Welcome to Comtech Telecommunications Corp's conference call for the fourth quarter and full year of fiscal 2026. As a reminder, this conference call is being recorded. I would now like to turn the call over to Maria Ceriello, Senior Director of FP&A of Comtech. Please go ahead, Maria.
Thank you, operator. Thanks everyone for joining us today. I am here with Ken Traub, Comtech's Chairman, President, and CEO, Mike Bondi, our CFO, and Jeff Robertson, President of Allerium. After Ken, Jeff, and Mike's remarks, they will be available for questions. Before we get started, please note we have a detailed discussion of the quarter and the year in the press release on 10-K we issued this afternoon, which are available on our website as well as the SEC's website. As described in those documents, on June 14, 2026, we entered into an agreement to sell most of our satellite and space communications business to an affiliate of Gilat Satellite Networks. As a result, the portion of that business being sold is presented as discontinued operations in our financial statements.
Unless we say otherwise, the financial results we discuss today relate to our continuing operations, with comparable prior periods recast to reflect these changes. Our continuing operations consist of our Allerium public safety business, our retained cybersecurity training solutions business, the wind down of certain now inactive U.S. Army contracts, and corporate functions. Our press release includes reconciliations of the non-GAAP measures we will discuss to the most directly comparable GAAP measures. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company, the company's plans, objectives, and business outlook, and the plans, objectives, and business outlook of the company's management. The company's assumptions regarding such performance, business outlook, and plans are forward-looking in nature and always involve significant risks and uncertainties. Actual results could differ materially from such forward-looking information.
Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company's SEC filings. With that, I will turn it over to Ken. Ken?
Thank you, Maria, and good afternoon, everyone. I appreciate you joining us today. Fiscal 2026 was a defining year for Comtech. When I joined the company as CEO in January 2025, I told you that I believe the most critical factor for success in any business, and especially in a turnaround, is building trust with all key stakeholders, and that trust is built by honoring promises. I then laid out a transformation plan that had four pillars. First, our first pillar was to restore and enhance operational discipline throughout the company. Our second pillar was to generate positive operating cash flow. Our third pillar was to conduct a comprehensive review of strategic alternatives. Our fourth pillar was to strengthen the company's capital structure. Today, with the fiscal year behind us, I can report that we have delivered on each of these promises.
Let me take them in turn, because in fulfilling the promises we made, we have not only executed the turnaround as planned, but we have successfully transformed our company. Comtech is now a far stronger company operationally, financially, organizationally, and strategically. Our first pillar focused on operational discipline. Any observer of Comtech today will see a dramatically improved operational discipline throughout the entire company. I would like to highlight a few notable aspects. First, anyone would observe we have a new culture throughout our organization, which centers around transparency, empowerment, and accountability. Second, Comtech now has a significantly reduced and much more efficient cost structure. Third, we have implemented a disciplined approach to product and market initiatives. Fourth, we have enhanced our project execution. Finally, working capital management has been prioritized and optimized.
These initiatives have helped to drive Comtech's dramatic improvement in financial results, which is evident in the significant increases in gross margins and EBITDA margins that Mike will discuss, but is particularly noteworthy in the return to more consistent generation of positive operating cash flow, which I will discuss in more detail in a moment. The improved operational discipline throughout the company has also helped us win trust and credibility with our key stakeholders, particularly our employees, customers, suppliers, and creditors. The second pillar of our transformation plan focused on returning the company to positive operating cash flow. For the seven quarters leading up to January 31, 2025, Comtech reported operating cash flow losses in each quarter with a cumulative total cash burn of over $80 million.
After taking over as CEO in January 2025 and announcing the transformation plan, we reported positive operating cash flow on a consolidated basis in each of the six quarters since then, with a cumulative positive operating cash flow in that period of over $50 million. This has enabled us to increase our liquidity to over $61 million at the end of fiscal year 2026, while also reducing our debt. This is the greatest level of liquidity Comtech has had in its recent history and has put us in a position of strength as we focused on the next two pillars of our transformation plan, the review of strategic alternatives and the strengthening of the capital structure. Our third pillar of our transformation plan was that we committed to conduct a comprehensive review of strategic alternatives.
We conducted a very broad and deliberate process and considered all relevant options with our overarching goal of identifying the best path to maximizing long-term shareholder value. Hence, we took our time and executed on the first two pillars to create the position of strength that was key to conducting a successful process. By running a broad process with various alternatives available to us, it also gave us optionality and negotiating leverage with any potential suitors as we were not dependent on any one alternative. As we considered which assets to sell, one important consideration was to generate the cash to delever the balance sheet. But actually, the even more important consideration was to retain in the company the most attractive business for us to build and create the best path for long-term value creation. The answer became clear.
Divesting the majority of Satellite and Space communications business would accomplish multiple goals. First, a sale of S&S could generate enough cash to prepay most of our senior debt and enable a recapitalization. Second, while we have succeeded in turning it around, the Satellite and Space business has been a difficult business for Comtech to manage over the years. As recently as fiscal 2025, the Satellite and Space business reported GAAP operating losses of over $110 million and experienced significant and unpredictable fluctuations in its operating cash flow over the years. Third, by divesting Satellite and Space, which requires a lot of corporate support, we can streamline the business into one remaining operating segment and eliminate a significant amount of corporate overhead.
Finally, and most importantly, our public safety business in Allerium, coupled with our cyber training services, which has previously been part of Satellite and Space, have very attractive financial profiles with clear levers to drive future growth. Unlike the Satellite and Space business that we are divesting, Allerium is very stable as it is characterized by over 80% annual recurring revenue, long-term customer contracts, and significant backlog. Our cyber business has similar qualities. Recent innovations in our business, coupled with favorable industry dynamics and drivers, which Jeff will describe in more detail, provide opportunities for exciting long-term growth on top of the stable and predictable base of business. Further, the sale of most of Satellite and Space enables us to streamline and realign the business to be fit for purpose to support the long-term growth and success of our public safety business.
In marketing the Satellite and Space business, together with our financial advisors at TD Securities, we contacted over 150 potential buyers, signed over 80 NDAs, met with numerous prospects, and we are very pleased with the outcome, which is reflected in the definitive agreement we entered into with Gilat to sell most of that business for $157.5 million while keeping certain assets we wanted to retain. We received already $10 million of this purchase price at the time we signed the agreement, and while it is still subject to regulatory approval and other closing conditions, we expect to close this transaction by the end of this calendar year. The fourth pillar of our transformation plan was to strengthen our capital structure as the company's deep and expensive debt and preferred securities have been an issue for a long time.
We entered into two subordinated debt investments and two amendments to our subordinated debt and senior credit agreements in fiscal 2025, primarily to waive prior breaches of financial covenants, obtain covenant holidays going forward, and lower near-term cash interest payments. These amendments, together with the operational improvements we made that demonstrated the return to consistent positive cash flow, enabled us to satisfy ourselves and our auditors that the company's prior disclosures expressing doubts regarding its ability to continue as a going concern can confidently be removed from our financial statements. This was a very positive message and a sign of our progress to our stakeholders, including employees, customers, and suppliers. Contemporaneous with signing the definitive agreement with Gilat in June 2026, we entered into new amendments with our senior creditors, subordinated lenders, and preferred stockholders.
We were in compliance with all of these agreements at the time, and our operational strategic progress enabled us to negotiate favorable improvements in each of these agreements. One issue that was critical for us to resolve was a provision in the preferred stock agreement that called for the acceleration of the preferred stockholders' right to redeem the full amount of the preferred stock upon certain refinancings of the senior debt. We succeeded in having that provision removed from the agreements and extended the redemption rights from October 2028 to October 2029. We also reduced the overall cost of capital by lowering the required prepayment fees on the senior debt and extending the trigger dates for increases in the make-whole adjustments on the subordinated debt so that we can refinance and pay off the subordinated debt before the next increase in the make-whole requirement comes into effect.
We also obtained an extended covenant holiday through July 2027, so that we can focus on execution of the pending transaction and the transition without concerns on covenant compliance. Overall, as a result of these amendments, we've already reduced our cost of capital and improved our financial flexibility. Further, we anticipate that upon closing the transaction to sell most of our S&S business, we will consummate additional refinancings and amendments that will result in a healthier capital structure going forward, with further reductions in cost of capital and enhanced financial flexibility to support the long-term growth and development of our remaining business centered around Allerium, including cyber services. Now that we have successfully executed on all four pillars of our transformation plan, the operational discipline, the return to positive cash flow, consummating the strategic sale transaction, and improving the capital structure, Comtech is much stronger in every dimension.
As I said, operationally, financially, organizationally, and strategically. As we await regulatory approval of the sale of the satellite and space business, we are executing a transition plan to align the organization to be purpose-built to support the long-term growth and success of our remaining business centered around Allerium's public safety operations, plus our cyber services. Consequently, we announced today some important changes with our leadership team. Amy Rothstein-Hovey joined us on October 1st as General Counsel and will become our Chief Legal Officer and Corporate Secretary right after Don Walther' last day at Comtech, which we expect to be shortly following the closing of the transaction to sell satellite and space to Gilat. We're excited to welcome Amy to Comtech, as she brings more than 20 years of experience guiding governance, strategic transactions, capital markets activities, enterprise risk management, and growth initiatives across global, public, and private companies.
We also announced today that Rich Nyren joined us on October 8 as Executive Vice President of Finance and will become our Chief Financial Officer right after Mike Bondi's last day at Comtech, which we expect to be shortly following the filing of the 10-Q for the first quarter of fiscal 2027. We are also excited to welcome Rich to Comtech, as he brings more than 30 years of finance, accounting, capital markets, and strategic leadership experience across mission-critical communications, aerospace, telecommunications, and infrastructure businesses. I want to sincerely thank and compliment Mike and Don for their dedication and contributions to the company. They have both been terrific partners as we have successfully navigated Comtech's transformation together over the past two years.
We are all looking forward to continuing to work closely with Mike and Don during this transition period, and are very grateful for their valuable contributions that have enabled us to get to this pivotal point in Comtech's evolution. They are also both really a pleasure to work with. While we will miss them following their departures, I know they will both be very successful going forward, and I wish them well. We are also excited about the critical roles that Rich and Amy will serve, as they will be integrated closely with Jeff's Allerium team in building a focused, dynamic leader in public safety. With that, I will turn the call over to Jeff to share with you additional perspectives on our Allerium business and why we are excited about the opportunities ahead for this business. Jeff?
Thanks, Ken. I am incredibly excited about what is ahead for Allerium. Because we are entering this next chapter from a position of real strength. To give just a few examples. Earlier this year, Allerium secured a multi-year contract extension valued in excess of $130 million from our largest customer, a leading U.S. telecommunications company. In Kentucky, we migrated the commonwealth's first Public Safety Answering Point in December, and then migrated 12 more PSAPs within the first four months of operation, a first-in-market milestone that validates our platform at statewide scale. In Canada, we completed more than 60 NextGen 911 upgrades during the year and opened a new purpose-built facility in Gatineau, Quebec, with support from the city and the province of Quebec. We entered fiscal 2027 with $520 million in funded backlog.
Approximately 80% of our annual revenue now is recurring, and longstanding relationships with states, public safety agencies, and some of the world's largest mobile network operators. As Ken described, subject to regulatory approval and the closing of the Gilat transaction, we also expect to have greater financial flexibility and an organization purpose-built around Allerium, with our people, investments, and priorities aligned around the markets we serve. That creates an opportunity I believe is much bigger than simply becoming a more focused company. We have spent decades operating across public safety and mobile networks. We understand how critical communications move through those environments, from locating and routing an emergency call, to delivering it to the right agency, to helping the call handler understand what is happening, while also providing location, messaging, and alerting capabilities within some of the world's largest mobile networks.
That breadth matters because both markets are at inflection points. In public safety, NextGen 911 is creating a secure, IP-based foundation capable of carrying much more than the traditional voice call. The next opportunity is to make better use of that foundation. As more information becomes available, agencies need ways to receive it, understand it, and move it with the incident across systems, agencies, and jurisdictions. That is where we believe Allerium has a significant opportunity. We already provide the network infrastructure and call handling technology across the emergency communications path, and two of the capabilities we have spent years investing in are now in the market. Mira is our new emergency call handling solution, and what makes it different is that it runs over the secure NextGen 911 network rather than inside a single agency.
More and more emergencies require several agencies to respond together, and because Mira's features and integrations live in the network, agencies can work the same incident together instead of each working alone. That is a real advantage. Coral addresses the flood of new data coming into emergency communications, wearables, vehicle telematics, AI-enhanced cameras, and other sources. Today, that information arrives through many different applications, often over the open internet, and is very hard to correlate in the middle of a stressful response. Coral carries it over the secure NextGen 911 networks we have already deployed, so it reaches the right agency together with the call. Across the portfolio, we see opportunities to bring more intelligence into the workflow without compromising the reliability and control public safety requires. Our opportunity in mobile networks is also very compelling.
For decades, our technology has helped mobile network operators solve some of the most demanding location, messaging, and emergency communications requirements. These capabilities operate deep within carrier networks at significant scale. As mobile networks become more software-driven and network capabilities become increasingly accessible through APIs, we believe our expertise in highly accurate location, messaging, alerting, and carrier-grade infrastructure can support a broader set of services and applications. Artificial intelligence will accelerate opportunities in both markets, and our approach to it is practical. Let me start with what AI will not do. It will never replace the emergency dispatcher. What it can do is act as an assistant, coaching a call handler through a complex emergency when information is arriving faster than any one person can absorb it. No dispatcher can be an expert in everything.
AI can know how different vehicle architectures behave in a crash and how to free someone trapped in a car. It can guide the first minutes of a chemical spill. It can suggest the specific questions about a suspect or a scene that help responders when they arrive. Some of this is in use today. Real-time transcription of calls, real-time translation on the fly, which we saw heavily used during the World Cup this summer. AI as a training tool for new dispatchers in a job where it takes years to become an expert. Our clear advantage is where we sit. Allerium carries the audio and the information about an emergency from the moment it begins, so we can put AI to work on it in near real-time, inside systems where accuracy, reliability, and security already matter. In mobile networks, the same applies to location and network intelligence.
We believe that gives us a competitive advantage in the marketplace and will drive better margins over time. I also want to be direct about bookings. For the year, our book-to-bill was 1.06, and backlog grew, but the second half was lighter than the first. We don't manage this business to a quarterly ratio. Our awards are large, multi-year contracts with states and carriers, often with option years, and they arrive when procurement cycles finish, not when our quarter does. The better measures are order tempo over a longer horizon and the quality of what we have booked, $520 million of funded backlog and roughly $860 million of revenue visibility when you include the unfunded value of contracts already in hand. That said, converting our pipeline into bookings is our first priority for fiscal 2027. One more piece of the portfolio.
As part of the transaction, we are retaining our cybersecurity training business, which becomes part of Allerium. It has an attractive profile, a profitable business built on longstanding U.S. government programs that have renewed through multiple cycles with proprietary training methods and deep customer relationships. It also fits where the market is going. Securing our nation's first response networks is one of the leading challenges facing public safety today, and 911 systems are among the most targeted infrastructure in the country. As we bring this business into Allerium, we look forward to extending it into public safety, applying its experience and our own to help secure the nation's 911 services and cross-selling it to state, local, and carrier customers we already serve. We expect it to add to our growth. When I look at Allerium today, I see a business with the pieces in place to grow.
Roughly 80% of our revenue is recurring. According to Frost & Sullivan, we hold the number two position in next gen 911 core services in the United States, and the number three position in call handling. And our location technology supports more than 250 million wireless subscribers. We are already the network, the call handling platform, or the location provider for most of the customers we want to grow with, which means our new products go to market through relationships we already have. Mira gives our call handling customers a path to the cloud. Coral gives every agency on our networks a reason to use more of what the network can do. And the market is moving toward exactly these capabilities as states modernize and carriers build out 5G. Our job now is to turn that position into growth.
That means executing for the customers who already trust us, converting the investments we have made into revenue, expanding the value we provide within existing relationships, and bringing new capabilities to market with the discipline these customers expect. It also means focus. For the first time, every dollar we invest, every person we hire, and every decision this leadership team makes will go toward one mission, improving how emergencies are answered and responded to. On the public safety side, that is getting the right information to the right agency faster and helping call handlers act on it. On the carrier side, is helping mobile network operators locate callers accurately, route emergency calls reliably, and alert the public when it matters. Company that puts all of its attention on one market and knows this well tends to build better products, serve customers faster, and run more efficiently.
That is what we intend to do, and that is why we are so excited about this transition. I want to echo Ken's thanks to Mike Bondi and Don Walther for the tremendous amount of work they have done to put us in this position and for their partnership through this transition. I am also excited to work with Rich and Amy and the rest of our leadership team as we build an organization designed specifically for Allerium and the opportunities ahead. We have a lot of work to do, but we know these markets, we know our customers, and we know where we can create value for the communities that depend on 911 and for our shareholders. I am excited to get after it. With that, I will turn the call over to Mike to walk through the financials. Mike?
Thank you, Jeff, and good afternoon, everyone. Before I get into the numbers, let me spend just a moment on presentation to reiterate what Maria just said at the top of the call. Because we had agreed to sell most of our satellite and space business, that business is now being presented as held for sale on our balance sheet and discontinued operations in our income statement and cash flow statements. Comparative prior year information has also been recast on that basis. We now have one reportable operating segment, which consists of our historical Allerium segment, our cybersecurity training and related services business being retained in the sale to Gilat, and our corporate function. Additionally, although wound down and inactive in fiscal 2026, our continuing operations in fiscal 2025 included the runoff of two legacy satellite and space contracts with the U.S. Army, called VSAT and GFSR.
Such contracts are not being acquired by Gilat and therefore are not part of discontinued operations. Unless expressly stated, the results I will be presenting today relate to our continuing operations, and I refer you to our earnings release and 10-K filings for any reconciliations to non-GAAP measures. I will review fiscal 2026 results first, then the fourth quarter, before turning to the balance sheet and liquidity. Fiscal 2026 net sales were $249.6 million compared to $300.9 million last year. It is important to understand that what drove this change in net sales has little bearing on Allerium's business going forward, as the fiscal 2025 period included almost $49 million of net sales from the legacy U.S. Army VSAT and GFSR contracts, which had only contributed $1.7 million of gross profit last year.
Those contracts principally wound down in fiscal 2025 and had only negligible sales and gross profit in fiscal 2026 as a result of our decision to phase out and eliminate certain low-margin and capital-intensive revenues, such as from these two contracts. Excluding such contracts in each year, fiscal 2026 net sales were comparable to fiscal 2025, with slightly lower net sales of our call handling solutions this year, as initial deployment activity in 2025 has now transitioned to recurring maintenance revenue in 2026. Gross profit in fiscal 2026 improved to $97.2 million, or 38.9% of net sales, compared to $95.2 million, or 31.6% of net sales in fiscal 2025. So despite the fluctuation in net sales, we generated $2 million more in gross profit.
The improvement in gross margin reflects the continued adoption of our solutions and the migration of PSAPs onto our NG911 core services and call handling platforms as initial deployments progress into monthly recurring revenue streams. Selling general and administrative expenses were approximately $88 million in fiscal 2026 and 2025. Both years included approximately $10 million of restructuring costs, primarily legal and professional fees associated with our strategic alternatives process and costs to streamline our operations. Excluding such restructuring activities, SG&A was approximately $78 million for each year, which reflects reduced corporate overhead, offset by reinvestment back into Allerium and higher stock-based compensation. Research and development expenses were $11.6 million in fiscal 2026, consistent with the prior year.
However, overall, we did increase our investments in newer technologies and cloud-based platforms this year as we increased our capitalized internal use software development efforts from just under $4 million last year to a little over $6 million this year. Our GAAP operating loss in fiscal 2026 was $18.2 million, an improvement compared to the $29.9 million of operating loss in fiscal 2025. The fiscal 2026 amount includes $14.8 million of amortization of intangibles, the $10 million of restructuring costs I just mentioned, $3.1 million of stock-based compensation, and $1.2 million of CEO transition costs. Excluding such amounts, operating income would have been $10.8 million, or 4.3% of net sales, compared to $7.6 million or $2.5 million of net sales on the same basis last year, which also includes proxy solicitation costs and an allocated goodwill impairment charge recorded last year.
Adjusted EBITDA was $20.6 million, or 8.3% of net sales in fiscal 2026, compared to $16.4 million or 5.5% of net sales in fiscal 2025. The improvement, both in dollars and as a percentage, primarily reflects higher gross profit and lower core SG&A. Total interest expense across continuing and discontinued operations was $48.3 million and $45.6 million, respectively. Fiscal 2026 reflects a shift from cash interest associated with our credit facility to accretive make-whole adjustments and paid-in-kind interest associated with our subordinated credit facility, in addition to higher amortization of the make-whole adjustments, deferred financing costs, and debt issuance costs due to the assumed repayment of a significant portion of our debt when the anticipated transaction with Gilat closes. Interest expense allocated to continuing operations in fiscal 2026 was $21.3 million, compared to $19 million last year. Most of that interest expense is non-cash.
Cash interest paid for continuing operations was approximately $5 million in fiscal 2026, down from $12.9 million last year. As Jeff mentioned, bookings for fiscal 2026 were $263.7 million, resulting in a book-to-bill ratio of 1.06. Bookings include a multiyear extension from Allerium's largest customer, valued in excess of $130 million at the time of award. Funded backlog at July 31, 2026, was $520.4 million, compared to $506.3 million a year ago. Revenue visibility, which adds the unfunded value of certain multiyear contracts from which we expect future orders, was approximately $862 million. Turning to cash flow. Operating cash flows were $25 million for fiscal 2026, compared to outflows of $29.2 million in fiscal 2025.
The improvement reflects favorable changes in working capital management, driven by improved accountability and process disciplines, as well as the timing of and progress toward completion on contracts accounted for over time, which allowed us to reduce billed and unbilled accounts receivable. Fiscal 2026 and fiscal 2025 operating cash flows absorbed about $7.8 million and $19.7 million, respectively, of payments for restructuring, severance, proxy solicitation, and CEO transition costs. Including discontinued operations, total consolidated operating cash inflows were $37.4 million, compared to outflows of $8.3 million last year. Validation of our efforts to focus on cash generation. Capital expenditures were $15.2 million in fiscal 2026 and primarily reflect efforts to build out cloud-based computer networks and internal use software applications, along with investments in building improvements associated with our leased facilities, including our new Gatineau location Jeff mentioned. We expect continued investment in these initiatives in fiscal 2027.
Now, turning to our fourth quarter. Net sales for the fourth quarter of fiscal 2026 were $66.2 million. This compares to $75.3 million in the fourth quarter of last year. However, similar in concept for the year-over-year comparisons I just discussed, Q4 of last year included about $8 million of net sales and a $500,000 of gross profit related to the legacy VSAT contract. Excluding that contract, the change in net sales reflects lower sales of location-based and call handling solutions, but offset in part by higher net sales of our NG911 solutions and cybersecurity training services. Gross profit in the fourth quarter of fiscal 2026 was $26.9 million, or 40.6% of net sales, compared to $26.2 million, or 34.7% of net sales in the fourth quarter of last year.
Excluding the VSAT contract, the improvement in the gross profit percentage in the more recent period reflects the continued adoption of our solutions by customers and the migration onto recurring services. For context, net sales in our third quarter of fiscal 2026 were approximately $61 million, and gross profit was approximately $24 million, or around 39% of net sales. Sequentially, in terms of sales and gross profit, we had a better Q4 relative to Q3, and such increase reflects growth in all four product areas. In our fourth quarter of fiscal 2026, we reported an operating loss of $3.9 million, which compares to an operating loss of $0.8 million in the fourth quarter of last year. Our fourth quarter of fiscal 2026 reflects $5.7 million of restructuring costs, $3.6 million of amortization of intangibles, $1 million of stock-based compensation, and $100,000 in CEO transition costs.
Excluding such items, operating income for the fourth quarter would've been $6.5 million, or almost 10% of net sales, as compared to $5.1 million or 6.7% in the prior year period, when excluding similar items. The improvement in fiscal 2026 primarily reflects higher gross profit, both in dollars and as a percentage of net sales and lower core SG&A. Restructuring costs during the fourth quarter of fiscal 2026 principally related to our strategic alternatives process, which concluded with the sale of most of the S&S business to Gilat, announced on June 15, 2026. Following the expected closing of the sale transaction in calendar 2026, we plan to align our operations, strategy, and brand with Allerium's public safety focus.
Adjusted EBITDA for the fourth quarter of 2026 was $9.2 million or 13.9% of net sales, compared to $7.5 million or 10% of net sales in the fourth quarter of last year, reflecting higher gross profit again and lower core SG&A. Cash provided by operating activities was $18.5 million for the fourth quarter of fiscal 2026 as compared to $1.2 million of cash used in operating activities in the fourth quarter of last year. Q4 fiscal 2026 marks our sixth consecutive quarter of positive operating cash flows. Operating cash flows in the fourth quarter of fiscal 2026 included aggregate net payments of $0.9 million, principally for interest. As for restructuring costs, including severance, CEO transition costs, and third-party professional fees, net payments were nominal, due mainly to recoveries from insurance. Now turning to the balance sheet.
As Ken mentioned, contemporaneously with signing the agreement to sell most of the S&S business to Gilat, at a time when we were in compliance with the terms and conditions of our credit facilities, we entered into various amendments to our credit facility, subordinated credit facility, and convertible preferred stock agreements, which enhanced our overall financial flexibility and reduced our anticipated cost of capital. Upon closing the sale transaction with Gilat, we will use the net cash proceeds to substantially reduce debt and then seek a comprehensive recapitalization of the business with the intention to further enhance our financial flexibility and reduce our cost of capital.
Under our credit agreement, 65% of the net proceeds from the Gilat transaction will be applied to prepay the credit facility, which should retire the substantial majority of that facility, and the remaining 35% will prepay subordinated debt, beginning with the remaining portion of the $35 million subordinated priority term loan. In addition to the $10 million advance payment we received at signing, we estimate that we will receive an additional $128.3 million in net cash proceeds at closing. After deducting sale-related expenses and funding a customary $3 million escrow obligation related to post-closing net working capital adjustments. Such amount also excludes potential proceeds from S&S assets that we are retaining.
Because the business being sold to Gilat is considered held for sale, and given the terms of our debt agreements, which require the use of net proceeds to prepay debt, $85.3 million of our senior term loan principal and $46 million of our subordinated term loan principal, including PIK interest and applicable make-whole adjustments, are classified as current liabilities. As of year-end and as of October 13th, 2026, respectively, total outstanding borrowings under our credit facility were $108.5 million at each such date. Total outstanding borrowings under the subordinated credit facility were $102 million and $103.1 million respectively, including PIK interest on the subordinated priority term loan outstanding at each date. These amounts do not include the 50% or $32.5 million make-whole amount associated with the $65 million portion of the subordinated credit facility.
The liquidation preference of our outstanding convertible preferred stock was $223.2 million and $227.1 million respectively, excluding potential increases in the liquidation preference and other obligations that could be triggered by, among other things, breaches of covenants and/or asset sales resulting in a change in control of the company. Our available sources of liquidity, as Ken mentioned, totaled $61.3 million at July 31st, 2026, consisting of $34 million of qualified cash and cash equivalents and $27.3 million of remaining available revolver loan capacity. As of October 13th, 2026, our liquidity approximated $51.3 million, and the remaining available portion of the revolver loan was $27.3 million. One update that I would like to provide at this time, it's a brief update on our pro forma disclosures included in our earnings announcement today.
In connection with aligning our operations strategy and brand with a public safety focus, we anticipate investing between approximately $13 million and $15 million for transition-related costs. Such costs are expected to be incurred mostly in fiscal 2027 and some in 2028, and associated with business system tools, capabilities, personnel, and reporting functions. After completing the sale of most of the S&S business, and after approximately one year of transition implementation, we anticipate annual cost savings to range from approximately $16 million- $18 million. Based on these assumptions, we estimate that pro forma adjusted EBITDA would have been between approximately $37 million and $39 million for fiscal 2026. Keep in mind, such amounts are unaudited estimates.
For additional context, while the midpoint of the investment increased about $1 million from our prior estimate in June, the midpoint of our pro forma adjusted EBITDA increased by $4 million, now to $38 million. One last item before turning the call back over to Ken. On a personal note, I would like to take a brief moment to personally thank Ken, the entire management team, the audit committee, and the full board of directors, and all of our employees throughout the organization for your partnership over these past call it 23 years at Comtech. It's truly been an amazing journey, and I could not be more excited for the business going forward. We have successfully emerged from our transformation as a stronger company, and I am very proud of what we have accomplished together.
I am already working together with Rich and my team to ensure a seamless transition, and I am confident that Allerium is in capable hands. Now, with that, let me turn the call back over to Ken. Ken?
Thank you, Mike, and you really should be proud. To sum up briefly, Comtech is now a much stronger company, operationally, financially, organizationally, and strategically. Assuming we obtain regulatory approval and close the strategic sale transaction of our S&S business, we will not only have a stronger capital structure, but we will be focused and aligned around Allerium's market-leading public safety business that Jeff has been building. This is a business that not only has an attractive financial profile today with high recurring revenue and long-term customer contracts, but exciting opportunities to grow through our innovations and increasing market demand for next-generation public safety solutions. I want to close by thanking our entire team. The dedication, discipline, and pride I have seen across this organization in satellite and space, in Allerium, in our finance, legal, IT, and people operations teams is what made all of our accomplishments possible.
I am so proud of this team and what we are accomplishing together. I am particularly grateful to Mike and Don for their dedication, their loyalty, and their contributions to Comtech. It really has been a pleasure to work with both of them, and I have great respect and appreciation for all you are doing, Mike, as well as Don. We look forward to working with you both through this transition and wish them well in all of their future endeavors. As a reminder, both Jeff and Mike will be joining me for Q&A. With that, operator, please open the call to any questions.
Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question, and we'll pause for a moment to allow everyone a chance to join the queue. We'll take our first question today from Mike Crawford with B. Riley Securities. Your line is now open.
Thank you. Can you characterize any awards you've won 11 weeks into this 13-week October quarter, and whether this informs whether top line might be flat up or down from a July level?
Hi, Mike. Just to make sure that we captured your question correctly, you are looking for some update on awards post-July?
Yes.
Okay, great. Yeah, in our business outlook in the 10-K, we did update, for some subsequent events, for insight on some key bookings that we thought were appropriate to put in there. That is not to imply that those were all the awards. Certainly, Jeff's team is hard at work, and I do not know if Jeff, there is any color you want to provide on opportunities that were secured out.
Yeah. Well, because a lot of those opportunities are government-related, we would like to make sure that we clear it before making public announcements. But suffice it to say, there were some awards out there that we are proud of that are highlighted in some of the 10-K. But before publicly announce them, I would want to clear it with them first.
Yeah. What we did disclose today was a $3 million order from the Canadian government for a deployment of Guardian, and we also had over $2.3 million from a domestic Tier 1 mobile network carrier for security features and enhancements, which is a recurring type of order we do get from our customer.
Okay.
Does that satisfy your question, Mike?
The first part. I guess the second part was on whether that informs top-line direction versus July.
Yeah, in terms of guidance, we're not going to put out guidance, but I would point to our updated disclosures in our financials. We have about $520 million of backlog. We expect that backlog to give us a nice foundation of revenue somewhat evenly over the next three years. We're expecting that about 40% of that backlog is going to turn to revenue inside of fiscal 2027. So it's really a strong base to build upon.
Okay, great.
Yeah, Mike, as you look at our business going forward, it is going to be a much more predictable business, right? The S&S business, as you know, has been a lumpier, more volatile business for us to be in. As we focus on our public safety, more than 80% of our revenue is recurring in nature. So that forms a good base, and the balance, we have long-term customer relationships that we know that we will be building around. We think that our public safety business has been hamstrung to some extent by being part of a corporate organization that included S&S, and S&S had a recent history of challenges. Fortunately, we have overcome those challenges, and now the consolidated company is much stronger, and we are able to invest and support Allerium the way it should be supported.
That gives us greater confidence to build around that base and support the growth of the company going forward.
Thanks, Ken. That makes a lot of sense. And just final question from me is, given that base that you are building around now, can you characterize the size of your current pipeline and what recompetes, and/or RFPs are in play this fiscal year?
I typically, again, am giving forward guidance, but I would tell you that our pipeline and many of the RFPs that we are going after are government procurement RFPs that are public. I would not want to comment on them right now, as we are in different stages of them right now. But suffice it to say, this should be one of the stronger years for government procurements along the next gen 911 cycle, not only in the U.S., but in the other countries we serve, both in Canada and Australia, where you will see a strong pipeline from us.
Excellent. Thank you so much.
Mike, something to add to that. In addition to winning new accounts, cross-selling is an important element of our growth. We already have established relationships with a large customer base, and we have more opportunity to sell more to them than what we've been selling in the past. It's not just about winning the next procurement. It's about building around existing customers.
No, that's a great point, Ken. I should have probably mentioned it, Mike. These networks that we've deployed, once we deploy them, there's a financial profile that the company benefits from. But once the network's deployed, the services we can run on top of those networks. Mira, you heard me talk about our new product. That runs over the network and can be resold to those customers to improve revenues, as well as Coral. We have many of those customers already looking at those products now in play that will hit the fiscal 2027 timeframe for decisions. Thanks, Ken, for reminding me about that.
Great. Thank you.
Thank you. Our next question comes from [George Edelson] with Northcoast Research. Your line is now open.
Hey, guys. It's [George Edelson] in for Keith. Good afternoon, and thank you for taking my questions. Also congratulations on the progress with the transformation, and welcome to Rich and Amy as well. The first question I have for you is, Jeff, you brought the Allerium and Mira, and Allerium, Mira, and Coral to the market in June. Can you share any early customer feedback, pipeline activity, or initial wins? From the outside, what milestones should investors be watching for to judge whether these products are succeeding?
Great. Great question. I think the feedback we're getting, the early feedback in the market for both Mira and Coral. Mira is one that we are actively in beta for right now. The main feedback has come from the ease to, whether you're switching from a traditional 911 system or moving to the cloud, the speed at which we can turn that up and deploy is one of the big benefits we've seen. The other is as you move to running it as a service on our network, a lot less customer premise equipment is required and a lot less technical sophistication required to deploy. Those are some of the feedbacks primarily from Mira. The other thing I would say that we're also hearing is the upgrade cycle.
Traditionally, when we've deployed 911 systems to PSAPs, it's a five to seven-year upgrade cycle, almost like forklifting out new equipment. Now, we anticipate the upgrade cycle to be much quicker as we can deploy new feature sets, new AI functions, and other requirements over the network themselves, that we push those to 911 centers rather than having to visit and upgrade traditional systems. That's some feedback we're getting. On Coral, one of the biggest challenges is, and again, I'll just pick one example that we're seeing traction on is mutual aid, and that's when multiple agencies will respond to an emergency, and especially with these weather events that we've seen. They're not just in one small city where that fire department is. It's a multi-agency response.
We're using our network, in Coral in particular, we're proposing that to connect these other agencies together now on their dispatch systems to share information. In the past, you didn't know whether that adjoining neighboring agency was responding, how far away they were, what apparatus they might have had available. Now we're seeing states and regions starting to do that in coordinated responses, not to mention state resources as well that can now be part of that network. The feedback we're getting from Coral on these major incidents that we're seeing, and even just of last week with all the weather events, that's some of the early feedback we're seeing. The other challenge or the benefit that a lot of our customers are seeing is that's over the secure 911 network.
In the past, you could maybe do it over tools over the internet or some other things, but those were neither secure or reliable. Now with the 911 network specifically for this, we're seeing some good feedback. Just to note, our next gen 911 networks, they hover around 10%. We only use 10% of their capacity today. They're built for these future applications. So 90% of that bandwidth is still available for other things, and both Coral and Mira are playing into that. Sorry to go a little technical on you, but I'm kind of passionate about it, George.
No, that was all great. Thank you. Thank you for that. Also just kind of following on with that, looking at the Allerium portfolio today, is there a product or technology area that you wish that you had, or is there anything that you'd say is on your wish list going forward?
Again, another great question. I could probably talk to you for an hour on this. In summary, I think as you look at an emergency response, as we mentioned in our call just now, we start at the first time someone presses send on their phone when they dial 911, we're involved with the carrier to get both the location and to route that call to first responders. So that's the very front end of an emergency response. Then we take the request for help at the PSAP or the 911 center, and then we hand it off to allow the agency to dispatch. Then there can be reports or investigations after the fact, and there can be court and everything else in a response. We would like to, and I would like to, expand our TAM into the full emergency response process.
Right now, we're on the very front end, George, of that, and I think there's opportunities to provide more services on that workflow. These same services could run over that network I just mentioned. So if there was a wish list I had, it would be to handle more of that emergency response workflow.
Awesome. Then another question, more so for Ken. You laid out a clear kind of vision for a focused Allerium. Looking on from a year from now, once the transaction's complete, would you expect to have acquisitions be part of the growth plan, or are you guys more so focused on organic growth for right now?
Right now, we're focused on getting the transaction to sell the S&S business closed. We're awaiting regulatory approval and working with the regulators to get that done. Once we get that done, our expectation is to refinance our capital structure. That will give us the firepower to be able to invest in the future growth of the business, both organically, because as we have been describing, we think that there's significant opportunities within Allerium to grow organically, and we're going to continue to build up Allerium. We also see opportunities for complementary acquisitions. Once we consummate the sale and the refinancing, we're going to be in a good position to pursue that.
Awesome. Then also just final question. You guys, for the annual cost savings, they're now $16 million-$18 million compared with the $11 million-$13 million you guys kind of stated when you announced the sale in June. What changed and how much should we expect to see in fiscal 2027 versus 2028?
Okay. George, we're not going to give guidance on 2027 and 2028. What we did here is provide a pro forma of if we had consummated the transaction and implemented the transition, what would be the cost savings and therefore the resulting pro forma applied to fiscal 2026? We improved those numbers on net $4 million improvement in EBITDA from what we expected in June of 2026. At the time we announced the transaction, that $4 million improvement is the result of now our corporate team and the Allerium team working closely together on identifying opportunities to operate more efficiently in a more streamlined structure built for purpose for the future growth and success of Allerium. We're pleased that we have been able to find additional efficiencies that result in a more attractive pro forma than what we presented in June.
Awesome. That's all the questions from me. Thank you guys again for the time.
Thank you, George.
Thanks, George.
Thank you. Our next question comes from Steven Kohl with Mangrove. Your line is now open.
Good afternoon, guys. There's a lot of people to thank, so we'll assume that's already done, but I do want to call out and say that it's been a hell of an effort across the board on the team to get to this point, and certainly I look forward to the next chapter. I wanted to kind of peel this onion back a little bit and see if I can get a handle and make sure I'm understanding this. When we look at the total booked revenue that's under contract and then the opportunity at 862, is it right to look at it that we have a base amount and then we have the value-added services wrapped above that? I know we're talking about Mira, we were just talking about Mira Coral just now. Would that be, for example, included in that number?
Or would that likely come on top of that number as you get the base contract?
On top of. Just to follow your question, Steve, as a result of the transaction, we are going to be selling all of S&S with the exception of our cyber service business. That incremental revenue and profit will now be part of Allerium. In the future, we expect to have cross-selling there and future opportunities, but that's not counted in the pro forma of the way we look at the 2026 as if we had sold all of S&S. We have the benefit of the historical revenue of cyber, but not the incremental growth or the cross-selling. The way we did the pro forma is we looked at the corporate cost and then what would we need in a streamlined operation to support Allerium without S&S and without the complications of a multi-segment business.
That streamlined business is what results in the cost savings and the improvement in the pro forma EBITDA.
Got it.
The only thing I would add to Ken's comments, Steven, if you were talking about booked business from Allerium in particular, that is signed, booked contracts in hand. Many of those, for instance, when we booking for a next gen 911 statewide network, they don't include those new services in there. Those would be add-ons later on that would add to the bookings of backlog.
It's a dumb question as we start to learn, hopefully these will be less dumb. But in a typical contract, Jeff, how much would that be? So if we took a base of, let's say, $10 million, is it typical to get 20% add-ons? And is that the opportunity that you see that we could get a higher percentage going forward?
There's a mix, Steven. So typically there's a percentage. So if it is $10 million, there's a percentage that's usually change orders as the state asks for new things or maybe new areas they want to have on the network. So there's usually a percentage, say, call it 20% in change orders. For these other solutions, it can vary depending on how well our sales team sells within that. Once we have the network statewide, for instance, some of these states have 200- 400 PSAPs, if you will. As we penetrate that market, we could sell a lot of Mira to that, so it can vary from a percentage-wise. We have some states that have a lot of our call handling solutions, and we have some that are greenfields right now that we want to sell into, and our team is actively selling into those.
So it'd be hard to give you a percentage on that, but the change orders is typically 20%. But the other applications, both Coral and Mira, we're selling into that base.
Another aspect to answer your question there, Steve, is cash flow versus revenue and profit recognition. In the past, Comtech reported higher revenue and EBITDA than cash flow. In 2026, we caught up a lot with improved working capital management. Now, why did it happen in the past? Because sometimes contracts are structured such that the work and investment is required upfront for the customer. The company has recognized revenue, but collection of the receivable could have been significantly delayed. Could be multiple quarters, in some cases, years. In fiscal 2026, we caught up. We delivered to customers. We're able to collect those receivables, and our aim is to continue to do a better job of aligning our cash flow with our revenue and profit. The business is accounting is one thing, but you need to generate the cash.
We are doing much better job as a company in generating cash flow.
Right. Last question is, when you look, I know you're not giving guidance, but I'm just thinking from a bigger picture, how should we as investors look at this from a growth perspective? Is this a 5%-10% type of base business where margins, I know, I was looking back, Jeff, I think you've been on a number of these things, but EBITDA margins I've seen certainly over 20% across some of these companies, which we're obviously not quite there yet. Just curious on how should we look at that? I mean, are we at a point that it could be faster than that for points? Because I think people are struggling to try to understand what to expect, but obviously not having guidance yet.
Yeah. Good try, Steve. We're not going to give guidance now, but I'll try and give you flavor in answering your question. We're going through this transition now, so the best we could do for now is give you the pro forma on the economics of, as a result of the transition, how can you model the past performance of fiscal 2026? Those are numbers we reported, and we've identified the savings, and that's, in a way, helping you model going forward. Now, what we can tell you is once we get through this transition, and we do need a little bit of time to do that, this is a business that lends itself to predictability, and we should be in a position in the not-too-distant future to be giving guidance, but now is not the right time.
Right.
We are going through the transition. We're making changes. We have to execute on that. We're confident that we are building a better company, with the investments we're making now in this transition, the cost savings, and the isolation of a core business that we know has a lot of legs. It's got a great base with recurring revenue and long-term customers, and it's well-positioned to capitalize on growth. How much that growth is, we're not going to say right now, but we're optimistic that this is a business we can build around.
Right. Thank you. Thank you guys very much. Appreciate it.
Thank you. This does conclude today's question and answer session. I will now turn the call over to Ken Traub for closing remarks.
Well, thank you all for joining us today. We do look forward to updating you as we proceed towards the anticipating closing of the sale of the Satellite and Space business and our continued progress in building the Allerium business. Thank you all, and we look forward to speaking with you again soon.
Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.