will," "would," and similar references to future periods. Forward-looking statements include, among others, statements regarding expectations for its strategic alternatives process, expectations for further portfolio-shaping opportunities, expectations for other operational initiatives, the intended use of proceeds from the Credit Facility and Amended Subordinated Credit Facility, expectations for completing further financing initiatives, future performance and financial condition, plans to address its ability to continue as a going concern, the plans and objectives of management and assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under its control which may cause actual results, future performance and financial condition, and achievement of plans and objectives of management to be materially different from the results, performance or other expectations implied by these forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or the Company's good faith belief with respect to future events, and is subject to risks and uncertainties that are difficult to predict and many of which are outside of the Company's control. Factors that could cause actual results to differ materially from current expectations include, among other things: the outcome and effectiveness of the aforementioned strategic alternatives process, further portfolio-shaping opportunities, other operational initiatives, and the completion of further financing activities; its ability to access capital and liquidity so that the Company is able to continue as a going concern; its ability to implement changes in executive leadership; the possibility that the expected synergies and benefits from strategic activities will not be fully realized, or will not be realized within the anticipated time periods; the risk that acquired businesses will not be integrated successfully; impacts from, and uncertainties regarding, future actions that may be taken by activist stockholders; the possibility of disruption from acquisitions or dispositions, making it more difficult to maintain business and operational relationships or retain key personnel; the risk that the Company will be unsuccessful in implementing a tactical shift in its Satellite and Space Communications segment away from bidding on large commodity service contracts and toward pursuing contracts for niche products and solutions with higher margins; the nature and timing of receipt of, and performance on, new or existing orders that can cause significant fluctuations in net sales and operating results; the timing and funding of government contracts; adjustments to gross profits on long-term contracts; risks associated with international sales; rapid technological change; evolving industry standards; new product announcements and enhancements; changing customer demands and/or procurement strategies and ability to scale opportunities and deliver solutions to current and prospective customers; changes and uncertainty in prevailing economic and political conditions (including financial and capital market conditions), including as a result of Russia's military incursion into Ukraine, the Israel-Hamas war and attacks in the Red Sea region or any tariff, trade restrictions or similar matters; changes in the price of oil in global markets; changes in prevailing interest rates and foreign currency exchange rates; risks associated with legal proceedings, customer claims for indemnification, and other similar matters; risks associated with obligations under its credit facilities; risks associated with large contracts; risks associated with supply chain disruptions; and other factors described in this and other Company filings with the Securities and Exchange Commission. However, the risks described above are not the only risks that the Company faces. Additional risks and uncertainties, not currently known to the Company or that do not currently appear to be material, may also materially adversely affect its business, financial condition and/or operating results in the future. The Company describe risks and uncertainties that could cause actual results and events to differ materially in the ' Risk Factors, ' ' Management's Discussion and Analysis of Financial Condition and Results of Operations ' and ' Quantitative and Qualitative Disclosures about Market Risk ' sections of its SEC filings. The Company does not intend to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by law. Appendix: COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) April 30, 2025 July 31, 2024 Assets Current assets: Cash and cash equivalents $ 28,434,000 32,433,000 Accounts receivable, net 151,472,000 195,595,000 Inventories, net 77,691,000 93,136,000 Prepaid expenses and other current assets 17,063,000 15,387,000 Total current assets 274,660,000 336,551,000 Property, plant and equipment, net 44,462,000 47,328,000 Operating lease right-of-use assets, net 31,177,000 31,590,000 Goodwill 204,625,000 284,180,000 Intangibles with finite lives, net 178,148,000 194,828,000 Deferred financing costs, net 1,850,000 3,251,000 Other assets, net 16,222,000 14,706,000 Total assets $ 751,144,000 912,434,000 Liabilities, Convertible Preferred Stock and Stockholders' Equity Current liabilities: Accounts payable $ 27,188,000 42,477,000 Accrued expenses and other current liabilities 59,162,000 62,245,000 Current portion of credit facility, net 148,882,000 4,050,000 Current portion of subordinated credit facility, net 65,471,000 — Operating lease liabilities, current 7,589,000 7,869,000 Contract liabilities 64,386,000 65,834,000 Interest payable 5,000 1,072,000 Total current liabilities 372,683,000 183,547,000 Non-current portion of credit facility, net — 173,527,000 Operating lease liabilities, non-current 29,581,000 30,258,000 Income taxes payable, non-current 1,866,000 2,231,000 Deferred tax liability, net 5,763,000 6,193,000 Long-term contract liabilities 20,186,000 21,035,000 Warrant and derivative liabilities 31,564,000 5,254,000 Other liabilities 3,996,000 4,060,000 Total liabilities 465,639,000 426,105,000 Commitments and contingencies Convertible preferred stock, par value $0.10 per share; authorized and issued 178,181 shares at April 30, 2025 (redemption value of $199,661,000 which includes accrued dividends of $1,486,000) and authorized and issued 171,827 shares at July 31, 2024 (redemption value of $180,076,000, which includes accrued dividends of $1,341,000) 170,072,000 180,076,000 Stockholders' equity: Preferred stock, par value $0.10 per share; authorized and unissued 1,821,819 and 1,828,173 shares at April 30, 2025 and July 31, 2024, respectively — — Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 44,395,660 and 43,766,109 shares at April 30, 2025 and July 31, 2024, respectively 4,440,000 4,377,000 Additional paid-in capital 567,647,000 640,145,000 Retained (deficit) earnings (14,805,000 ) 103,580,000 557,282,000 748,102,000 Less: Treasury stock, at cost (15,033,317 shares at April 30, 2025 and July 31, 2024) (441,849,000 ) (441,849,000 ) Total stockholders' equity 115,433,000 306,253,000 Total liabilities, convertible preferred stock and stockholders' equity $ 751,144,000 912,434,000 Expand Use of Non-GAAP Financial Measures To provide investors with additional information regarding the Company's financial results, this release contains "Non-GAAP financial measures" under the rules of the SEC. The Company's Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before interest, income taxes, depreciation, amortization of intangibles, impairment of long-lived assets, including goodwill, amortization of cost to fulfill assets, amortization of stock-based compensation, CEO transition costs, change in fair value of warrants and derivatives, proxy solicitation costs, restructuring costs (non-inventory related), strategic emerging technology costs (for next-generation satellite technology), and write-off of deferred financing costs and debt discounts, and in the recent past, acquisition plan expenses, change in fair value of the convertible preferred stock purchase option liability, COVID-19 related costs, facility exit costs, strategic alternatives expenses and other and loss on business divestiture. These items, while periodically affecting its results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results. Although closely aligned, the Company's definition of Adjusted EBITDA is different than EBITDA (as such term is defined in its 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. Adjusted EBITDA is also a measure frequently requested by its investors and analysts. The Company believes that investors and analysts may use Adjusted EBITDA, along with other information contained in its SEC filings, including GAAP measures, in assessing performance and comparability of results with other companies. Non-GAAP measures reflect the GAAP measures as reported, adjusted for certain items as described herein and also excludes the effects of the Company's outstanding convertible preferred stock. These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct its business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP. These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP measures in the tables presented herein, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP. Investors are advised to carefully review the GAAP financial results that are disclosed in the Company's SEC filings. As the Company has not provided future financial targets, there is no need to reconcile its business outlook to the most directly comparable GAAP measures. Furthermore, even if targets had been provided, items such as stock-based compensation, adjustments to the provision for income taxes, amortization of intangibles and interest expense, which are specific items that impact these measures, have not yet occurred, are out of the Company's control, or cannot be predicted. For example, quantification of stock-based compensation expense requires inputs such as the number of shares granted and market price that are not currently ascertainable. Accordingly, reconciliations to the Non-GAAP forward looking metrics would not be available without unreasonable effort and such unavailable reconciling items could significantly impact the Company's financial results. Reconciliations of GAAP consolidated operating income (loss), net income (loss) attributable to common stockholders and net income (loss) per diluted common share to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding). Non-GAAP net income (loss) attributable to common stockholders and Non-GAAP net income (loss) per diluted common share reflect Non-GAAP provisions for income taxes based on year-to-date results, as adjusted for the Non-GAAP reconciling items included in the tables below. The Company evaluates its Non-GAAP effective income tax rate on an ongoing basis, and it can change from time to time. The Company's Non-GAAP effective income tax rate can differ materially from its GAAP effective income tax rate. Fiscal Year 2024 Operating (Loss) Income Net (Loss) Income Attributable to Common Stockholders Net (Loss) Income per Diluted Common Share* Reconciliation of GAAP to Non-GAAP Earnings: GAAP measures, as reported $ (79,890,000 ) $ (135,440,000 ) $ (4.70 ) Loss on extinguishment of convertible preferred stock — 19,555,000 0.68 Adjustments to reflect redemption value of convertible preferred stock — 15,900,000 0.55 Change in fair value of warrants and derivatives — (4,273,000 ) (0.15 ) Impairment of long-lived assets, including goodwill 64,525,000 63,800,000 2.21 Amortization of intangibles 21,154,000 16,389,000 0.57 Restructuring costs 12,470,000 9,736,000 0.34 Amortization of stock-based compensation 6,096,000 4,797,000 0.17 Strategic emerging technology costs 4,110,000 3,795,000 0.13 CEO transition costs 2,916,000 2,245,000 0.08 Loss on business divestiture 1,199,000 1,199,000 0.04 Amortization of cost to fulfill assets 960,000 960,000 0.03 Net discrete tax expense — 4,136,000 0.14 Non-GAAP measures $ 33,540,000 $ 2,799,000 $ 0.10 Expand * Per share amounts may not foot due to rounding. In addition, due to the GAAP net loss for the period, Non-GAAP EPS for the three and nine months ended April 30, 2024 and fiscal 2024 was computed using weighted average diluted shares outstanding of 28,936,000, 28,948,000 and 29,132,000, during the respective period. ECMTL
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Comtech Announces Financial Results for Third Quarter of Fiscal 2025
CHANDLER, Ariz., June 09, 2025--(BUSINESS WIRE)--June 9, 2025-- Comtech Telecommunications Corp. (NASDAQ: CMTL) ("Comtech" or the "Company"), a global communications technology leader, today reported financial results for its third quarter ended April 30, 2025. Consolidated Financial Results Net sales of $126.8 million Gross margin of 30.7% Operating loss of $1.5 million and net loss attributable to common shareholders of $14.5 million Adjusted EBITDA (a Non-GAAP measure) of $12.6 million, or 9.9% Net bookings of $71.0 million, representing a book-to-bill ratio of 0.56x (as described below, gross bookings during the third quarter were $107.4 million, representing a book-to-bill ratio of 0.85x) Funded backlog of $708.1 million and revenue visibility of approximately $1.2 billion GAAP cash flows provided by operations of $2.3 million Ken Traub, Chairman, President and CEO, stated: "We are pleased to report that our transformation plan is gaining traction and notable progress is already evident in our improved performance. In the third quarter, we secured a $40 million capital infusion that enabled us to re-negotiate terms with our senior secured lenders, which not only waived prior covenant breaches but also provided for more financial flexibility going forward. In addition, we have implemented measures to align accountability throughout the organization, improve operational efficiency, streamline our product lines, increase gross margins and reduce administrative costs. With a more targeted product-market focus, we have strengthened customer relationships and notched important new business wins. Nevertheless, we recognize Comtech has long-standing and lingering challenges, and while we have made significant progress, our transformation is still in the early innings. I am grateful to our entire dedicated team as well as all of our stakeholders for their loyalty, perseverance and contributions in helping us on the journey in building a strong, successful future for Comtech." Third Quarter Fiscal 2025 Consolidated Results Commentary Consolidated net sales were $126.8 million in the third quarter, a decrease of 1.0% compared to the prior year period and an increase of 0.2% sequentially from last quarter. Net sales in the Terrestrial and Wireless Networks ("T&W") segment were higher compared to the prior year period due to changes in products and services mix, including approximately $3.0 million of incremental NG-911 services revenue in the more recent period due to reaching an agreement with a statewide customer to retroactively invoice for certain recurring services provided in the past. Net sales in the Satellite and Space Communications ("S&S") segment were lower compared to the prior year period due to decreased net sales of troposcatter solutions to the U.S. Marine Corps and U.S. Army, as both contracts wind down as anticipated. This was offset in part by higher net sales of SATCOM solutions, including VSAT and similar equipment sales to the U.S. Army and satellite ground infrastructure solutions. Consolidated gross profit was $38.9 million, or 30.7% of consolidated net sales, in the third quarter, in line with the prior year period gross profit of $39.0 million, or 30.4%. The third quarter gross profit is a sequential increase from the $33.7 million, or 26.7%, reported in the immediately preceding quarter. The sequential improvement is primarily due to a more favorable sales mix and production efficiencies, as well as the inclusion of the incremental NG-911 services revenue discussed above in which most of the expenses were previously incurred. Consolidated operating loss was $1.5 million in the third quarter, compared to an operating loss of $3.5 million in the prior year period. Operating loss improvement from the prior year period is primarily the result of cost reduction initiatives which have reduced operating expenses. Operating loss in the third quarter significantly improved from the $10.3 million operating loss reported in the second quarter. The sequential improvement in the more recent quarter is due to the above improvements in gross profit and the benefit of cost reduction initiatives, lowering the Company's overall operating expenses. Operating loss in the more recent period includes, among other things: $5.0 million of amortization of intangibles; $4.3 million of restructuring costs (mainly at the parent level); $1.2 million of amortization of stock-based compensation; and $0.8 million of CEO transition costs. Consolidated net loss attributable to common shareholders was $14.5 million in the third quarter, compared to net loss attributable to common shareholders of $1.0 million in the prior year period and net loss attributable to common shareholders of $22.4 million in the immediately preceding quarter. In addition to those items discussed above, and as more fully discussed in the Company's SEC filings, net loss attributable to common shareholders in the more recent period was impacted by higher interest expense, changes in the estimated fair values of derivatives and warrants, the write-off of deferred financing costs and debt discounts and accrued dividends related to the Company's Convertible Preferred Stock. Consolidated Adjusted EBITDA (a non-GAAP measure) was $12.6 million in the third quarter, compared to Adjusted EBITDA of $11.9 million in the prior year period and Adjusted EBITDA of $2.9 million in the immediately preceding quarter. The improvements in Adjusted EBITDA are due to the factors and initiatives described above. Consolidated net bookings were $71.0 million in the third quarter, a decrease of 30.2% and 10.5%, respectively, compared to the prior year period and immediately preceding quarter. The book-to-bill ratio in the more recent quarter was 0.56x. Consolidated net bookings reflect a $36.4 million debooking related to the low margin U.S. Army GFSR contract that was protested by and ultimately awarded to the incumbent in May 2025; gross bookings for the third quarter, excluding such debooking, were $107.4 million, an increase of 5.6% and 35.3%, respectively, compared to the prior year period and immediately preceding quarter, representing a quarterly book-to-bill ratio of 0.85x. The reduction in bookings reflects, in part, a more focused product positioning and sales approach. Consolidated backlog was $708.1 million as of April 30, 2025, compared to $763.8 million as of January 31, 2025 and $798.9 million as of July 31, 2024. Revenue visibility, measured as the sum of funded backlog and the total unfunded value of certain multi-year contracts, was approximately $1.2 billion at the end of the third quarter. GAAP cash flows from operations were $2.3 million in the third quarter, an improvement from both the prior year period's cash outflows of $3.8 million and the prior quarter's cash outflows of $0.2 million, and are due primarily to the combination of the improvements in GAAP operating performance, as described above, together with improved working capital management which includes progress toward completion of contracts that are accounted for over time (that previously led to high levels of unbilled accounts receivable), including related shipments, billings and collections from customers. Satellite and Space Communications ("S&S") Segment Commentary S&S net sales were $67.6 million in the third quarter, a decrease of 5.3% compared to the prior year period and 8.3% sequentially from last quarter. Compared to the prior year period, S&S experienced lower net sales of troposcatter solutions to the U.S. Marine Corps and U.S. Army as those two contracts wind down as anticipated, offset in part by higher net sales of SATCOM solutions (including VSAT and similar equipment sales to the U.S. Army and satellite ground infrastructure solutions). Sequentially, S&S experienced lower net sales of troposcatter solutions to the U.S. Marine Corps and U.S. Army, offset in part by higher net sales of SATCOM solutions (primarily satellite ground infrastructure solutions). The S&S segment is executing on initiatives to grow sales of next generation products, improve gross margins and reduce operating expenses. With recent strategic wins in digital satellite communication infrastructure, resilient communications programs and multi-orbit connectivity, the S&S segment is capitalizing on its differentiated technologies and extensive customer relationships to develop new vectors for growth. As part of the Company's commitment to improve operational discipline, Steve Black recently joined the S&S leadership team from General Dynamics as the new segment Chief Operating Officer reporting to Daniel Gizinski. S&S operating income was $2.7 million in the third quarter, compared to operating income of $2.8 million in the prior year period and $1.2 million in the immediately preceding quarter. S&S operating income in the third quarter was impacted by $0.9 million of restructuring costs, compared to $0.6 million and $1.4 million, respectively, in the prior year period and immediately preceding quarter. The sequential increase in quarterly operating income primarily reflects lower selling, general and administrative expenses (due to cost reduction actions), partially offset by lower net sales and gross profit. These cost reductions represent the results of actions that have been implemented to rationalize product lines and streamline the organization, which in addition to generating cost savings, have helped to improve accountability at the site level and enhance focus on priority products, production and customer commitments. S&S net income was $2.9 million for the third quarter, compared to a net income of $1.8 million in the prior year period and $1.6 million in the immediately preceding quarter. S&S Adjusted EBITDA was $5.7 million in the third quarter, compared to Adjusted EBITDA of $7.2 million in the prior year period and $4.7 million in the immediately preceding quarter. Compared to the prior year period, Adjusted EBITDA reflects lower net sales and gross profit (both in dollars and as a percentage of related segment net sales), offset in part by lower selling, general and administrative expenses and research and development expenses. The sequential increase in Adjusted EBITDA primarily reflects lower selling, general and administrative expenses, offset in part by lower net sales and gross profit. S&S book-to-bill ratio for the third quarter was 0.26x. Excluding the aforementioned $36.4 million debooking associated with the U.S. Army GFSR contract, the segment's book-to-bill ratio was 0.80x. This ratio compares to 0.85x in the prior year period and 0.64x in the second quarter. The reduction in bookings reflects, in part, a more focused product positioning and sales approach. Key S&S contract awards and product milestones during the third quarter included: Completed initial deliveries of next generation VSAT systems to a strategically significant allied Navy partner, an important step for a comprehensive fleet modernization program that includes ships, submarines and ground-based stations – deliveries are expected to continue over a two-year period; $8.5 million in aggregate orders from three commercial customers for high-power amplifiers and frequency converters for use in airborne related applications; Incremental funding of approximately $6.8 million for continued, ongoing training and support of complex cybersecurity operations for U.S. government customers; Additional funding of approximately $5.8 million from a major U.S. prime contractor in support of NASA's Orion Production and Operations Contract ("OPOC"), commonly known as the Artemis project; Approximately $5.0 million in funded orders from a long-time international customer for the procurement of ongoing maintenance and support services related to long-range missile and rocket launch tracking systems; and In excess of $3.6 million in funded orders calling for the supply of VSAT equipment and related services for the U.S. Army. Terrestrial & Wireless Networks ("T&W") Segment Commentary T&W net sales were $59.2 million in the third quarter, an increase of 4.6% and 12.0%, respectively, compared to the prior year period and immediately preceding quarter. Compared to the prior year period, as well as sequentially, T&W experienced higher net sales of next-generation 911 ("NG-911") services and location-based solutions, offset in part by lower net sales of call handling solutions. Third quarter net sales and gross profit benefited from approximately $3.0 million of incremental NG-911 services revenue due to reaching an agreement with a statewide customer to retroactively invoice for certain recurring services provided in the past. Key growth drivers for the T&W segment are expected to include customer upgrades to next-generation core services, new cloud-based emergency response products and increasing interest from international carriers for 5G location technologies. T&W operating income was $8.4 million in the third quarter, compared to operating income of $5.7 million in the prior year period and operating income of $3.4 million in the immediately preceding quarter. Compared to the prior year period, as well as sequentially, the increase in quarterly operating income primarily reflects higher net sales and gross profit, both in dollars and as a percentage of related segment net sales and including the NG-911 services revenue discussed above in which most of the expenses were previously incurred, offset in part by higher selling, general and administrative expenses and research and development expenses. T&W net income was $8.6 million in the third quarter, compared to net income of $5.3 million in the prior year period and $3.4 million in the immediately preceding quarter. T&W Adjusted EBITDA was $13.9 million in the third quarter, compared to Adjusted EBITDA of $11.3 million in the prior year period and $8.9 million in the immediately preceding quarter. Compared to the prior year period, as well as sequentially, Adjusted EBITDA reflects those factors discussed above. T&W book-to-bill ratio in the third quarter was 0.91x, compared to 0.72x in the prior year period and 0.61x in the second quarter. Key T&W contract awards and product milestones during the third quarter included: A new contract, valued at over $27.0 million during the initial five-year term, for statewide NG-911 services for a Southeastern state; Various funded orders totaling $9.0 million for wireless location-based messaging services; Over $2.5 million of initial funding from a new international customer for location-based messaging services; More than $2.5 million of incremental funding for an existing NG-911 customer in a Midwestern state; Various funded orders, aggregating $1.4 million, primarily for location and maintenance and support services for a large wireless carrier in the U.S.; and Additional funding from a Mid-Atlantic state for ancillary network and call handling services. Additionally, T&W announced that it is nearing the completion of the development of its latest NG-911 call handling solution, which features a new architecture leveraging cloud and AI capabilities and designed to serve first responders in the U.S., Canada and Australia even better. The Company anticipates launching its revolutionary new product at this year's upcoming National Emergency Number Association ("NENA") conference. Cost-Savings and Profit Improvement Initiatives Comtech continues to execute on its transformation plan which includes a thorough review of processes, product lines, staffing levels and cost structures to implement actions to reduce costs, enable a more efficient and effective organization and improve the Company's cash conversion cycle. Comtech has ceased manufacturing operations in the U.K. More than 70 products within the S&S segment have been discontinued, and the Company is completing the final deliveries of outstanding orders for these discontinued products over the next few months. Further, the Company has reduced its global workforce by approximately 15% since July 31, 2024, which represents approximately $33.0 million in annualized labor costs. Over the course of the nine months ended April 30, 2025, severance associated with such actions approximated $2.7 million (primarily within selling, general and administrative expenses). The Company continues to evaluate additional opportunities to improve operational efficiency, reduce costs and improve profitability. While the Company continues to invest in R&D, it is obtaining customer funding for research and development to adapt its products to specialized customer requirements. During the third quarter, customers reimbursed the Company $5.9 million in connection with R&D efforts. Such amount is in addition to the $4.4 million of Comtech funded R&D reported in the third quarter of fiscal 2025. This customer-funded R&D not only offsets the Company's expenditures, but helps to ensure that R&D expenditures are aligned with customer and market demand. Capital Structure and Liquidity As previously disclosed on March 3, 2025, the Company amended its Credit Facility and Subordinated Credit Facility to, among other things, waive existing breaches under the facilities, and suspend testing of the Net Leverage Ratio and Fixed Charge Coverage Ratio covenants until the quarter ending on October 31, 2025. As of June 6, 2025, Comtech's available sources of liquidity approximate $27.3 million, consisting of qualified cash and cash equivalents and the remaining available portion of the committed Revolver Loan. At both April 30, 2025 and June 6, 2025, total outstanding borrowings under the Credit Facility were $168.0 million, including $23.4 million drawn on the Revolver Loan. As of April 30, 2025, total outstanding borrowings under the Amended Subordinated Credit Facility were $65.0 million (excluding accreted interest and make whole adjustments), and the liquidation preference of the Company's outstanding convertible preferred stock was $199.7 million (excluding potential increases in the liquidation preference and other obligations that could be triggered by, among other things, breaches of covenants, asset sales and/or change in control of the Company). Conference Call and Webcast Information Comtech will host a conference call with investors and analysts on Monday, June 9, 2025 at 5:00 pm Eastern Time. A live webcast of the conference call will be accessible on the Investor Relations section of Comtech's website at Alternatively, investors can access the conference call by dialing (800) 225-9448 (primary) or (203) 518-9708 (alternate) and using the conference I.D. of "Comtech." A replay will be available through Monday, June 23, 2025, by dialing (800) 934-2123 or (402) 220-1137. About Comtech Comtech Telecommunications Corp. is a leading provider of satellite and space communications technologies; terrestrial and wireless network solutions; Next Generation 911 ("NG-911") and emergency services; and cloud native capabilities to commercial and government customers around the world. Through its culture of innovation and employee empowerment, Comtech leverages its global presence and decades of technology leadership and experience to create some of the world's most innovative solutions for mission-critical communications. For more information, please visit Cautionary Note Regarding Forward-Looking Statements Certain information in this press release contains, and oral statements made by the Company's representatives from time to time may contain, forward-looking statements. Forward-looking statements can be identified by words such as: "anticipate," "believe," "continue," "could," "estimate," "expect," "future," "goal," "outlook," "intend," "likely," "may," "plan," "potential," "predict," "project," "seek," "should," "strategy," "target," "will," "would," and similar references to future periods. Forward-looking statements include, among others, statements regarding expectations for its strategic alternatives process, expectations for further portfolio-shaping opportunities, expectations for other operational initiatives, the intended use of proceeds from the Credit Facility and Amended Subordinated Credit Facility, expectations for completing further financing initiatives, future performance and financial condition, plans to address its ability to continue as a going concern, the plans and objectives of management and assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under its control which may cause actual results, future performance and financial condition, and achievement of plans and objectives of management to be materially different from the results, performance or other expectations implied by these forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or the Company's good faith belief with respect to future events, and is subject to risks and uncertainties that are difficult to predict and many of which are outside of the Company's control. Factors that could cause actual results to differ materially from current expectations include, among other things: the outcome and effectiveness of the aforementioned strategic alternatives process, further portfolio-shaping opportunities, other operational initiatives, and the completion of further financing activities; its ability to access capital and liquidity so that the Company is able to continue as a going concern; its ability to implement changes in executive leadership; the possibility that the expected synergies and benefits from strategic activities will not be fully realized, or will not be realized within the anticipated time periods; the risk that acquired businesses will not be integrated successfully; impacts from, and uncertainties regarding, future actions that may be taken by activist stockholders; the possibility of disruption from acquisitions or dispositions, making it more difficult to maintain business and operational relationships or retain key personnel; the risk that the Company will be unsuccessful in implementing a tactical shift in its Satellite and Space Communications segment away from bidding on large commodity service contracts and toward pursuing contracts for niche products and solutions with higher margins; the nature and timing of receipt of, and performance on, new or existing orders that can cause significant fluctuations in net sales and operating results; the timing and funding of government contracts; adjustments to gross profits on long-term contracts; risks associated with international sales; rapid technological change; evolving industry standards; new product announcements and enhancements; changing customer demands and/or procurement strategies and ability to scale opportunities and deliver solutions to current and prospective customers; changes and uncertainty in prevailing economic and political conditions (including financial and capital market conditions), including as a result of Russia's military incursion into Ukraine, the Israel-Hamas war and attacks in the Red Sea region or any tariff, trade restrictions or similar matters; changes in the price of oil in global markets; changes in prevailing interest rates and foreign currency exchange rates; risks associated with legal proceedings, customer claims for indemnification, and other similar matters; risks associated with obligations under its credit facilities; risks associated with large contracts; risks associated with supply chain disruptions; and other factors described in this and other Company filings with the Securities and Exchange Commission. However, the risks described above are not the only risks that the Company faces. Additional risks and uncertainties, not currently known to the Company or that do not currently appear to be material, may also materially adversely affect its business, financial condition and/or operating results in the future. The Company describe risks and uncertainties that could cause actual results and events to differ materially in the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures about Market Risk" sections of its SEC filings. The Company does not intend to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by law. Appendix: Condensed Consolidated Statements of Operations (Unaudited) Condensed Consolidated Balance Sheets (Unaudited) Use of Non-GAAP Financial Measures COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (Unaudited) Three months ended April 30, Nine months ended April 30, 2025 2024 2025 2024 Net sales $ 126,787,000 128,076,000 $ 369,161,000 414,212,000 Cost of sales 87,842,000 89,122,000 281,960,000 284,178,000 Gross profit 38,945,000 38,954,000 87,201,000 130,034,000 Expenses: Selling, general and administrative 30,203,000 28,697,000 115,679,000 91,699,000 Research and development 4,425,000 5,746,000 12,492,000 20,401,000 Amortization of intangibles 5,044,000 5,289,000 16,680,000 15,866,000 Impairment of long-lived assets, including goodwill — — 79,555,000 — Proxy solicitation costs — — 2,682,000 — CEO transition costs 805,000 2,492,000 1,072,000 2,492,000 Loss (gain) on business divestiture, net — 200,000 — (2,013,000 ) 40,477,000 42,424,000 228,160,000 128,445,000 Operating (loss) income (1,532,000 ) (3,470,000 ) (140,959,000 ) 1,589,000 Other expenses (income): Interest expense 12,907,000 5,146,000 33,447,000 15,343,000 Interest (income) and other (509,000 ) 409,000 — 1,246,000 Write-off of deferred financing costs and debt discounts 3,479,000 — 4,891,000 — Change in fair value of warrants and derivatives (49,542,000 ) (6,439,000 ) (15,450,000 ) (6,439,000 ) Income (loss) before (benefit from) provision for income taxes 32,133,000 (2,586,000 ) (163,847,000 ) (8,561,000 ) (Benefit from) provision for income taxes (1,801,000 ) (5,381,000 ) (635,000 ) 639,000 Net income (loss) $ 33,934,000 2,795,000 $ (163,212,000 ) (9,200,000 ) Gain (loss) on extinguishment of convertible preferred stock — — 51,179,000 (13,640,000 ) Adjustments to reflect redemption value of convertible preferred stock: Convertible preferred stock issuance costs — (76,000 ) — (4,349,000 ) Dividends on convertible preferred stock (48,405,000 ) (3,759,000 ) (80,656,000 ) (7,643,000 ) Net loss attributable to common stockholders $ (14,471,000 ) (1,040,000 ) $ (192,689,000 ) (34,832,000 ) Net loss per common share: Basic $ (0.49 ) (0.04 ) $ (6.56 ) (1.21 ) Diluted $ (0.49 ) (0.04 ) $ (6.56 ) (1.21 ) Weighted average number of common shares outstanding – basic 29,399,000 28,854,000 29,395,000 28,753,000 Weighted average number of common and common equivalent shares outstanding – diluted 29,399,000 28,854,000 29,395,000 28,753,000 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) April 30, 2025 July 31, 2024 Assets Current assets: Cash and cash equivalents $ 28,434,000 32,433,000 Accounts receivable, net 151,472,000 195,595,000 Inventories, net 77,691,000 93,136,000 Prepaid expenses and other current assets 17,063,000 15,387,000 Total current assets 274,660,000 336,551,000 Property, plant and equipment, net 44,462,000 47,328,000 Operating lease right-of-use assets, net 31,177,000 31,590,000 Goodwill 204,625,000 284,180,000 Intangibles with finite lives, net 178,148,000 194,828,000 Deferred financing costs, net 1,850,000 3,251,000 Other assets, net 16,222,000 14,706,000 Total assets $ 751,144,000 912,434,000 Liabilities, Convertible Preferred Stock and Stockholders' Equity Current liabilities: Accounts payable $ 27,188,000 42,477,000 Accrued expenses and other current liabilities 59,162,000 62,245,000 Current portion of credit facility, net 148,882,000 4,050,000 Current portion of subordinated credit facility, net 65,471,000 — Operating lease liabilities, current 7,589,000 7,869,000 Contract liabilities 64,386,000 65,834,000 Interest payable 5,000 1,072,000 Total current liabilities 372,683,000 183,547,000 Non-current portion of credit facility, net — 173,527,000 Operating lease liabilities, non-current 29,581,000 30,258,000 Income taxes payable, non-current 1,866,000 2,231,000 Deferred tax liability, net 5,763,000 6,193,000 Long-term contract liabilities 20,186,000 21,035,000 Warrant and derivative liabilities 31,564,000 5,254,000 Other liabilities 3,996,000 4,060,000 Total liabilities 465,639,000 426,105,000 Commitments and contingencies Convertible preferred stock, par value $0.10 per share; authorized and issued 178,181 shares at April 30, 2025 (redemption value of $199,661,000 which includes accrued dividends of $1,486,000) and authorized and issued 171,827 shares at July 31, 2024 (redemption value of $180,076,000, which includes accrued dividends of $1,341,000) 170,072,000 180,076,000 Stockholders' equity: Preferred stock, par value $0.10 per share; authorized and unissued 1,821,819 and 1,828,173 shares at April 30, 2025 and July 31, 2024, respectively — — Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 44,395,660 and 43,766,109 shares at April 30, 2025 and July 31, 2024, respectively 4,440,000 4,377,000 Additional paid-in capital 567,647,000 640,145,000 Retained (deficit) earnings (14,805,000 ) 103,580,000 557,282,000 748,102,000 Less: Treasury stock, at cost (15,033,317 shares at April 30, 2025 and July 31, 2024) (441,849,000 ) (441,849,000 ) Total stockholders' equity 115,433,000 306,253,000 Total liabilities, convertible preferred stock and stockholders' equity $ 751,144,000 912,434,000 Use of Non-GAAP Financial Measures To provide investors with additional information regarding the Company's financial results, this release contains "Non-GAAP financial measures" under the rules of the SEC. The Company's Adjusted EBITDA is a Non-GAAP measure that represents earnings (loss) before interest, income taxes, depreciation, amortization of intangibles, impairment of long-lived assets, including goodwill, amortization of cost to fulfill assets, amortization of stock-based compensation, CEO transition costs, change in fair value of warrants and derivatives, proxy solicitation costs, restructuring costs (non-inventory related), strategic emerging technology costs (for next-generation satellite technology), and write-off of deferred financing costs and debt discounts, and in the recent past, acquisition plan expenses, change in fair value of the convertible preferred stock purchase option liability, COVID-19 related costs, facility exit costs, strategic alternatives expenses and other and loss on business divestiture. These items, while periodically affecting its results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results. Although closely aligned, the Company's definition of Adjusted EBITDA is different than EBITDA (as such term is defined in its 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. Adjusted EBITDA is also a measure frequently requested by its investors and analysts. The Company believes that investors and analysts may use Adjusted EBITDA, along with other information contained in its SEC filings, including GAAP measures, in assessing performance and comparability of results with other companies. Non-GAAP measures reflect the GAAP measures as reported, adjusted for certain items as described herein and also excludes the effects of the Company's outstanding convertible preferred stock. These Non-GAAP financial measures have limitations as an analytical tool as they exclude the financial impact of transactions necessary to conduct its business, such as the granting of equity compensation awards, and are not intended to be an alternative to financial measures prepared in accordance with GAAP. These measures are adjusted as described in the reconciliation of GAAP to Non-GAAP measures in the tables presented herein, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in accordance with GAAP. Investors are advised to carefully review the GAAP financial results that are disclosed in the Company's SEC filings. As the Company has not provided future financial targets, there is no need to reconcile its business outlook to the most directly comparable GAAP measures. Furthermore, even if targets had been provided, items such as stock-based compensation, adjustments to the provision for income taxes, amortization of intangibles and interest expense, which are specific items that impact these measures, have not yet occurred, are out of the Company's control, or cannot be predicted. For example, quantification of stock-based compensation expense requires inputs such as the number of shares granted and market price that are not currently ascertainable. Accordingly, reconciliations to the Non-GAAP forward looking metrics would not be available without unreasonable effort and such unavailable reconciling items could significantly impact the Company's financial results. Three months ended April 30, Nine months ended April 30, Fiscal Year 2025 2024 2025 2024 2024 Reconciliation of GAAP Net Loss to Adjusted EBITDA: Net income (loss) $ 33,934,000 $ 2,795,000 $ (163,212,000 ) $ (9,200,000 ) $ (99,985,000 ) (Benefit from) provision for income taxes (1,801,000 ) (5,381,000 ) (635,000 ) 639,000 (295,000 ) Interest expense 12,907,000 5,146,000 33,447,000 15,343,000 22,153,000 Interest (income) and other (509,000 ) 409,000 — 1,246,000 678,000 Write-off of deferred financing costs and debt discounts 3,479,000 — 4,891,000 — 1,832,000 Change in fair value of warrants and derivatives (49,542,000 ) (6,439,000 ) (15,450,000 ) (6,439,000 ) (4,273,000 ) Amortization of stock-based compensation 1,195,000 404,000 2,520,000 5,238,000 6,096,000 Amortization of intangibles 5,044,000 5,289,000 16,680,000 15,866,000 21,154,000 Depreciation 2,726,000 3,121,000 8,400,000 9,073,000 12,159,000 Impairment of long-lived assets, including goodwill — — 79,555,000 — 64,525,000 Amortization of cost to fulfill assets — 240,000 261,000 720,000 960,000 Restructuring costs (non-inventory related) 4,338,000 2,755,000 14,222,000 9,197,000 12,470,000 Strategic emerging technology costs — 880,000 280,000 3,228,000 4,110,000 Proxy solicitation costs — — 2,682,000 — — CEO transition costs 805,000 2,492,000 1,072,000 2,492,000 2,916,000 Loss (gain) on business divestiture, net — 200,000 — (2,013,000 ) 1,199,000 Adjusted EBITDA $ 12,576,000 $ 11,911,000 $ (15,287,000 ) $ 45,390,000 $ 45,699,000 Reconciliations of GAAP consolidated operating income (loss), net income (loss) attributable to common stockholders and net income (loss) per diluted common share to the corresponding Non-GAAP measures are shown in the tables below (numbers and per share amounts in the tables may not foot due to rounding). Non-GAAP net income (loss) attributable to common stockholders and Non-GAAP net income (loss) per diluted common share reflect Non-GAAP provisions for income taxes based on year-to-date results, as adjusted for the Non-GAAP reconciling items included in the tables below. The Company evaluates its Non-GAAP effective income tax rate on an ongoing basis, and it can change from time to time. The Company's Non-GAAP effective income tax rate can differ materially from its GAAP effective income tax rate. April 30, 2025 Three months ended Nine months ended Operating(Loss)Income Net LossAttributableto CommonStockholders Net LossperDilutedCommonShare* OperatingLoss Net LossAttributableto CommonStockholders Net LossperDilutedCommonShare* Reconciliation of GAAP to Non-GAAP Earnings: GAAP measures, as reported $ (1,532,000 ) $ (14,471,000 ) $ (0.49 ) $ (140,959,000 ) $ (192,689,000 ) $ (6.56 ) Adjustments to reflect redemption value of convertible preferred stock — 48,405,000 1.65 — 80,656,000 2.74 Change in fair value of warrants and derivatives — (49,542,000 ) (1.68 ) — (15,450,000 ) (0.53 ) Gain on extinguishment of convertible preferred stock — — — — (51,179,000 ) (1.74 ) Impairment of long-lived assets, including goodwill — — — 79,555,000 79,555,000 2.71 Amortization of intangibles 5,044,000 4,807,000 0.16 16,680,000 15,968,000 0.54 Restructuring costs (non-inventory related) 4,338,000 4,061,000 0.14 14,222,000 13,582,000 0.46 Proxy solicitation costs — — — 2,682,000 2,523,000 0.09 Amortization of stock-based compensation 1,195,000 1,195,000 0.04 2,520,000 2,401,000 0.08 CEO transition costs 805,000 749,000 0.02 1,072,000 1,041,000 0.04 Strategic emerging technology costs — — — 280,000 266,000 0.01 Amortization of cost to fulfill assets — — — 261,000 261,000 0.01 Net discrete tax benefit — (442,000 ) (0.02 ) — (374,000 ) (0.01 ) Non-GAAP measures $ 9,850,000 $ (5,238,000 ) $ (0.18 ) $ (23,687,000 ) $ (63,439,000 ) $ (2.16 ) April 30, 2024 Three months ended Nine months ended Operating(Loss)Income Net (Loss)IncomeAttributableto CommonStockholders Net (Loss)IncomeperDilutedCommonShare* OperatingIncome Net (Loss)IncomeAttributableto CommonStockholders Net (Loss)IncomeperDilutedCommonShare* Reconciliation of GAAP to Non-GAAP Earnings: GAAP measures, as reported $ (3,470,000 ) $ (1,040,000 ) $ (0.04 ) $ 1,589,000 $ (34,832,000 ) $ (1.21 ) Loss on extinguishment of convertible preferred stock — — — — 13,640,000 0.47 Adjustments to reflect redemption value of convertible preferred stock — 3,835,000 0.13 — 11,992,000 0.41 Change in fair value of warrants and derivatives — (6,439,000 ) (0.22 ) — (6,439,000 ) (0.22 ) Amortization of intangibles 5,289,000 4,098,000 0.14 15,866,000 12,292,000 0.42 Restructuring costs 2,755,000 2,121,000 0.07 9,197,000 7,075,000 0.24 Amortization of stock-based compensation 404,000 323,000 0.01 5,238,000 4,089,000 0.14 Strategic emerging technology costs 880,000 678,000 0.02 3,228,000 2,486,000 0.09 CEO transition costs 2,492,000 1,919,000 0.07 2,492,000 1,919,000 0.07 Amortization of cost to fulfill assets 240,000 240,000 0.01 720,000 720,000 0.02 Loss (gain) on business divestiture, net 200,000 200,000 0.01 (2,013,000 ) (1,247,000 ) (0.04 ) Net discrete tax (benefit) expense — (229,000 ) (0.01 ) — 768,000 0.03 Non-GAAP measures $ 8,790,000 $ 5,706,000 $ 0.20 $ 36,317,000 $ 12,463,000 $ 0.43 Fiscal Year 2024 Operating(Loss)Income Net (Loss)IncomeAttributable toCommonStockholders Net (Loss)Incomeper DilutedCommonShare* Reconciliation of GAAP to Non-GAAP Earnings: GAAP measures, as reported $ (79,890,000 ) $ (135,440,000 ) $ (4.70 ) Loss on extinguishment of convertible preferred stock — 19,555,000 0.68 Adjustments to reflect redemption value of convertible preferred stock — 15,900,000 0.55 Change in fair value of warrants and derivatives — (4,273,000 ) (0.15 ) Impairment of long-lived assets, including goodwill 64,525,000 63,800,000 2.21 Amortization of intangibles 21,154,000 16,389,000 0.57 Restructuring costs 12,470,000 9,736,000 0.34 Amortization of stock-based compensation 6,096,000 4,797,000 0.17 Strategic emerging technology costs 4,110,000 3,795,000 0.13 CEO transition costs 2,916,000 2,245,000 0.08 Loss on business divestiture 1,199,000 1,199,000 0.04 Amortization of cost to fulfill assets 960,000 960,000 0.03 Net discrete tax expense — 4,136,000 0.14 Non-GAAP measures $ 33,540,000 $ 2,799,000 $ 0.10 * Per share amounts may not foot due to rounding. In addition, due to the GAAP net loss for the period, Non-GAAP EPS for the three and nine months ended April 30, 2024 and fiscal 2024 was computed using weighted average diluted shares outstanding of 28,936,000, 28,948,000 and 29,132,000, during the respective period. ECMTL View source version on Contacts Investor Relations Contact Maria Media Contacts Jamie Longacre Square Partnerscomtech@
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Calavo Growers, Inc. Announces Second Quarter and Six-Month Period Ended April 30, 2025 Financial Results
SANTA PAULA, Calif., June 09, 2025 (GLOBE NEWSWIRE) -- Calavo Growers, Inc. (Nasdaq-GS: CVGW), a global leader in sourcing, packing and distribution of fresh avocados, tomatoes, papayas and processing of guacamole and other avocado products, today reported its financial results for the second fiscal quarter and six-month period ended April 30, 2025. Second Quarter Financial Overview Total net sales were $190.5 million, a 3.3% increase from the prior year quarter. Fresh segment sales were $174.7 million, a 4.7% increase from the prior year quarter. Prepared segment sales were $15.9 million, a 9.9% decrease from the prior year quarter. Gross profit was $18.1 million, an 11.9% decrease from the prior year quarter. Fresh segment gross profit was $14.1 million, a 13.4% decrease from the prior year quarter. Prepared segment gross profit was $4.0 million, a 6.3% decrease from the prior year quarter. Selling, general, and administrative (SG&A) expenses were $10.3 million, a 20.9% decrease from the prior year quarter. Net income from continuing operations attributable to Calavo Growers, Inc. was $6.9 million, or $0.38 per diluted share, compared to $6.1 million, or $0.34 per diluted share, in the prior year quarter. Adjusted net income was $7.1 million, or $0.40 per diluted share, compared to $9.1 million, or $0.51 per diluted share, in the prior year quarter. Adjusted EBITDA was $11.4 million, compared to $13.8 million in the prior year quarter. Adjusted net income (loss), adjusted net income (loss) per diluted share, and adjusted EBITDA are non-GAAP financial measures. See 'Non-GAAP Financial Measures' below. Second Quarter Highlights for Continuing Operations Fresh segment growth was primarily supported by significantly higher average avocado pricing, which more than offset a year-over-year decline in volume. Prepared segment net sales decreased primarily due to a decline in sales volume. Gross profit per carton improved overall, driven primarily by stronger avocado margins, despite a $0.9 million negative impact from tariffs levied primarily on United States-Mexico-Canada Agreement (USMCA)-compliant goods sourced from Mexico for the three days they were in effect during March 2025, during the quarter. Total gross profit declined, however, mainly due to lower volumes in both avocados and tomatoes. SG&A expenses declined primarily due to reduced professional fees, as well as lower headcount and lower severance costs in the current period. The Board of Directors declared a quarterly cash dividend of $0.20 per share to be paid on July 30, 2025 to shareholders of record on June 30, 2025. Six-Month Period Ended April 30, 2025 Financial Overview Total net sales were $344.9 million, a 10.6% increase from the prior year period. Fresh segment sales were $314.4 million, a 12.4% increase from the prior year period. Prepared segment sales were $30.5 million, a 5.4% decrease from the prior year period. Gross profit was $33.8 million, an 8.0% increase from the prior year period. Fresh segment gross profit was $26.2 million, a 15.6% increase from the prior year period. Prepared segment gross profit was $7.6 million, a 11.7% decrease from the prior year period. Selling general and administrative expenses were $20.6 million, a 22.3% decrease from the prior year period. Net income from continuing operations attributable to Calavo Growers, Inc. was $11.3 million, or $0.63 per diluted share, compared to a loss of $0.2 million, or $(0.01) per diluted share, in the prior year period. Adjusted net income rose to $13.1 million, or $0.73 per diluted share, compared to $7.7 million, or $0.43 per diluted share. Adjusted EBITDA was $20.7 million, compared to $16.9 million in the prior year period. Highlights for the Six-Month Period Ended April 30, 2025 Fresh segment growth was driven by favorable pricing that more than offset lower avocado volume, despite a $0.9 million negative impact from tariffs described above, primarily related to avocados sourced from Mexico, during the quarter. Prepared segment sales declines were driven by decreases in volume and average selling price. Overall gross profit expansion was driven by improved gross profit per carton in the Fresh segment. Prepared segment gross profit declined primarily due to both lower sales volume and higher fruit costs. Selling general and administrative expenses declined primarily due to reduced professional fees, as well as lower headcount and lower severance costs in the current period. Management Commentary 'Our second fiscal quarter performance reflects the strength of our commercial strategy and disciplined operational execution amid continued volatility in the avocado market. Revenue grew year-over-year, driven by strong pricing performance,' said Lee Cole, President and Chief Executive Officer of Calavo Growers, Inc. Gross profit per avocado carton improved year-over-year, reflecting our disciplined pricing strategy and strong supply chain execution. Total gross profit declined, however, largely due to lower volumes in both tomatoes and avocados. The most pronounced year-over-year impact came from our tomato business, where gross profit declined sharply due to a substantial decrease in average selling price and volume. This was primarily the result of adverse weather in the Northeast and Midwest, which significantly dampened U.S. demand, coupled with abundant domestic supply that pressured pricing and reduced the need for imported product. In avocados, reduced volume stemmed from a combination of elevated prices, driven primarily by constrained supply out of Mexico, and USDA inspection delays. Cold weather in February and trade policy uncertainty in March further affected demand patterns. Looking ahead, we anticipate strong momentum in our Prepared segment during the second half of the year, supported by volume growth from new customer wins and expanded programs with existing accounts. While segment results declined year-over-year in the first half, we believe current initiatives will drive meaningful contribution growth beginning in the third quarter. We also expect continued strength from the California avocado season and remain confident in our ability to maintain pricing power while expanding customer reach. Our fundamentals are solid, our teams are aligned, and we're excited about the opportunities ahead. Second Quarter 2025 Consolidated Financial Review for Continuing Operations Total net sales for the second quarter of 2025 were $190.5 million, compared to $184.4 million for the second quarter of 2024, representing a 3.3% increase. Fresh segment sales increased $7.9 million, or 4.7%, driven primarily by a 40.6% increase in average price per carton, which offset a 16.0% decline in volume. Prepared segment sales decreased $1.7 million, or 9.9%, primarily due to a 10.0% decline in volume. Fresh segment gross profit declined year-over-year, primarily reflecting lower avocado volumes. While avocado pricing remained strong, reduced tomato sales, primarily due to weaker demand and oversupply, was the primary contributor to the overall decline in segment profit. Tomato performance was impacted by adverse weather in key U.S. markets and elevated domestic supply levels that pressured pricing and reduced import opportunities. Gross profit for the second quarter was $18.1 million, or 9.5% of net sales, compared to $20.5 million and 11.1% of net sales in the same period last year. Fresh segment gross profit declined 13.4% to $14.1 million, primarily reflecting lower avocado volume, while Prepared segment gross profit decreased 6.3% to $4.0 million, primarily driven by lower prepared volume. Selling general and administrative expenses for the second quarter totaled $10.3 million, or 5.4% of net sales, compared to $13.0 million, or 7.1% of net sales in the same period last year, representing a $2.7 million, or 20.9%, reduction. The decrease reflects lower compensation, severance, and professional fees. Six-Month 2025 Consolidated Financial Review for Continuing Operations Total net sales for the six months ended April 30, 2025, were $344.9 million, compared to $312.0 million for the same period in 2024, representing a 10.6% increase. Fresh segment sales increased $34.7 million, or 12.4%, primarily driven by a 35.6% increase in average price per carton, partially offset by a 10.7% decline in volume. Prepared segment sales decreased $1.7 million, or 5.4%, primarily due to a 2.3% decline in volume and a 3.1% decrease in average selling price. Gross profit for the six-month period was $33.8 million, or 9.8% of net sales, compared to $31.3 million and 10.0% of net sales in the same period last year. Fresh segment gross profit increased 15.6% to $26.2 million, primarily supported by favorable avocado pricing and improved cost control. Tomato gross profit, however, decreased reflecting both lower volume and modestly reduced average selling prices. Tomato demand was pressured by adverse weather conditions and abundant domestic supply, which limited import opportunities and compressed margins during the second quarter. Prepared segment gross profit decreased 11.7% to $7.6 million, driven by lower sales volume and compressed margins resulting from higher input costs. Selling, general and administrative expenses for the first half of 2025 totaled $20.6 million, or 6.0% of net sales, compared to $26.5 million, or 8.5% of net sales in the prior year period, representing a $5.9 million, or 22.3%, reduction. The decrease was primarily due to reduced professional fees, as well as headcount and severance costs. Net income from continuing operations attributable to Calavo Growers, Inc for the six-month period was $11.3 million, or $0.63 per diluted share, compared to a loss of $0.2 million, or $(0.01) per diluted share, in the same period last year. Adjusted net income was $13.1 million, or $0.73 per diluted share, compared to $7.7 million, or $0.43 per diluted share, in the prior-year period. Adjusted EBITDA was $20.7 million, compared to $17.2 million in the prior year period. Balance Sheet and LiquidityWe ended the second quarter with cash and cash equivalents of $60.4 million and $119.8 million in available liquidity. We had no borrowings under our credit facility and had total debt of $4.7 million consisting of other long-term obligations and finance leases as of April 30, 2025. Non-GAAP Financial MeasuresThis press release includes non-GAAP measures EBITDA, adjusted EBITDA, adjusted net income (loss) and adjusted net income (loss) per diluted share, which are not prepared in accordance with U.S. generally accepted accounting principles, or 'GAAP.' EBITDA is defined as net income (loss) from continuing operations attributable to Calavo Growers, Inc. excluding (1) interest income and expense, (2) income tax (benefit) provision, (3) depreciation and amortization and (4) stock-based compensation expense. Adjusted EBITDA is EBITDA with further adjustments for (1) acquisition-related costs, (2) restructuring-related costs, including certain severance costs, (3) certain litigation, internal investigation and other related costs, (4) foreign currency gain (loss) and, (5) asset impairments, (6) impact of discrete tariff or other tax charges that are distortive to results, and (7) one-time items. We believe adjusted EBITDA affords investors a different view of the overall financial performance of the Company than adjusted net income (loss) and the GAAP measure of net income (loss) from continuing operations. The adjustments to calculate EBITDA and adjusted EBITDA are items recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. Adjusted net income (loss) is defined as net income (loss) from continuing operations attributable to Calavo Growers, Inc. excluding (1) acquisition-related costs, (2) restructuring-related costs, including certain severance costs, (3) certain litigation, internal investigation and other related costs, (4) foreign currency loss (gain) (5) asset impairments, (6) impact of discrete tariff or other tax charges that are distortive to results, and (7) one-time items. Adjusted net income (loss) and the related measure of adjusted net income (loss) per diluted share exclude certain items that are recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. We believe adjusted net income (loss) affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the GAAP measure of net income (loss) from continuing operations. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the financial tables below. Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. Non-GAAP information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. None of these metrics are presented as measures of liquidity. The way the Company measures EBITDA, adjusted EBITDA and adjusted net income (loss) may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in Company agreements. About Calavo Growers, Growers, Inc. (Nasdaq: CVGW) is a global leader in the processing and distribution of avocados, tomatoes, papayas and guacamole. Calavo products are sold under the trusted Calavo brand name, proprietary sub-brands, private label and store brands. Founded in 1924, Calavo has a rich culture of innovation, sustainable practices and market growth. The Company serves retail grocery, foodservice, club stores, mass merchandisers, food distributors and wholesalers worldwide. Calavo is headquartered in Santa Paula, California, with facilities throughout the U.S. and Mexico. Learn more about The Family of Fresh™ at Safe Harbor StatementThis press release contains statements relating to future events and results of Calavo (including financial projections and business trends) that are 'forward-looking statements,' as defined in the Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties, and assumptions. These statements are based on our current expectations and are not promises or guarantees. If any of the risks or uncertainties materialize or the assumptions prove incorrect, the results of Calavo may differ materially from those expressed or implied by such forward-looking statements and assumptions. The use of words such as 'anticipates,' 'estimates,' 'expects,' 'projects,' 'intends,' 'plans' and 'believes,' among others, generally identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, gross profit, expenses, income/(loss) from unconsolidated entities, earnings, earnings per share, tax provisions, cash flows and currency exchange rates; the impact of acquisitions or debt or equity investments or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration (including information technology systems integration) plans; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Calavo and its financial performance; statements regarding pending internal or external investigations, legal claims or tax disputes; and any statements of expectation or belief; any statements about future risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds, restrictions as a result of trade protection measures such as import/export/customs duties, tariffs and/or quotas). Risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by the forward-looking statements include, but are not limited to, the following: the ability of our management team to work together successfully; the impact of weather on market conditions; seasonality of our business; sensitivity of our business to changes in market prices of avocados and other agricultural products and other raw materials including fuel, packaging and paper; changes or actions associated with USDA-APHIS and the Mexican Secretary of Agriculture, Secretariat of Agriculture and Rural Development (SADER) phytosanitary regulations (certification regulation for the importation of Hass avocados to the United States); potential disruptions to our supply chain; risks associated with potential future acquisitions, including integration; potential exposure to data breaches and other cyber-attacks on our systems or those of our suppliers or customers; dependence on large customers; dependence on key personnel and access to labor necessary for us to render services; susceptibility to wage inflation; potential for labor disputes; reliance on co-packers for a portion of our production needs; competitive pressures, including from foreign growers; risks of recalls and food-related injuries to our customers; changing consumer preferences; the impact of environmental regulations, including those related to climate change; risks associated with the environment and climate change, especially as they may affect our sources of supply; our ability to develop and transition new products and services and enhance existing products and services to meet customer needs, including but not limited to the new guacamole products referenced in this press release; risks associated with doing business internationally (including possible non-compliance with U.S. and foreign laws applicable to international trade and dealings and possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and trade protection measures such as import/export/customs duties, tariffs and/or quotas and currency fluctuations); risks associated with receivables from, loans to and/or equity investments in unconsolidated entities; volatility in the value of our common stock; the impact of macroeconomic trends and events; the effects of increased interest rates on our cost of borrowing and consumer purchasing behavior; the resolution of pending internal and external investigations, legal claims and tax disputes, including an assessment imposed by the Mexican Tax Administrative Service (the 'SAT') and our defenses against collection activities commenced by the SAT; and our ability to realize the expected expense savings from the sale of the Fresh Cut business. For further discussion of these risks and uncertainties and other risks and uncertainties that we face, please see the risk factors described in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and any subsequent updates that may be contained in our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission. Forward-looking statements contained in this press release are made only as of the date of this press release, and we undertake no obligation to update or revise the forward-looking statements, whether because of new information, future events or otherwise. Investor Contact Jeremy AppleSenior Vice PresidentFinancial Profiles, Inc. calavo@ CALAVO GROWERS, CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands) April 30, October 31, 2025 2024 Assets Current assets: Cash and cash equivalents $ 60,361 $ 57,031 Accounts receivable, net of allowances of $3,399 (2025) and $3,624 (2024) 57,603 41,909 Inventories 41,625 34,157 Prepaid expenses and other current assets 9,457 9,976 Advances to suppliers 10,277 14,570 Income taxes receivable 936 936 Total current assets 180,259 158,579 Property, plant, and equipment, net 51,058 54,200 Operating lease right-of-use assets 17,610 18,316 Investments in unconsolidated entities 3,004 2,424 Deferred income tax assets 7,473 7,473 Goodwill 10,211 10,211 Other assets 51,838 49,916 $ 321,453 $ 301,119 Liabilities and shareholders' equity Current liabilities: Payable to growers $ 48,568 $ 18,377 Trade accounts payable 6,808 8,742 Accrued expenses 17,491 28,149 Income tax payable 2,002 2,767 Other current liabilities 11,000 11,000 Current portion of operating leases 3,466 3,296 Current portion of finance leases 836 874 Total current liabilities 90,171 73,205 Long-term liabilities: Long-term portion of operating leases 16,466 17,476 Long-term portion of finance leases 3,873 4,274 Other long-term liabilities 4,384 4,388 Total long-term liabilities 24,723 26,138 Commitments and contingencies Shareholders' equity: Common stock ($0.001 par value, 100,000 shares authorized; 17,841 (2025) and 17,802 (2024) shares issued and outstanding) 18 18 Additional paid-in capital 178,522 177,973 Noncontrolling interest 1,554 1,444 Retained earnings 26,465 22,341 Total shareholders' equity 206,559 201,776 $ 321,453 $ 301,119 CALAVO GROWERS, CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(in thousands, except per share amounts) Three months ended Six months ended April 30, April 30, 2025 2024 2025 2024 Net sales $ 190,546 $ 184,383 $ 344,931 $ 311,989 Cost of sales 172,457 163,845 311,114 280,691 Gross profit 18,089 20,538 33,817 31,298 Selling, general and administrative 10,303 13,020 20,590 26,483 Expenses related to Mexican tax matters 156 202 551 585 Operating income 7,630 7,316 12,676 4,230 Foreign currency (loss) gain 957 (181 ) (5 ) 1,527 Interest income 762 — 1,607 — Interest expense (204 ) (962 ) (417 ) (1,786 ) Other income, net 613 520 725 720 Income before income taxes and net income (loss) from unconsolidated entities 9,758 6,693 14,586 4,691 Income tax expense (2,536 ) (390 ) (3,791 ) (963 ) Net income (loss) from unconsolidated entities (282 ) 204 580 205 Net income from continuing operations 6,940 6,507 11,375 3,933 Net loss from discontinued operations — (408 ) — (4,091 ) Net income (loss) 6,940 6,099 11,375 (158 ) Less: Net income attributable to noncontrolling interest (90 ) (37 ) (110 ) (47 ) Net income (loss) attributable to Calavo Growers, Inc. $ 6,850 $ 6,062 $ 11,265 $ (205 ) Calavo Growers, Inc.'s net income (loss) per share: Basic Continuing Operations $ 0.38 $ 0.36 $ 0.63 $ 0.22 Discontinued Operations $ — $ (0.02 ) $ — $ (0.23 ) Net income (loss) attributable to Calavo Growers, Inc $ 0.38 $ 0.34 $ 0.63 $ (0.01 ) Diluted Continuing Operations $ 0.38 $ 0.36 $ 0.63 $ 0.22 Discontinued Operations $ — $ (0.02 ) $ — $ (0.23 ) Net income (loss) attributable to Calavo Growers, Inc $ 0.38 $ 0.34 $ 0.63 $ (0.01 ) Number of shares used in per share computation: Basic 17,815 17,800 17,841 17,800 Diluted 17,828 17,872 17,903 17,866 CALAVO GROWERS, SALES AND GROSS PROFIT BY BUSINESS SEGMENT (UNAUDITED)(in thousands) Fresh Prepared Total (All amounts are presented in thousands) Three months ended April 30, 2025 Net sales $ 174,661 $ 15,885 $ 190,546 Cost of sales 160,608 11,849 172,457 Gross profit $ 14,053 $ 4,036 $ 18,089 Three months ended April 30, 2024 Net sales $ 166,755 $ 17,628 $ 184,383 Cost of sales 150,525 13,320 163,845 Gross profit $ 16,230 $ 4,308 $ 20,538 Fresh Prepared Total (All amounts are presented in thousands) Six months ended April 30, 2025 Net sales $ 314,456 $ 30,475 $ 344,931 Cost of sales 288,266 22,848 311,114 Gross profit $ 26,190 $ 7,627 $ 33,817 Six months ended April 30, 2024 Net sales $ 279,781 $ 32,208 $ 311,989 Cost of sales 257,121 23,570 280,691 Gross profit $ 22,660 $ 8,638 $ 31,298 CALAVO GROWERS, OF ADJUSTED NET INCOME AND ADJUSTED NET INCOME PER DILUTED SHARE (UNAUDITED)(in thousands, except per share amounts) The following table presents adjusted net income (loss) and adjusted net income (loss) per diluted share, each a non-GAAP measure, and reconciles them to net income (loss) attributable to Calavo Growers, Inc., and Diluted EPS, which are the most directly comparable GAAP measures. During the first quarter of fiscal 2025, we modified our calculation of Adjusted Net Income and Adjusted EBITDA to remove income (loss) from unconsolidated entities from excluded items. Management believes this change enhances comparability with industry peers and provides a clearer representation of our core operating performance. Prior-period amounts have been recast for comparability where applicable. This adjustment does not impact previously reported GAAP financial results. See 'Non-GAAP Financial Measures' earlier in this release. Three months ended April 30, Six months ended April 30, 2025 2024 2025 2024 Net income from continuing operations $ 6,940 $ 6,507 $ 11,375 $ 3,933 Less: Net income attributable to noncontrolling interest (90 ) (37 ) (110 ) (47 ) Net income from continuing operations attributable to Calavo Growers, Inc. 6,850 6,470 11,265 3,886 Non-GAAP adjustments: Restructure costs - consulting, management recruiting and severance (a) — 550 — 1,037 Expenses related to Mexican tax matters (b) 156 202 551 585 Professional fees related to internal investigation and legal settlement and related expenses (c) 248 2,656 925 5,036 Foreign currency loss (gain) (d) (957 ) 181 5 (1,527 ) Tariffs (e) 941 — 941 — Tax impact of adjustments (f) (101 ) (936 ) (630 ) (1,334 ) Adjusted net income from continuing operations $ 7,137 $ 9,123 $ 13,057 $ 7,683 Calavo Growers, Inc.'s continuing operations per share: Diluted EPS from continuing operations (GAAP) $ 0.38 $ 0.34 $ 0.63 $ (0.01 ) Adjusted net income from continuing operations per diluted share $ 0.40 $ 0.51 $ 0.73 $ 0.43 Number of shares used in per share computation: Diluted 17,828 17,872 17,903 17,866 ________________________________(a) For the three months ended April 30, 2024, we incurred $0.6 million in severance and other costs related to the departure of certain members of management. For the six months ended April 30, 2024, we incurred $0.9 million in severance and other costs and $0.1 million in stock-based compensation related to the departure of certain members of management.(b) For the three months ended April 30, 2025 and 2024, we incurred $0.2 million of professional fees related to the Mexican tax matters. For the six months ended April 30, 2025 and 2024, we incurred $0.6 million of professional fees related to the Mexican tax matters.(c) For the three months ended April 30, 2025 and 2024, we incurred $0.2 million and $2.7 million of professional fee expenses related to the FCPA investigation in Mexico. For the six months ended April 30, 2025 and 2024, we incurred $0.9 million and $5.0 million of professional fee expenses related to the FCPA investigation in Mexico.(d) Foreign currency remeasurement gains, net of losses, were $1.0 million and $0 for the three- and six-month periods ended April 30, 2025, compared to a net loss of $0.2 million for the three-month period ended April 30, 2024 and a net gain of $1.5 million for the six-month periods ended April 30, 2024.(e) For the three and six months ended April 30, 2025, we incurred $0.9 million in costs for tariffs that were levied primarily on United States-Mexico-Canada Agreement (USMCA)-compliant goods sourced from Mexico over a three-day period (March 4, 2025 through March 6, 2025) before being lifted. Because of the abrupt and unanticipated nature of this discrete event, we were unable to pass the added cost on to customers and we believe this expense was distortive to our results for the periods ended April 30, 2025. This amount represents only the expense of this discrete 3-day tariff event and does not include other tariffs paid by the Company during the reported periods.(f) Tax impact of non-GAAP adjustments are based on effective year-to-date tax GROWERS, OF EBITDA AND ADJUSTED EBITDA (UNAUDITED)(in thousands) The following table presents EBITDA and adjusted EBITDA, each a non-GAAP measure, and reconciles them to net income (loss) attributable to Calavo Growers, Inc., which is the most directly comparable GAAP measure. During the first quarter of fiscal 2025, we modified our calculation of Adjusted Net Income and Adjusted EBITDA to remove income (loss) from unconsolidated entities from excluded items. Management believes this change enhances comparability with industry peers and provides a clearer representation of our core operating performance. Prior-period amounts have been recast for comparability where applicable. This adjustment does not impact previously reported GAAP financial results. See 'Non-GAAP Financial Measures' earlier in this release. Three months ended April 30, Six months ended April 30, 2025 2024 2025 2024 Net income from continuing operations $ 6,940 $ 6,507 $ 11,375 $ 3,933 Less: Net income attributable to noncontrolling interest (90 ) (37 ) (110 ) (47 ) Net income from continuing operations attributable to Calavo Growers, Inc. 6,850 6,470 11,265 3,886 Interest Income (762 ) (115 ) (1,607 ) (240 ) Interest Expense 204 962 417 1,786 Provision for Income Taxes 2,536 390 3,791 963 Depreciation and Amortization 1,859 2,078 3,801 4,110 Stock-Based Compensation 323 456 595 1,348 EBITDA from continuing operations $ 11,010 $ 10,241 $ 18,262 $ 11,853 Adjustments: Restructure costs - consulting, management recruiting and severance (a) — 480 — 967 Expenses related to Mexican tax matters (b) 156 202 551 585 Professional fees related to internal investigation and legal settlement and related expenses (c) 248 2,656 925 5,036 Foreign currency loss (gain) (d) (957 ) 181 5 (1,527 ) Tariffs (e) 941 — 941 — Adjusted EBITDA from continuing operations $ 11,398 $ 13,760 $ 20,684 $ 16,914 ________________________________See prior page for footnote referencesSign in to access your portfolio