On Monday, Comtech Telecom (NASDAQ:CMTL) discussed third-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Comtech Telecommunication Corp reported net sales of $106 million for the third quarter, a decrease from the previous year due to a strategic decision to phase out low-margin revenues.
The company announced the sale of its Satellite and Space business to Galat for $157.5 million, aiming to sharpen its strategic focus on Alerium, its public safety business.
Positive cash flow was achieved for the fifth consecutive quarter, with $6.1 million in positive operating cash flows, reflecting improved operational discipline and financial performance.
Comtech plans to use the proceeds from the sale to significantly reduce its debt, aiming for a healthier financial position and strengthened capital structure.
Future growth is expected from Alerium's focus on next generation public safety technologies, leveraging its position in the 911 call handling and emergency services market.
Full Transcript
OPERATOR
Welcome to Comtech Telecom Conference call for the third quarter of fiscal 2020. As a reminder, this conference call is being recorded. I would now like to turn the call over to Maria Sariello, Senior Director of FP&A of Comtech. Please go ahead Maria
Maria Sariello (Senior Director of FP&A)
thank you Operator and thank you, everyone for joining us today. I'm here with Ken Traub, Comtech's Chairman, President and CEO Mike Bondi, our CFO Daniel Gazinski, President of our Satellite and Space Communications segment and Jeff Robertson, President of Elyrium. After Ken, Mike, Daniel and Jeff's remarks, they will be available for questions before we get started, please note we have a detailed discussion of the quarter in the Press release and 10Q we issued this morning, which are available on our website as well as the SEC's website.
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 Traub (Chairman, President and CEO)
Ken thank you Maria and good morning everyone. I appreciate you joining us today. I will start the call by providing you with a strategic context on the significant announcements we are making today. Mike will follow with a review of the numbers. Daniel will then provide an overview of the improved performance for our satellite and space business that helped us make the transactions we announced today possible. And then Jeff will conclude with the additional insights on the exciting future prospects for Elyrium.
In my first conference call, a CEO of Comtech Telecom in early 2025, I had two phases of my discussion with you. The first phase was to share my background and my perspective on leadership. I emphasized then that I believe the most critical factor for success in leadership, particularly in a turnaround, is building trust with all key stakeholders. Trust is built through acting with sincerity and integrity and most importantly, honoring promises. In the second Phase of that conference call, I laid out a transformation plan that had four pillars which I promised will be comtech's guiding principles.
The first pillar, we will restore and enhance operational discipline throughout this company. Second, we will start to generate positive operating cash flow. The third pillar, we will conduct a comprehensive review of strategic alternatives. And the fourth pillar, we will strengthen the company's capital structure. Comtech's recent operating and financial performance, together with the strategic and capital structure announcements we are making today, demonstrate that we are successfully delivering on each of those promises.
Let me start with the first pillar since that was the critical foundation to to get to the next three pillars, including today's significant announcements. Comtech is today a dramatically improved company. We have a culture of operational discipline, accountability and taking pride in successful execution. We are executing with a streamlined cost structure and delivering for our customers and other stakeholders. Comtech's emphasis on operational discipline is evident in everything we do now.
This improved operational discipline has been key in achieving the second pillar. After several quarters of negative operational cash flow prior to my arrival, we are pleased to report that this quarter is our fifth consecutive quarter of positive operating cash flow. This has enabled us to maintain about $50 million of available liquidity. The return to positive cash flow has helped to restore Comtech's credibility and relationships with lenders, investors, customers, suppliers and other stakeholders and in turn has put us in a stronger position in everything we do.
On the third pillar, comtech first announced a process of exploring strategic alternatives for its public safety business, alerium and in 2024, before I arrived at the company, when I arrived, I announced a commitment to a broad and thorough strategic review process. I believe it is critical for such a process to be broad to consider all options and how the remaining company will be best positioned. A broad process also maximizes optionality. I also think it is best to pursue any such process from a position of strength.
Now that we have accomplished the first two pillars, we created that position of strength to pursue the best strategic path and negotiate with confidence and optionality. We are very pleased with the outcome of the strategic alternatives process and the transaction we consummated with Galat to sell most of Satellite in space for $157.5 million. I will talk more in a moment, but about why I believe sharpening the company's strategic focus on Alerian's public safety business is the right way to optimize the company going forward.
But suffice it to say that this is a defining milestone for this company. The fourth pillar regarding the need to strengthen the company's capital structure is also critical and further addressed today. We have been fortunate that due to the progress we made in Pillars one and two, we we earned the trust of our creditors and they previously agreed to accommodations that have been very helpful to the company. For instance, the amendments we previously entered into on our loan agreements that provided for covenant holidays were a key factor in removing the going concern qualification from our financial statements, which in turn has been helpful with customers, suppliers and partners. As a result of our continued success on Pillars one and two and the consummation of the transaction to sell Satellite in Space announced today, we've been able to successfully negotiate further improvements in our credit agreements and preferred stock which strengthen our liquidity, financial flexibility and strength going forward. All of these pillars have reinforced each other, resulting in a stronger and healthier company.
Now I would like to return to the strategic rationale of the transactions we are announcing today. The sale of Satellite in Space means more for comtech than generating $157 million in cash and retiring expensive debt. Under Jeff Robertson's leadership, Elyrium has been enhancing its mission critical solutions for public safety agencies and mobile network operators. With an improved capital structure, focused organization and strategic clarity, Alarium is poised to capitalize on its leadership in the public safety market and accelerate its growth over the next few months.
As we await regulatory approval, we will be executing a transition plan to align the organization to be purpose built to support Alerum's growth as a leader in next generation public safety technologies and services. Alerum's growing portfolio of software, cloud, native data driven and AI enabled capabilities put it at the center of next generation 911 call handling, location based services and data management. Upon closing, our transition to Elyrium will mark the beginning of an exciting new chapter one in which we will focus our investment, innovation and execution on a singular mission leading the evolution of public safety technologies.
As the market shifts from traditional voice based systems toward data centric communications, real time coordination and artificial intelligence enhanced decision making. We believe Elyrium is uniquely positioned to lead this large and growing market for years to come. Finally, I would like to thank and compliment our entire team. We set ambitious goals during a period of significant challenge for this company. We remain disciplined in our execution and we delivered throughout our organization in satellite space, Alerum Finance, legal IT and people operations. I have seen the dedication, loyalty and passion that is driving these significant achievements. I am personally so proud of this team and what we are accomplishing together. And with that I'll turn the call over to Mike to walk through the financials. Mike
Mike Bondi (Chief Financial Officer)
thank you Ken and good morning everyone. As Ken just highlighted, it is extremely rewarding to see the significant progress that our organization is achieving on multiple fronts. Effectuating transformational changes like we have experienced to date over the past several quarters is not trivial and is a clear testament that our employees take extreme pride in what they do and in delivering successful outcomes. To that end, we are pleased to be delivering another quarter of positive operating cash flow and continued gross margin strength relative to our recent past.
Now let's turn to the financials. Net sales for the third quarter were $106 million. This compares to $126.8 million in the third quarter of last year. The decrease in consolidated net sales reflected the decision to phase out certain low or no margin revenues in our satellite and space communications segment. Elyrium reported net sales consistent with the prior year period, excluding a $3 million retroactive billing event that benefited the third quarter of last year.
Gross profit in the third quarter was $36.1 million, or 34% of net sales, compared to $38.9 million, or 30.7% of net sales in the third quarter of fiscal 25. Our gross profit percentage reflects overall product mix changes and improved operational and financial performance as a result of our transformation initiatives to enhance efficiency, streamlined product lines with a focus on strategic higher operating margin products and reducing cost structures in order to free up investment back into the business.
The improvement in our gross profit percentage builds upon the quarterly trend achieved throughout fiscal 2025 and the first 2 quarters of fiscal 26. In our third quarter of fiscal 2026, we reported an operating loss of $3.1 million, which compares to an operating loss of $1.5 million in the third quarter of last year. Our most recent quarter reflects $4.6 million of amortization of intangibles, $2.4 million of restructuring costs, $1.2 million of non cash amortization of stock based compensation, and nominal CEO transition costs.
As further discussed in our Form 10Q filed earlier today. Excluding such items, our consolidated operating income for the third quarter would have been $5.1 million, or 4.8% of net sales. Again, the prior year period included the benefit of Elyrium's $3 million of retroactive billing events. Adjusted EBITDA in the third quarter was $8.2 million, or close to 8% of net sales, compared to $12.6 million in the third quarter of last year. The year over year comparison reflects the factors discussed above, including the prior year benefit from Elyrium's retroactive billing event net bookings were $70.5 million in the third quarter, resulting in a book to bill ratio of 0.67. This compares to $71 million of net bookings and a book to bill ratio of 0.56 in the prior year. Comparable period over the past year, as part of our Transformation Plan, we have focused and prioritized our product development and sales efforts to eliminate certain low margin revenues and to instead target higher margin opportunities in which we have greater differentiation and can achieve improved cash flows. Such improvements in our financial performance and working capital discipline resulted in $6.1 million of positive operating cash flows for the third quarter of of fiscal 2026 compared to $2.3 million of positive operating cash flows in the third quarter of last year. As Ken said, this marks our fifth consecutive quarter of positive operating cash inflows. Operating cash flows in the third quarter of fiscal 2026 included aggregate net payments of $4.1 million, principally for interest and to a much lesser extent income taxes, as well as $2.4 million in aggregate net payments for restructuring cost, CEO transition costs, and third party professional fees. Turning to our individual segments, as anticipated, SNS net sales decreased compared to the third quarter of fiscal 2025, primarily reflecting our decision to phase out and eliminate certain low margin and working capital intensive revenues such as the VSAT satellite systems and services contract. SNS net sales in the third quarter were $50.3 million. SNS operating income was $1.6 million in the third quarter of fiscal 2026 compared to $2.7 million in the third quarter of fiscal 2025. SNS adjusted EBITDA was $4.1 million, or approximately 8% of segment net sales, compared to $5.7 million in the prior year period. SNS operating income in the third quarter of fiscal 2026 was impacted by $800,000 of restructuring costs to streamline operations compared to $900,000 in the third quarter of fiscal 25.
Now moving to alerium, net sales were $55.7 million in the third quarter of fiscal 20 26, a decrease of $5.9 million compared to the third quarter of fiscal 2025. The period I'm sorry, The prior year period included a $3 million benefit related to a negotiated retroactive billing event to recover costs incurred in previous quarters. Excluding that benefit in fiscal 2025, Elyrium net sales were actually consistent with the prior year period. Elyrium operating income was $4.4 million and adjusted EBITDA was $10.4 million, or approximately 19% of segment net sales in the third quarter of fiscal 2026.
The year over year decreases in operating income and adjusted EBITDA primarily reflect the one time $3 million retroactive billing event I discussed earlier that did not repeat this year, as well as our increase in research and development and go to market investments that Jeff will talk to in a moment. Alerian's book to bill ratio in the third quarter was 0.32 compared to 0.91 in the prior year period. The ratio for the most recent quarter reflects the timing of large multi year contract awards and is not unusual given Elyrium's strong book to bill ratios of 1.06 and 2.51 in the earlier quarters of this fiscal year.
Turning to the balance sheet, we announced earlier today that the Company has entered into amendments with the existing senior creditors and subordinated debt holders and agreed to replace the existing series of convertible preferred stock with a new series of convertible preferred stock. These agreements, together with the sale of most of SNS's business, deliver immediate improvements that enhance the Company's financial flexibility and represent the successful conclusion of the strategic alternatives process first publicly announced in 2024.
The company anticipates that net cash proceeds from the sale of most of SNS's business will be approximately $143 million to $145 million, which will be used to reduce debt and recapitalize the business in accordance with its existing credit facilities. The company will use 65% of the net proceeds from the sale of most of SNS to prepay the majority of its senior Secured credit Facility, with the remaining 35% of the proceeds used to prepay subordinated debt outstanding starting with repaying the subordinated Priority Term Loan.
This is expected to provide a stronger and healthier financial position for the Company for the long term. As previously disclosed, we amended our credit facility and subordinated credit facility in October 2024, March of 2025 and July of 2025 to, among other things, suspend testing of the net leverage ratio, fixed charge coverage ratio and minimum EBITDA covenants until the fourth quarter period ending on January 31, 2027. Such amendments, combined with our significantly improved operational and financial performance, led to our enhanced financial flexibility and the removal of our going concern disclosures in our fiscal 2025 form 10K, filed back in November of 2025. On June 14, 2026, Comtech amended its credit facility and subordinated Credit Facility to, among other things, further suspend testing of the net leverage ratio fixed charge coverage ratio and minimum EBITDA until the four quarter period ending on July 31, 2027. At April 30, 2026 and June 12, 2026, total outstanding borrowings under our credit facility were 119.7 million and reduced to $116 million respectively. $3.6 million was drawn on the revolver at quarter end and was repaid in May 2026 in full.
Total outstanding borrowings under our subordinated credit facility were $104.1 million and $104.8 million respectively, including interest paid in kind or accrued on the $35 million subordinated priority term Loan. These amendments do not include the $32.5 million of make whole amount associated with the $65 million portion of the subordinated credit facility. The liquidation preference of our outstanding convertible preferred stock was $218.2 million and $220.5 million respectively.
Excluding potential increases in the liquidation, preference or other obligations that could be triggered by a change in control of the company our available sources of liquidity totaled $49.4 million at April 30, 2026, consisting of about $26 million of qualified cash and cash equivalents and and about $24 million of remaining available revolver loan capacity. As of June 12, 2026, our liquidity approximated $50 million and the remaining available portion of the Revolver loan was $27.3 million. Now with that, let me turn the call over to Daniel Gazinski, President of our SNS segment.
Daniel Gazinski (President of Satellite & Space Segment)
thank you Mike. We're proud of our entire team who contributed to the significant turnaround and repositioning of our SNS business. We've come a long way as an organization and today's announcement marks a significant milestone in our journey. Galant is a natural home for the SNS business and we are confident that Galat's commitment to innovation, customer support and continued investment in the business will provide the right foundation for the next phase of growth for this business and our customers. It remains a top priority to continue supporting our customers, delivering against existing commitments, and continuing to support new customer requirements.
The third quarter reflected stronger demand across several areas where SNS has differentiated capabilities with key awards including over $7 million in funding for several rapidly deployable troposcatter systems intended for use by an international government end customer, approximately 6 million in incremental funding for ongoing training and support of complex CyberSecurity operations for US government customers, approximately 4.9 million in incremental funding to design and manufacture antenna related equipment for a US Government end customer and additional funded orders for long range missile and rocket launch tracking systems, antennas, feeds and satellite ground infrastructure solutions. SNS book to bill ratio for the third quarter of fiscal 26 was 1.04 times as compared to 0.8 times in the prior year period. After accounting for a $36.4 million debooking in the prior fiscal year associated with the US Army Global FSR contract, this was the first quarter since Q1 of fiscal 2024 in which SNS achieved a book to bill ratio greater than 1.0 times.
Additionally, subsequent to the end of the quarter, the company received orders totaling over $10 million to develop and deliver initial prototypes for extremely high frequency low earth orbit satellite communications equipment. As we move through the period between signing and closing, our priority in SNS is straightforward Continue supporting our customers, delivering against existing commitments and maintaining the operational discipline that improved this business in the first place. We believe the momentum in customer orders underscores both the progress the SNS team has made and the strength of SNS customer relationships.
Jeff will now provide more detail on Elyrium, which is well positioned to define the next generation of emergency communications. Jeff
Jeff Robertson (President of Elyrium)
thank you Daniel. Elyrium is Comtech's future and the core of our public safety technology company we are building Public safety response is moving beyond voice toward data and more complex coordination and real time decision making as agencies and network operators face rising call volumes, increasing workforce constraints and growing expectations for real time situational awareness. This evolution is creating new opportunities for AI assisted intelligent workflows and technologies designed to manage critical information during active incidents.
Elyrium is the first to bring together the complete emergency response ecosystem from device location to the systems, networks and data that help drive action and connect people to emergency assistance. During the quarter we increased R and D and go to market investment to extend that product leadership and support future growth. Following the sale of most of sns, Elyrium will be able to invest more decisively in Advancing Next Generation911 Full Handling Location based routing and messaging for mission critical public safety and emergency communications.
We are converting that R and D and go to market investment into concrete market progress. Our win with the Commonwealth of Kentucky demonstrates a first in market milestone for Illyrium and validates the strength of Our Next Gen 911 platform at statewide scale. In Canada, we delivered more than a dozen Next Gen911 upgrades during fiscal 2026 reflecting growing momentum with public safety agencies as they modernize emergency communications infrastructure.
The developments over the past year including in the third quarter and our announcement this morning lead us to believe that Elyrium can help public safety move from connectivity to coordination and set the standards for the next generation of emergency communications. Key Elyrium contract awards during the third quarter included approximately 6 million of additional funding related to a renewal of NextGen 911 services for a customer in the Midwestern region of the United States, 2 million in funding from a domestic Tier 1 mobile network operator to support the development and migration of various web based mobile network services, and over 1.6 million in funded orders from another domestic Tier 1 mobile network operator in support of various mobile network services. We also continue to build momentum across public safety and Emergency Communications In April 2026, Elyrium announced that its statewide Next Generation 911 program for the Commonwealth of Kentucky had migrated 12 PSAPs in its first four months of operation, including delivering the first NG911 text and voice calls in the Commonwealth.
In May 2026, Elyrium announced the opening of a new purpose built facility in Gatineau, Quebec, Canada, which builds on more than a dozen next gen 911 upgrades that we have delivered across Canada this fiscal year and reflects our expanding role in modernizing emergency communications infrastructure. With strategic wins in the United States, Canada and Australia, we believe Elyrium's position as a trusted leader in 911, next generation 911 and public safety applications positions us increasingly well to deliver sophisticated solutions for other types of emergencies over time.
Looking ahead, new emergency requesting devices including wearables, connected vehicles, smart speakers and AI enabled cameras and new delivery methods such as satellite networks, along with expansion in the emergency workflow, technologies are expected to expand our addressable market and drive growth over time. Going forward, we will have a simpler operating model, a strengthened balance sheet and a single strategic focus that will allow us to accelerate recurring software and services revenue, expand margins through operating leverage and invest more decisively in the innovation of our public safety customers and what they depend on.
Today, a significant and growing portion of Elyrium revenue is recurring, giving us a stable, high visibility foundation on which to build. Ken, back to you.
Ken Traub (Chairman, President and CEO)
Thank you Jeff. To sum up briefly, comtech has successfully executed on each of the four pillars of our transformation plan and is now a stronger company. The sale of most of satellite and space, together with the credit agreement amendments and preferred stock agreements brings the strategic alternatives process to a successful conclusion and we are moving forward with greater strategic clarity. Over the next few months we will execute a transition plan to align the organization to support Elyrium's strong future, supported by long term customer relationships, leading positions in next generation 911 call handling, location based services, messaging and other AI enhanced mission critical public safety capabilities to address the significant market demand for more connected data driven emergency response. As a reminder, Mike, Jeff and Daniel will be joining me for Q and A with that operator. Please open the call to any questions.
OPERATOR
Thank you. At this time we will open the floor for questions. If you'd like to ask a question, please press Star one on your touchtone phone to remove yourself from the queue. You may press Star two again. That's Star one to ask a question. And we'll pause for just a moment to allow questioners time to queue. And we'll take our first question from Keith Hosam with Norcoast Research. Please go ahead. Your line is open.
Keith Hosam (Equity Analyst)
Good morning gentlemen and congratulations on the announcement. It wasn't what I expected this morning, but glad to see it. And again congratulations to the efforts. I know it's a huge deal. Obviously you know, the operations turnaround within the SNS segment, you know, has been in swing here, but there's more room to go I guess. Why now? And why not wait a little bit longer to see if perhaps you can maximize the value any further?
Ken Traub (Chairman, President and CEO)
Good question, Keith. It's a balancing we the company's been looking at strategic alternatives for a long time because we have a heavy expensive capital structure. And part of the reason why the company started considering strategic alternatives in 2024 was to address that capital structure. I believed that we needed to approach this process patiently and with a broad examination of all opportunities available to the company and wait until we are in a position of strength to to negotiate the right deal for the future of the company.
So we looked at all options right and it was considered selling any aspect of the business. And we believe this is really the best way to optimize the long term future of the business. Alarium has tremendous growth prospects. It's a really nice business and we are now in a position where Satellite in space has been turned around sufficiently, where we were able to consummate this type of a deal, where it's a good outcome for the sale of this business.
But even more importantly it enables us to now reorient the entire focus of the company to support the long term growth of Elyrium. So we think the time was right. We finally got the company in the right position of strength to be able to negotiate a good deal for Satellite in space and we're leaving the remaining business in very strong position for long term growth.
Keith Hosam (Equity Analyst)
Okay, thanks. Appreciate it. Obviously go a long way in helping the capital structure. But you're going to still be remaining with a good amount of support, a debt and your convertible preferred stock. But you also have the shelf registration that's been out there since April. What does the capital structure for the company look like a year from now?
Ken Traub (Chairman, President and CEO)
Well, we'll see. So the proceeds of this transaction will be used to pay down the debt. 65% of the proceeds of the sale of satellite and space will go to pay down the senior term loan. That in and of itself is almost all of the outstanding amount on the term loan. And so it will be easy for us to either use liquidity to pay off the balance or we'll be able to refinance with a new senior term loan. 35% of the proceeds will go towards paying the subordinated debt and that will be more than sufficient to take out the most recent tranche, which is tranche three. And then we'll work towards tranche one and two. We would anticipate that a, once we consummate this transaction and we refinance the senior debt, those proceeds will be sufficient to take out all the rest of the senior debt and then we'll. Excuse me, the rest of the subordinated debt.
Then we'll emerge with a really clean and healthy capital structure going forward.
Keith Hosam (Equity Analyst)
Appreciate it. And did I hear that you're going to be the probably amendments will be suspending the debt leverage ratio for the debt until July 2027, is that correct?
Ken Traub (Chairman, President and CEO)
That's correct. And that's a nice additional concession that we got from both the senior term loan lenders as well as the subordinated lenders. So that was one of the factors that was helpful to us in removing the going concern qualification when we last got the Covenant holiday and now we've got an additional Covenant Holiday. And that combined with the company's consistent generation of cash flow, we're confident that we will continue to maintain the financial reporting without a going concern qualification.
Keith Hosam (Equity Analyst)
Gotcha. And then the cybersecurity business is going to be retained as part of the SNS segment. Can you give us a little bit of a financial profile of that in terms of how much revenue and profitability that is? And is that an ongoing business for you guys?
Ken Traub (Chairman, President and CEO)
Sure. So it's about $20 million in revenue and it's net about a $3 million of EBITDA contribution. Got it.
Keith Hosam (Equity Analyst)
Okay, appreciate it. And then Jeff, as we look at the Elyrium business going forward, explaining the comparable from prior year flat business, how are you thinking about the growth profile for Elyrium Both on the revenue side, but also in terms of profitability.
Jeff Robertson (President of Elyrium)
Keith, thank you for your question. For the future, when we look at the profitability of the business, it's really a matter of using scale to our advantage to improve margin profitability. For instance, the more states we provide next gen 911, the more we can leverage our infrastructure to improve those margins. And we're working very hard, along with Tom Guthrie, our chief operating officer here, to leverage that scale that we have every time we win a new region.
The other area we see in emergency response is expanding on the workflow of what it takes to get that first responder to the scene and give them situational awareness. We think there's other things that we can do in that emergency response process that expand our TAM and we can grow the business with part of why we announced some of the investment in R and D this quarter and a little bit of an increase in it to deliver on that message.
Keith Hosam (Equity Analyst)
Got it. So do I think about the top line growth profile being 3 to 5% a year. Is that kind of fair?
Jeff Robertson (President of Elyrium)
It is fair. We're not giving guidance right now, Keith.
Keith Hosam (Equity Analyst)
Okay, appreciate it. Appreciate it. Point of clarification. If I look at your adjusted EBITDA for a pro forma basis is $34 million there. That's not. But if we want to think about going forward, we can probably think about the changes you're going to be making the business and restructuring for additional 11 to 13 would be on top of that. Correct? If I think about the business going forward.
Ken Traub (Chairman, President and CEO)
So that 34 million is a pro forma, that's based on the historical EBITDA with adjustments for. The historical EBITDA for Elyrium, the cyber business and corporate, minus about $12 million of anticipated savings resulting from the transition.
Keith Hosam (Equity Analyst)
Okay, appreciate it. I'll turn it back over, guys. Appreciate it. Thank you.
OPERATOR
And once more for your questions. That is Star One. We'll move next to Mike Crawford with B. Riley Securities. Your line is open.
Mike Crawford (Equity Analyst)
Thank you. The first question is, are all of the stakeholders in agreement that this transaction with Galat does not will not be argued as any change control that would trigger increase in the preferred before obligation?
Ken Traub (Chairman, President and CEO)
Good question, Mike. And yes, all stakeholders are in agreement that it is not a change of control transaction and does not trigger any of the liquidation preferences in the preferred.
Mike Crawford (Equity Analyst)
Excellent. That's a great outcome in and of itself. And then just Ken, to go back on your last statement, just to clarify that 34 million, that's before you expect to take 12 million of corporate costs out of the business or is that including?
Ken Traub (Chairman, President and CEO)
It is. So the way to look at that 34 million is the historical, not the projected Alarium, EBITDA plus the cyber plus the cost of existing corporate, minus a estimate of the near term savings of $12 million.
Mike Crawford (Equity Analyst)
So by minus does that mean after that occurs with 34 million if nothing else would be.
Ken Traub (Chairman, President and CEO)
So it's a pro forma. So the $34 million, Mike, is reflective of 12 million of cost savings.
Mike Crawford (Equity Analyst)
Okay, okay, perfect. And then are there any other assets that you're retaining that might be surplus to requirements? Like any real estate owned or like I'm not sure exactly what's, what's going to go out, like you know, build facilities in Arizona, et cetera?
Ken Traub (Chairman, President and CEO)
No, we are retaining two operations, one in Florida and one in Beaufort, Georgia. That includes our cyber operations and a small services business. In total $20 million of revenue. In addition, we are retaining some legacy accounts receivable rights to collection of some legacy accounts receivable that will be incremental proceeds to the company.
Mike Crawford (Equity Analyst)
Okay, excellent. And then turning to William, I guess I have two questions. So it's great that a quote, significant portion of that revenue is recurring. What percent of that business would you characterize as recurring revenue?
Jeff Robertson (President of Elyrium)
Thanks, Mike. I mean I'm not, I wouldn't, I'm not going to give exact numbers on our recurring revenue, but I will tell you it's a significant portion and we see it growing over time as the business morphs. It's moving more from a traditional software licensing model into a more recurring model for the business right across all our product lines. So I'm not prepared to give an exact number of percentage, but suffice it to say it's a significant portion and growing.
Ken Traub (Chairman, President and CEO)
Yeah. And Jeff, I would add to that, you know, just to highlight in our press release. Today we announced for the RemainCo, there's $554 million of back funded backlog for the segment. And typically these are long term contracts. They're mostly services. Software based services. From time to time you'll have deployments upfront. So there might be, you know, some activity on the front end of a contract that will then run into monthly recurring services. But by and large, you know, these are services that are provided on a consistent steady state. So you know, the percentage, as Jeff said, is, you know, significantly high for the segment.
And something else to bear in mind in this business there's, there's a mutual dependency when states and municipalities work with or Alarian business. They need our service and there's a very high switching cost. There's a dependency on working with us. So these relationships tend to last for a long time.
Mike Crawford (Equity Analyst)
Yes. So that kind of. Thank you Ken Mike, for that clarification. So that high switching cost is a double edged sword where it's hard to wrest away someone else's business. So are there any recompetes coming up that you'll likely win given that there's a high switching costs? But conversely, are there any competitions that you're gunning for now that if you win would add additional layer of growth to the business?
Ken Traub (Chairman, President and CEO)
Yeah. I'm going to let Jeff answer the specifics but we're not going to get into specific competitive bids. But we'll give you more flavor on why we key drivers of growth in the business. But go ahead, John.
Jeff Robertson (President of Elyrium)
Yeah, Mike, you bring up an interesting point is again, we're not going to get on specific deals or opportunities, but there are recompetes coming out in the marketplace and what's changing is there are competitive features now as the market evolves and we believe we have some very strategic competitive advantages. And part of that is because we do 911 coal handling next gen as well as the network gives us some edges in these recompetes. So I'm pretty bullish on some of these recompetes and the competitive advantage that we have going forward as well as some other services that we offer that differentiate us from others. And keep in mind we are the largest direct provider of NextGen 911 to the states and other competitors will either go through a local exchange carrier or a channel partner, whereas we are the largest that deal directly with the states.
And I also think that gives us a distinct advantage to be able to customize to their needs. So there are recompetes coming out, but I also think there are some with a competitive advantage that we can win or positioned well to win.
Mike Crawford (Equity Analyst)
All right, well, thank you very much.
OPERATOR
And it does appear that there are no further questions at this time.
Ken Traub (Chairman, President and CEO)
Well, I would like to thank you all for your ongoing support and we look forward to continue to keep you updated on our progress. Thank you all. Have a good day.
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