Q1 2024 Comtech Telecommunications Corp Earnings Call
Participants
Ken A. Peterman; Chairman, President & CEO; Comtech Telecommunications Corp.
Maria Hedden; COO; Comtech Telecommunications Corp.
Maria Ceriello
Michael A. Bondi; CFO; Comtech Telecommunications Corp.
George Charles Notter; MD & Equity Research Analyst; Jefferies LLC, Research Division
Gregory John Burns; Senior Equity Research Analyst; Sidoti & Company, LLC
Michael Roy Crawford; Senior MD, Head of The Discovery Group & Senior Equity Analyst; B. Riley Securities, Inc., Research Division
Presentation
Operator
Welcome to Comtech's Fiscal Q1 2024 Earnings Conference Call. As a reminder, this conference is being recorded today, Thursday, December 7, 2023.
I would now like to turn the conference over to Ms. Maria Ceriello of Comtech. Please go ahead, Maria.
Maria Ceriello
Thank you, operator. Good afternoon, everyone, and thanks for taking the time to dial in today. Welcome to the Comtech Telecommunications Corp.'s conference call for the first quarter of fiscal year 2024. Today, I'm here with Comtech's Chairman, President and Chief Executive Officer, Ken Peterman. We're also joined today by Maria Hedden, Comtech's Chief Operating Officer; and Mike Bondi, Comtech's CFO.
Before we get started today, please note we have a detailed discussion for the quarter in our Shareholder Letter available on our website and we have also been working to communicate directly about our business and our market on our blog, Comtech: Signals. Certain information presented in this call will include, but not being 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.
Now, I'm pleased to introduce President and Chief Executive Officer of Comtech, Ken Peterman. Ken?
Ken A. Peterman
Thank you, Maria. Hello, everyone, and thanks for joining us today. This call represents the fifth quarter of our One Comtech transformation, our fifth sequential quarter of incremental revenue growth and our second consecutive quarter with positive GAAP operating income, clearly demonstrating the positive momentum we are building as One Comtech. As we finished the first quarter of our new fiscal year, the One Comtech transformational change is well underway, including the collaborative culture of innovation we're building, our steadily improving sequential performance and the promising strategic trajectory we are on. While there remains much to do, we believe more than ever before that we have a very exciting future ahead.
Since I took on the role of CEO a little over a year ago, I have consistently expressed how critical it is for us to fully embrace the need for change and work together to drive a near total transformation of our organization and together, we're doing that. Having brought 14 historically siloed businesses together, we are collaborating better than ever before, utilizing common practices, tools and processes across our unified enterprise to steadily improve operational performance. We're leveraging our people strategy to reveal and address emerging skill gaps and we're harvesting synergies among our programs and our product road map.
As One Comtech, we are collaborating with customers in new ways to deliver more customer value than ever before, developing more comprehensive solutions aligned with our vision for smart networks and unique technology convergences that provide our global customers with new forms of connectivity, insights and actionable intelligence that have the potential to fundamentally transform network connectivity infrastructures around the world. As I shared before, our customers need us to be more than a vendor. They need a technology partner. We are becoming that partner who listens and solves the challenges they're facing every day with the foresight to proactively position and address the challenges [moving] on their horizon.
Recent strategic contract wins such as EDIM, DoD's next-generation 8-channel satellite modem and GFSR are clear proof that as One Comtech we are succeeding. Our global customers ranging from emergency service providers, commercial mobile network operators, satellite service providers and the Department of Defense continue to place their trust in Comtech. More importantly, these customers recognize that our comprehensive solutions will deliver greater value than ever before in addressing their toughest challenges.
As we launched our FY '24, we have remained focused on the crucial daily work of steadily improving our operations, balance sheet and financial performance. When necessary, we've made bold decisions to empower our teams on the front line with both the resources and the authority they require to address our customers' needs. Importantly, we're seeing the results of these efforts every single day. Together, we are working to assure our culture of collaboration and innovation. In conjunction with our differentiated expertise, technology leadership and unique understanding of our customers' needs, Comtech will continue to be positioned to lead the way in delivering the blended hybrid, smart-enabled solutions and services that will bring forward smart networks and new technology convergences that can power a truly connected planet.
While Michael speak to this quarter's results in a moment, I'd like to steal just a little bit of his thunder and highlight some numbers we're proud of. First, I'm pleased to report that Comtech continues to deliver on our commitment to growth. Our net sales rose about 16% year-over-year to $151.9 million with new bookings of $185.6 million, which is the highest they've been since I assumed the role of CEO. We're also consistently meeting or exceeding our financial projections, delivering sequential revenue growth in each and every quarter since our One Comtech transformation began.
Our revenues this quarter are, in my view, a direct reflection of the multiple year-long initiatives that we've implemented to transform our company, reinvigorate our sales and aggressively turn for delivering more comprehensive innovative solutions that exploit the emerging opportunities of a complex communications landscape. Let me emphasize again that our transformation to One Comtech is working. Simply put, the improvements to our business processes and the increased attention to risk management and process discipline as we implement common systems and platforms across our enterprise have significantly enhanced our ability to identify and exploit synergies, increase cross collaboration and optimize business execution across the entire organization.
Allow me also to highlight a couple of key wins this quarter that I think highlight a competitive advantage that our technology leadership gives us right now and that I think will extend going forward. Our Satellite and Space segment had an especially strong quarter. On the heels of multiple significant contract wins, we recently announced the receipt of a $20 million-plus order from U.K.-based Spectra Group for our COMET portable troposcatter systems. For our international allies, network agnostic, secure and interoperable communications capabilities comprise a crucial component of any and every national defense and security strategy. We believe this COMET order is another clear indicator that this increasing global market demand. For our troposcatter family of systems, every additional win further validates our position as the provider of the best troposcatter solution in the market.
Other parts of our satellite space portfolio are also contributing to our growth. In October, Comtech was awarded a $9.6 million sole source contract by a division of L3Harris Technologies. The contract calls for the delivery of Comtech's highly regarded modem technologies and platforms, supporting the Air Force and Army Anti-Jam Modem or A3M program. This provides cutting-edge anti-jam satellite communications capabilities to military personnel across diverse operational environments and geographies. This contract vehicle also allows the DoD to place production order requests for A3M modems for years to come.
At the same time, our terrestrial and wireless business also secured a key win this quarter with significant upside potential. The Canadian government at the federal level has mandated countrywide adoption of next-generation 911 services by March of 2025 to ensure a national 911 infrastructure that is future-proof, utilizing the best of modern communications technologies, including voice, text, video, location-based services in both terrestrial and satellite-based networks. Comtech is at the forefront of this emerging opportunity.
When Strathcona, a county in Alberta recently became the first municipality in the country to introduce these services, it was Comtech's recognized expertise as a service provider that got them there. This win for Comtech is particularly exciting because we are only at the very beginning of a nationwide implementation. We expect Comtech to be extremely competitive as communities in Canada and across North America migrate to new emergency response technology. In fact, in October, members of the Pennsylvania Emergency Management Agency, a Comtech customer received the Pennsylvania Governor's Award for Excellence in recognition of their efforts in the PEMA Next Generation 911 project.
Increasingly sophisticated first response technologies and services collect and integrate data from multiple sources to direct and optimize responses. These communications infrastructures will increasingly demand not only assured connectivity, interoperability between terrestrial and wireless networks and advanced analytics, but also need to meet the highest security standards as well. These are all core competencies for us at Comtech. And the work we've done to combine and harmonize our own businesses under One Comtech means that we can bring our native fluency in all aspects of communications network infrastructures to bear on our clients' most complex problems.
When I first started as CEO a little more than a year ago, it was obvious that maintaining the status quo was not an option. The onus was on Comtech and its leadership to regain the confidence of investors and the only way to do that was through accelerating the decisive and total transformation of the organization. Improved operational performance combined with the collective technology advantage we deliver to our customers as One Comtech across an expanding range of applications in an expanding set of growth markets is one of the reasons I'm so excited as we look to the year ahead.
With that said, I've asked our Chief Operating Officer, Maria Hedden, who some of you may remember from our Investor Day this summer, to speak to the significant progress we are making as we implement our One Comtech transformational initiatives. Maria?
Maria Hedden
Thanks, Ken. Having spent my career driving continuous improvement in business execution, I found that it is important to be able to not only point to actions and change, but more importantly, genuine, measurable improvement. The internal metrics we use to gauge our performance are compelling. And looking at this quarter's financial performance confirms it's working. Following the implementation of One Comtech and excluding restructuring costs, our consolidated operating income this quarter was 10.1% of net sales. That's a 410 basis point improvement on a comparable year-over-year basis and $1 million sequential improvement from last quarter.
As we shared before, upon launching our One Comtech transformational journey, we first initiated an appropriate period of discovery wherein we visited each of our 14 siloed businesses and conducted a thorough assessment that included operating policies, processes, tools, platforms and skill sets. Following this discovery phase, we analyzed the collected data and rapidly launched standardized best practices, common tools, processes and platforms across the entire enterprise. As we continue to execute, we are already realizing measurable improvements in operational performance as well as identifying opportunities to collaborate and exploit synergies and ways that were simply not possible before.
Importantly, we identified key performance parameters and institutionalized the methodology necessary to [quantitative] measure and empirically assess our ongoing operational improvements. We are increasingly exploiting performance metrics and extending their applications to drive continuous improvement across the enterprise. While we have much work ahead of us and the implementation phase is far from over, we are making significant progress in nearly every aspect of our operations. There are many examples of the transformational changes underway across our enterprise.
We have instituted a formal Program Management Office to standardize best practices, which is having an impact on not only our ability to efficiently manage existing contracts with customers but bring more effective budgeting, controls, risk and time line management to future projects, all of which I believe will expand margins over time. We have launched an Internal Finance Academy to ensure that all our business leaders have a clear understanding of the economics that impact our contracts, programs and proposals.
We have consolidated our enterprise-wide engineering functions under a single leader, which allows us to prioritize staffing and resource deployment across the organization. This streamlines decision-making, optimizes resource deployment and improves efficiencies, while simultaneously improving employee career progression. We have strengthened our operational finance team with additional leadership with a proven track record in all aspects of financial planning, forecasting, execution, analysis and capital allocation.
In parallel, we're applying lean manufacturing and operating principles to everything we do enterprise-wide. We are synchronizing our technology road maps to lever technology inflections and make the most of market convergence, which is improving every aspect of our new product development process. It's a lot of work, but when we look at the results, like the meaningful improvement in our operating income it's clearly worth it.
Thanks for the opportunity to share our progress and let me turn it back to Ken.
Ken A. Peterman
Thank you, Maria. While there's much yet to do, it's clear we've made remarkable progress over these past few months and you and your team are critical to driving the transformational change that is already making a difference to our bottom line. Thank you all.
It's also noteworthy that we're continuing to attract proven leaders and great people and we expect will make significant contributions to Comtech's growth. We recently appointed industry veteran, John Ratigan as our Chief Corporate Development Officer. With 3 decades of leadership experience behind him, including the creation from scratch of $100 million a year annual revenue satellite communications business, John's leadership experience and track record clearly indicate that he is uniquely well suited to help drive Comtech's strategic business trajectory, accelerate our transformational journey and lead our expansion into new growth markets. I've known John for many years and I'm thrilled to welcome him to our Comtech team.
Finally, and before I turn to Mike to discuss our financial performance in detail, I want to speak about the importance of proactively managing our balance sheet, which I talked about last quarter. Our credit facility matures in October 2024, and we're continuing our engagement with multiple parties as we make steady progress in evaluating a variety of alternatives, negotiating terms and working toward achieving a favorable outcome for our steadily improving business.
On that point, it's particularly noteworthy that we've grown revenue every quarter since I took on this role of CEO. We've expanded EBITDA margins and have generated positive operating income growth for the past 2 quarters. And we have good visibility into approximately $1.7 billion of future revenue. We are undoubtedly making steady progress in our transformational journey. Our performance clearly indicates that we are on a favorable business trajectory that has delivered sequentially improving performance each quarter.
With that, let me turn to Mike.
Michael A. Bondi
Thanks, Ken. For Q1 fiscal 2024, we recorded $151.9 million of consolidated net sales. of which $102 million were reported in our Satellite and Space Communications segment and $49.5 million were reported in our Terrestrial and Wireless Network segment. Consolidated first quarter sales represented a 2.1% increase over last quarter and our eighth consecutive quarterly increase. Compared to the year ago quarter, our consolidated Q1 fiscal 2024 net sales increased $20.8 million or 15.9%, reflecting higher net sales in our Satellite and Space Communications segment.
Consolidated gross margins for Q1 were 31.5% and 35.7% in the comparable period of the prior year. Such changes reflect an increase in net sales and overall product mix changes, including significantly higher net sales of our troposcatter and SATCOM solutions to U.S. government customers. Gross profit in the comparable period of the prior year also reflects the benefit of higher net sales of our beyond line-of-sight communications terminals and upgrades to the Ukrainian government's existing systems as part of an FMS contract awarded to us during that quarter.
Operating income in Q1 fiscal 2024 was $2.1 million compared to an operating loss of $9.7 million in Q1 of last year. Such operating income this quarter reflects higher net sales reported as well as the benefits from profit improvement and lean initiatives implemented through October 31, 2023. This marks our second quarter of GAAP operating income since Q4 of fiscal 2021. This is not a small accomplishment when considering that we achieved this all while still incurring incremental expenses associated with our One Comtech transformation that Maria just discussed, along with our restructuring activities. Of importance, too, we believe this provides a stronger foundation for sustainable and profitable growth in the future.
As explained in more detail and reconciled in our Form 10-Q filed earlier today, we utilized a non-GAAP measure that we refer to as adjusted EBITDA. During Q1 fiscal 2024 adjusted EBITDA was $18.4 million or 72% increase from Q1 fiscal 2023. Also, as a percentage of net sales, adjusted EBITDA was 12.1%, an improvement from the 8.2% we achieved in Q1 fiscal 2023. Adjusted EBITDA margin in the more recent period reflects higher gross profit from higher net sales in our Satellite and Space segment and the benefit of our One Comtech lean initiatives.
Overall, our consolidated Q1 net sales and adjusted EBITDA were within our guidance provided last quarter and we are pleased with our continued strong results, particularly in light of a macro environment that remains challenging and all while undergoing one of the most comprehensive transformations in this company's history. In addition to optimizing our cost structure, securing key contract wins and expanding our pipeline of opportunities, we have also been very busy addressing strategic questions about the composition of our business and the strength of our balance sheet.
First and foremost, we made some important liquidity and going concern disclosures in our SEC filings today and we strongly urge you to read those disclosures carefully. Now with that as context, we discussed in October following a careful review of our current business and product lines, we saw an opportunity to divest our Solid-State Power Amplifier product line. As disclosed in our Form 10-Q filed today, we successfully completed this divestiture on November 7, 2023.
We are also simultaneously addressing the need to refinance our credit facility, which expires in October of 2024, and is now current. In anticipation of this maturity, we have engaged with third-party financial advisors to assist us in our discussions and negotiations with our existing lenders and holders of convertible preferred stock to extend or refinance the credit facility and/or amend or restructure our convertible preferred stock. We've also engaged with our advisors to assist us with seeking other sources of credit or outside capital. During our Q&A session, we will do our best to respond to your questions regarding our refinancing efforts as well as our disclosures in our SEC filings today. But due to the ongoing nature of our discussions and negotiations with various parties, we may be limited in what we can or will say.
As we enter the second quarter of fiscal 2024, business conditions continue to be challenging and the operating environment is largely unpredictable, including factors such as inflation, rising interest rates, the repercussions of the military conflicts in Russia and Ukraine and the Middle East and a potential global recession. Order and production delays, disruptions in component availability, increased pricing for labor and parts, lower levels of factory utilization and higher logistics and operational costs have in the past and could impact our business in the future.
Despite these business conditions and resulting challenges and although we anticipate some variability from time to time as we move through our One Comtech transformational change, for our second quarter of fiscal 2024, subject to the risks highlighted in our Form 10-Q and other filings with the SEC, we are targeting consolidated net sales to increase approximately 1% to 3% and for our consolidated adjusted EBITDA margin to range between 11% and 13%. As an important reminder, net sales in future periods will no longer include high-powered Solid-State Power Amplifiers and Switches due to the divestiture of this product line on November 7, 2023.
With that, now let me return the call back over to Ken.
Ken A. Peterman
Thanks, Mike. As Comtech moves further into our fiscal year 2024, the practical impact of our transformation is playing out positively and clearly across all the assets of our business. As Maria and Mike both highlighted, our operational performance is steadily improving. We're winning more business because we're providing more sophisticated technologies and solutions than our competitors. We're generating more revenue because we're solving our customers' most challenging problems.
The implementation of our One Comtech transformation is unlocking growth opportunities in a difficult overall market environment that includes inflationary pressures, interest rate shocks and rising geopolitical tensions. And of course, we work every day to make sure our business is managed effectively, bringing the right resources and the right people together to support our ability to deliver on our customer commitments. Everything we are doing is being done to put our company on a durable growth trajectory that I believe will create and deliver value for years to come.
Thank you as ever for your support and confidence. With that, we'll take any questions that you may have.
Question and Answer Session
Operator
(Operator Instructions) And we'll move first to Greg Burns with Sidoti.
Gregory John Burns
In regards to the balance sheet and the refinancing, I think at the last earnings release, you had hoped to get something done, I think, before you reported this quarter. Obviously, that hasn't been the case. So, could you just maybe give us an update on why that might have been? You're not seeing favorable financing opportunities or you're waiting for something more favorable. Could you just give us a little bit more color on the timing of when you expect to get this done?
Michael A. Bondi
Greg, this is Mike. Yes, in terms of the refinancing process and the time line, I think what we're afforded us is really a good trajectory and strong results. Looking back, we have about $61 million of trailing EBITDA for the business. And I think when we're going into our discussions and negotiations, I think we have a good amount of alternatives to explore and we have been going down each one of those in detail to review the pros and cons of it. One of the things that we'd like to do is make sure that we're getting a good deal for Comtech in this environment. And so I think we're trying to be methodical about that and considering the tools that are available to us. I think from our perspective, there's a lot to balance and I think we're going through it at a good pace and we'll get it done.
Gregory John Burns
And then in terms of the Canada E911 opportunity, the win you announced this quarter, was that a previous one that just got deployed? It didn't sound like it was necessarily tied to the Canadian mandate. And then can you just talk about the differences or similarities between the Canadian market and the North American market? Is it similar competitors up there? Maybe in terms of the size of that opportunity -- market opportunity for you?
Ken A. Peterman
Yes, this is Ken. I don't want to give the timing because I don't know the specific date of the award, but it was recent. And I think that it's significant because there is a Canadian mandate. The mandate is to roll this next-generation capability out by March of 2025. And so that's a fairly short time line when you think about rolling it out across an entire country. It is significantly similar to the next-gen capability road map that we're implementing in the United States. So, I think it's -- the thing that I'm most excited about is that we're the leader in terms of being the provider of the Next Gen 911 capability, this very first Canadian county that launched ahead of all the others. I think we're well positioned. I think it's right in our sweet spot. And I think that it holds a lot of promise in the near term from a orders and growth perspective.
Gregory John Burns
And in terms of like the market size, like comparing it to maybe the U.S. is Canada similar addressable market? And is it the same competitors that you're seeing in the RFP process?
Ken A. Peterman
It's a similar technology. You remember the -- I'm speculating here a little bit, but I think the population of Canada is roughly the same as the population of California. So, I think from a market size perspective in terms of people, I think you can think of it that way. I would not be able to speculate the number of public service entering points to stretch across Canada, but I think that gives you some gauge in terms of the market size.
Operator
And we'll move next to Mike Crawford with B. Riley Securities.
Michael Roy Crawford
You talked about this revenue visibility of $1.7 billion, including a couple of the big new wins you had. But is that entirely synonymous with the unfunded plus funded backlog numbers you used to give? I know we have the funded backlog number, but not the unfunded backlog number.
Michael A. Bondi
Yes. The methodology has not changed. What you're seeing is an increase in the number due to some recent large awards, namely the GFSR contract, the initial funding was in the $40 million range on the $540 million contract. So, the balance of that $500 million or so went into that unfunded section of our calculation because we have the contract, we have visibility to what the customer is looking to do over the almost 5 years of that contract. So, we'll put the $37 million in the funded column, we'll put the $500 million in the unfunded column. And that's really the -- probably, the largest driver to the revenue visibility of $1.7 billion.
We also have the EDIM contract, which was almost $50 million contract. That will be another good example of initially the funding that we received was a smaller amount. So, the balance goes into that unfunded calculation. But again, we know what the customer is trying to achieve with the EDIM modem. We saw what they did in the prior EBEM modem historically. So, we feel good about that visibility.
Michael Roy Crawford
Mike, I would like to talk about maybe the EBEM modem in a second relative to the EDIM. But with the ongoing restructuring costs and also what, I guess, you build a strategic emerging technology costs, which I think might relate to EVOKE. Is that something that should remain in the $5 million a quarter range? Or when does that ever start to tail off?
Michael A. Bondi
So, I'll cover the restructuring first and then get to the strategic emerging technology cost. I think in terms of the restructuring, we will start to see that unwind over the course of this year. A lot of our discovery phase happened already. A lot of our migration to the Chandler facility and Basingstoke facility. That's now behind us. So last year, towards the end of the year, we had a restructuring event with our workforce and that's now behind us. We have immaterial amount of severance, I think, left to pay out. So, at this point going forward, we still are seeing opportunities to invest in the business to get it on a good footing going forward. So, if we see an opportunity, we will undertake the actions. But I think at this point, over the course of the next several quarters, you'll start to see that winding down.
Similarly, with the strategic R&D, I would say that's more for one specific customer that we're incurring that R&D cost floor on a particular LEO program. As we're getting through the development efforts, we're seeing that market as being a lucrative one to be in. So, we're looking to be a good partner with our customer and making our own investments there. And I would say, as they get closer to production orders that would also start to go down over time over the course of the year.
Michael Roy Crawford
And then you -- well, first of all, can you say what the revenue and/or EBITDA was of the divested PST business? And then, I guess, ancillary to that is, are those numbers adjusted for your credit facility, EBITDA and leverage calculations?
Michael A. Bondi
In terms of the first question, I will not be able to give you specifics pursuant to the stock purchase agreement in terms of the size of the organization. But it was a smaller product line for us. Relatively speaking, it was a nice, good, steady business, it had good strong margins. But from a revenue and EBITDA perspective, historically, in our numbers that's in the historical numbers in our guidance of 1% to 3%. I would think of it this way. We're increasing our guidance 1% to 3% on a base that included that product line. So, our guidance of 1% to 3% is actually probably higher if you would do like an apples-to-apples adjustment for it. But in terms of the actual revenue for the year and the EBITDA, I won't be able to give you that specific, but look we viewed it as a immaterial product line.
Michael Roy Crawford
And then -- adjusted, yes.
Michael A. Bondi
Yes. In terms of our credit facility that we have today, we're in the process of looking to refinance that. So, I would imagine all of the efforts with the divestiture would be rolled into that refinancing of a new instrument.
Michael Roy Crawford
And then I guess a final question. Just getting back to the modem, the EBEM modem business that Viasat has had for 15-plus years, how many of those would you estimate or ever deployed in the field?
Ken A. Peterman
This is Ken. Yes, the EBEM program, which was a word to Viasat, EBEM is E-B-E-M and stands for Enhanced Bandwidth Efficient Modem. Contract was awarded about 15 or more years ago. And Viasat has deployed a little over 40,000 of those EBEM modems. It's a single-channel modem that implements DoD wave forms for satellite communications. The program that we won is the EDIM program, Enterprise Digital Intermediate Frequency Multi-Carrier Modem. It's distinctively different because there are 8 modems in each of our units -- each of our EDIM units. So, it also can utilize a variety of different waveforms that operate over a variety of commercial and military satellite networks. So, we expect -- there's every reason to expect that the -- we will deliver tens of thousands of these modems over the program's life.
Operator
(Operator Instructions) We'll move next to George Notter with Jefferies.
George Charles Notter
I was taking a quick look at the 10-Q filing. There's some references in there to your lenders shrinking the size of the revolver or the term loan. Could you walk through what exactly is going on there?
Michael A. Bondi
George, in terms of the amendment that we entered into on November 7 when we cleared the transaction with Stellant, we had gone to the banks to get the ability to take some of those proceeds and actually apply to the revolver instead of all going to the term loan. So, as part of our negotiations and they understand that we're looking to refinance. We've been talking very closely with our existing lenders. I think they're just looking to make sure that they're holding our feet to the fire and we're doing the same to make sure that we get this done expeditiously. So, I think, in our view, it was part of the overall negotiation to retain some of the proceeds on the sale.
George Charles Notter
That makes sense. And then so the term loan, do you have more availability on the term loan then between now and when this facility expires?
Michael A. Bondi
Good question. In our footnotes, we did disclose that we have borrowed up to the maximum on the revolver at this point. I just wanted to make sure that we had efficient access to cash as we're going through these discussions and negotiations. As we're going into the second quarter, we did draw down at the start of Q2, just to make sure we had adequate liquidity. So at this point, the answer is no, we don't have any additional borrowing capacity on the revolver and the term loan, as we pay it down, it settles the commitment on that portion of the facility.
George Charles Notter
And then is there any -- I'm just thinking about the timing of it all. You guys have been working on kind of resolving the balance sheet issues for some time. And I guess, I'm just curious about the process. I mean I assume the Stellant transaction was kind of, an element or a step in kind of moving down the path. I mean, do you feel like -- is there any context you can give us in terms of milestones or progress or what we're kind of waiting for to kind of arrive at a deal here?
Michael A. Bondi
Good question. We've been at this for a little bit. I think over the last several months, we've been approaching alternatives like an asset-based loan, for example, Comtech has never had an asset-based loan before with the borrowing base capacity. So something like that, we needed to educate ourselves on. So, we did engage with third parties to do our own internal evaluation of what a borrowing base could be and how that would fit into our alternatives. So that's just one example of the homework we've been doing to try to get a durable solution here. And stuff like that does take a little bit of time. We think it was worth it to do that. We did get some good insights.
And as we've been saying, we've been talking with several parties. So, we've been also translating all these alternatives and how something like an asset-based loan would fit into the cap structure. So that's just one example of something that takes a little bit of time to do. But that's behind us now in terms of the timing. I think we've progressed through that step and now trying to put that into a cash structure (technical difficulty).
Operator
And it does appear that there are no further questions at this time. I would now like to turn it back to the speakers for any closing remarks.
Ken A. Peterman
Thanks, everyone. We're very excited about the journey we're on. We're very excited about what's ahead of us and we thank you for the call. Thank you.
Operator
This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful evening.
