Comtech ($CMTL) announced last week that it is looking to sell its terrestrial 911 emergency call infrastructure business to go all-in on space comms. 

The Board of Directors said the company is “in the midst of a transformational journey,” and proceeds from the potential sale will help rightsize its balance sheet.

A bit lopsided: In Q3, the company reported $128M of revenue, a 6% YoY decline. Comtech carries ~$160M of debt, $27M of cash on hand, and a tiny $109M market cap, down over 50% YTD.

Tough times call for tough measures. For management, that means offloading their faster-growing, higher-margin, and more valuable business line. 

Goodbye, Next Generation 911 (NG911) terrestrial emergency calling: 

NG911 is an upgraded emergency response system that allows people to connect from more devices via voice, text, or video. A July FCC ruling established a new framework that could help speed up the nationwide adoption of NG911. The division generated $56.6M of Q3 revenue, supporting a strong $11.3M Adjusted EBITDA.The segment doubled its booking this year, including a $140M Massachusetts contract renewal.

Satcom business:

The company’s satcom products include modems, signal-boosting amplifiers, and troposcatter tech.The segment primarily serves the DoD and large defense contractors, providing connectivity and coordination to warfighters across branches—a focus area for the military. With rising geopolitical tensions and defense spending, the company views the business as ripe for growth, despite declining quarterly sales. In Q3, the division generated $71.4M of sales, down both YoY and QoQ. 

Debt, debt, debt: In addition to exploring the possibility of divesting nearly half its business, Comtech also announced last week it raised an additional $25M of high-yield subordinate debt—adding to the company’s debt burden until a sale can be completed.

The company has struggled with its debt overload for quite some time now, having recently closed a $222M credit facility in June to refinance debt that was coming due in October. 

With a market cap of just over $100M, the company is in survival mode to ward off the banks. 

Its 911 emergency infrastructure business generates a healthy ~$40M in annual Adjusted EBITDA. A sale of the division could return a pretty penny, taking care of that pesky debt problem. The company is also exiting a UK subsidiary this year, which they expect will net ~$10M of annual cash savings. 

The move coincides with a challenging period for publicly traded space stocks. As cash reserves shrink, public markets become less inclined to provide funding, and management increasingly mentions “seeking strategic alternatives.”