What changed in this filing

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Item 1. Business

2020-08-27 compared with 2019-08-27 · 67 added, 72 removed, 201 unchanged (41% of the section changed)

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Aviat Networks, Inc.

may be referred to as “the Company,” “AVNW,” “Aviat Networks,” “we,” “us” and “our” in this Annual Report on Form 10-K.

may be referred to as “the Company,” “AVNW,” “Aviat Networks,” “Aviat,” “we,” “us” and “our” in this Annual Report on Form 10-K.

We were incorporated in Delaware in 2006 to combine the businesses of Harris Corporation’s Microwave Communications Division (“MCD”) and Stratex Networks, Inc.

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to Aviat Networks, Inc.

Our principal executive offices are located at 860 North McCarthy Boulevard, Suite 200, Milpitas, California 95035, and our telephone number is (408) 941-7100.

Our principal executive offices are located at 200 Parker Dr., Suite C100A, Austin, Texas 78728, and our telephone number is (408) 941-7100.

Our common stock is listed on the NASDAQ Global Select Market under the symbol AVNW.

As of June 28, 2019 , we have 708 employees compared with 704 employees as of June 29, 2018 .

As of July 3, 2020, we had 674 employees compared with 708 employees as of June 28, 2019.

Overview and Description of the Business

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Examples include federal, state and local government agencies, transportation agencies, energy and utility companies, public safety agencies and broadcast network operators around the world.

We sell products and services directly to our customers, and, to a lesser extent, use agents and resellers.

We sell products and services directly to our customers, and, to a lesser extent, agents and resellers.

Our products utilize microwave and millimeter wave technologies to create point to point wireless links for short, medium and long-distance interconnections.

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Wireless systems also have advantages over optical fiber in areas with rugged terrain, and to provide connections over bodies of water such as between islands or to offshore oil and gas production platforms.

Though the air wireless transmission is also inherently lower in latency than transmission through optical cables and can be leveraged in time sensitive networking applications.

Revenue from our North America and international regions represented approximately 54% and 46% , respectively, of our revenue in fiscal 2019 , 54% and 46% , respectively, of our revenue in fiscal 2018 , and 55% and 45% , respectively, of our revenue in fiscal 2017 .

Through the air wireless transmission is also inherently lower in latency than transmission through optical cables and can be leveraged in time sensitive networking applications.

Revenue from our North America and international regions represented approximately 64% and 36% of our revenue in fiscal 2020, respectively, 54% and 46% of our revenue in fiscal 2019, respectively, and 54% and 46% of our revenue in fiscal 2018, respectively.

Information about our revenue attributable to our geographic regions is set forth in “Item 7.

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Within this overall scope there are multiple individual drivers for investment in backhaul infrastructure.

New RAN Technologies.

• 5G Deployments.

Mobile Radio Access Network (“RAN”) technologies are continually evolving.

With the evolution from 2G to 3G (HSPA), 4G (HSPA+ and LTE), and the rapidly emerging 5G standards, technology is continuously advancing and providing subscribers with higher speed access to the Internet, social media, and video streaming services.

With the evolution from 4G (HSPA+ and LTE) to 5G, technology is continuously advancing and providing subscribers with higher speed access to the Internet, social media, and video streaming services.

The rapid increases in data to be transported through the RAN and across the backhaul infrastructure drives requirements for higher data transport links necessitating upgrades to or replacement of the existing backhaul infrastructure.

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This can pace backhaul infrastructure investment and cause periodic spikes in demand.

Evolution to IP .

Network Infrastructure capacity, efficiency and flexibility is greatly enhanced by transitioning from legacy SDH (synchronous digital hierarchy) / SONET (synchronous optical network) / TDM (time division multiplexing) to IP (internet protocol) infrastructure.

Our products offer integrated IP transport and routing functionality increasing the value they bring in the backhaul network.

• Expansion of Offered Services.

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Improving border patrol effectiveness, enabling inter-operable emergency communications services for local or state police, providing access to timely information from centralized databases, or utilizing video and imaging devices at the scene of an incident requires a high bandwidth and reliable network.

The mission critical nature of public safety and national security networks can require that these networks are built, operated and maintained independently of other public network infrastructure and microwave is very well suited to this environment because it is a cost-effective alternative to fiber.

The mission critical nature of public safety and national security networks can require that these networks are built, operated and

maintained independently of other public network infrastructure and microwave is very well suited to this environment because it is a cost-effective alternative to fiber.

• Microwave technology can be used to engineer long distance and more direct connections than optical cable.

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Our products have already been used to create low latency connections between major centers in the United States (“U.S.”), Europe and Asia and we see long-term interest in the creation of further low latency routes in various geographies around the world.

• Evolution to IP.

Our products offer integrated IP transport and routing functionality increasing the value they bring in the backhaul network.

• The enhancement of border security and surveillance networks to counter terrorism and insurgency is aided by the use of wireless technologies including microwave backhaul.

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As we focus on executing future generations of our technology, our goal is to make wireless technology a viable choice for an ever-broadening range of network types.

As we continue executing our technology roadmap, we are engaging more deeply with customers on the evolution of use cases and applications as 5th Generation mobile and broadband networks edge closer to implementation and begin to factor more strongly in the vendor selection process.

We are confident in our ability to address future 5G market needs.

As we continue executing our technology roadmap, we are engaging more deeply with customers on the evolution of use cases and applications as 5G mobile and broadband networks edge closer to implementation and begin to factor more strongly in the vendor selection process.

We are confident in our ability to address current and future 5G market needs.

We are focused on building a sustainable and profitable business with growth potential.

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Third, in order to address the operational complexity of planning, deploying, owning and operating microwave networks, we are investing in a combination of software applications, tools and services where simplification, process automation and our unique expertise in wireless technology can make a significant difference for our customers and partners.

We continued to develop our professional services portfolio as key to our long-term strategy and differentiation.

During the year, we continued to expand the number of customer networks managed from our North America Network Operations Center.

We began offering cloud-based network management to our customers and we continue to offer training and accreditation programs for microwave and IP network design, deployment and maintenance.

Our strategy includes partnering with companies with technical expertise in areas outside of our core competencies to meet our customers’ demand for an end-to-end solution.

Our partner product strategy enables us to go beyond wireless transmission to address the vendor consolidation trend whereby customers are “buying more from fewer vendors” and in doing so providing expanding market share opportunity.

A comprehensive solutions portfolio comprised of our wireless product and intelligent partner products can allow us to compete with vendors that offer turnkey solution portfolios and serve to focus our research and development (“R&D”) efforts on core competency wireless innovations.

Having a broader portfolio will enable us to further differentiate our offerings from other independent microwave equipment suppliers.

We continue to develop our professional services portfolio as key to our long-term strategy and differentiation.

We offer a portfolio of hosted expert services and we continue to offer training and accreditation programs for microwave and IP network design, deployment and maintenance.

We expect to continue to serve and expand upon our existing customer base and develop business with new customers.

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The major product families included in these solutions are CTR 8000, WTM 4000 and AviatCloud.

Our CTR 8000 platform merges the functionality of an indoor microwave modem unit and a cell site router into a single integrated solution, simplifying IP/MPLS deployments and creating a better performing network.

The newest addition to our product portfolio is the WTM 4000, the highest capacity microwave radio ever produced, and purpose built for SDN.

Our CTR 8000 platform merges the functionality of an indoor microwave modem unit and a cell

site router into a single integrated solution, simplifying IP/MPLS deployments and creating a better performing network.

The newest addition to our product portfolio is the WTM 4000, the highest capacity microwave radio ever produced, and purpose built for software-defined networks (“SDN.”) SDN technology is an approach to networking management that enables dynamic, programmatically efficient networking configuration in order to improve networking performance and monitoring, making it more like cloud computing than traditional networking management.

We have now introduced multiple important variants to the WTM 4000 platform;

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WTM4500 for multi-channel aggregation of microwave channels in long distance applications;

WTM4800 is the latest addition to address 5G network requirements and is capable of operating in the 80GHz E Band at up to 20Gbps capacity, with the unique ability to operate in multi-band mode simultaneously using microwave and E Band frequencies for maximum robustness.

To address the issues of operational complexity in our customers’ networks, AviatCloud is an app-based platform to automate and virtualize networks and their operations.

WTM4800 is the latest addition to address 5G network requirements and is capable of operating in the 80GHz E Band at up to 20Gbps capacity, with a unique Multi-Band capability which simultaneously uses microwave and E Band frequencies for maximum robustness.

WTM 4800 is the industry’s only single box multi-band solution for lowest total cost of ownership deployments.

To address the issues of operational complexity in our customers’ networks, AviatCloud is a platform with secure hosted software and services to automate networks and their operations.

• Low total cost of ownership.

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These independent representatives may buy for resale or, in some cases, solicit orders from commercial or governmental customers for direct sales by us.

Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or below our list prices.

Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or

below our list prices.

These independent representatives generally receive a discount from our list prices and are free to set the final sales prices paid by the customer.

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We provide online design tools for radio link planning and on-line ordering tools, which we fulfill directly from our AviatStore with multiple options of product available for next day shipment.

Shipments from AviatStore commenced late in 2018 and increased in our third and fourth fiscal quarters.

Shipments from AviatStore commenced late in 2018.

We have repair and service centers in India, Nigeria, Ghana, Mexico, the Philippines, the United Kingdom and the United States.

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Our global manufacturing strategy follows an outsourced manufacturing model using contract manufacturing partners in both the United States and Asia.

Our strategy is based on balancing cost and supplier performance as well as taking into account qualification for localization requirements of certain market segments, such as the Buy America statute.

Our strategy is based on balancing cost and supplier performance as well as taking into account qualification for localization requirements of certain market segments, such as the Buy American Act.

In accordance with our global logistics requirements and customer geographic distribution, we are engaged with contract manufacturing partners in Asia and the United States.

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We have also been certified to the TL 9000 standard, a telecommunication industry-specific quality system standard.

Our backlog was approximately $160.1 million at June 28, 2019 and $145.4 million (adjusted for Accounting Standards Codification 606 adoption) at June 29, 2018 consisting primarily of contracts or purchase orders for both product and service deliveries and extended service warranties.

Our backlog was approximately $210 million at July 3, 2020 and $160.1 million at June 28, 2019 consisting primarily of contracts or purchase orders for both product and service deliveries and extended service warranties.

Services include management’s initial estimate of the value of a customer’s commitment under a services contract.

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Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidation, adjustments for revenue not materialized and adjustments for currency.

We expect to substantially fill the backlog as of June 28, 2019 during fiscal 2020 , but we cannot be assured that this will occur.

We expect to substantially fill the backlog as of July 3, 2020 during fiscal 2021, but we cannot be assured that this will occur.

Product orders in our current backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty.

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Although we have a large customer base, during any given fiscal year or quarter, a small number of customers may account for a significant portion of our revenue.

During fiscal 2019 Mobile Telephone Networks Group (“MTN Group”) in Africa accounted for 11% of our total revenue compared with 13% in fiscal 2018 and 14% in fiscal 2017 .

Mobile Telephone Networks Group (“MTN Group”) in Africa accounted for 11% of total revenue in fiscal 2019 and 13% in fiscal 2018.

No customer accounted for more than 10% of our revenue in fiscal 2020.

We have entered into separate and distinct contracts with MTN Group as well as separate arrangements with MTN Group subsidiaries.

The loss of all or a substantial portion of MTN Group’s business could adversely affect our results of operations, cash flows and financial position.

The microwave and millimeter wave wireless networking business is a specialized segment of the telecommunications industry that is sensitive to technological advancements and is extremely competitive.

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Some of our larger competitors may also act as systems integrators through which we sometimes distribute and sell products and services to end users.

The smaller independent private and public specialist competitors typically leverage new technologies and low products costs but are generally less capable of offering a complete solution including professional services, especially in the North America and Africa regions which form the majority of our addressed market.

The smaller independent private and public specialist competitors typically leverage new technologies and low product costs but are generally less capable of offering a complete solution including professional services, especially in the North America and Africa regions which form the majority of our addressed market.

We concentrate on market opportunities that we believe are compatible with our resources, overall technological capabilities and objectives.

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Our research and development expenditures totaled $19.3 million, or 8.1% of revenue, in fiscal 2020, $21.1 million, or 8.7% of revenue, in fiscal 2019, and $19.8 million, or 8.1% of revenue, in fiscal 2018.

Research and development are primarily directed to the development of new products and to building technological capability.

Research and development are primarily directed to the development of new products and to build technological capability.

We are an industry innovator and intend to continue to focus significant resources on product development in an effort to maintain our competitiveness and support our entry into new markets.

Our product development teams totaled 153 employees as of June 28, 2019 , and were located in the United States, New Zealand, Slovenia and Canada.

Our product development teams totaled 149 employees as of July 3, 2020, and were located primarily in New Zealand and Slovenia.

Raw Materials and Supplies

Because of the range of our products and services, as well as the wide geographic dispersion of our facilities, we use numerous sources of raw materials needed for our operations and for our products, such as electronic components, printed

circuit boards, metals and plastics.

We are dependent upon suppliers and subcontractors for a large number of components and subsystems and upon the ability of our suppliers and subcontractors to adhere to customers’ or regulatory materials’ restrictions and to meet performance and quality specifications and delivery schedules.

We are dependent upon suppliers and subcontractors for a large number of components and subsystems and upon the ability of our suppliers and subcontractors to adhere to customers’ requirements or regulatory restrictions and to meet performance and quality specifications and delivery schedules.

Our strategy for procuring raw material and supplies includes dual sourcing on strategic assemblies and components.

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In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project.

Examples of sole or limited source categories include metal fabrications and castings, for which we own the tooling and therefore limit our supplier relationships, ASIC’s and MMICs (types of integrated circuit used in manufacturing microwave radios), which we procure at volume discount from a single source.

Our supply chain plan includes mitigation plans for alternative manufacturing sources and identified alternate suppliers.

Examples of sole or limited source categories include metal fabrications and castings, for which we own the tooling and

therefore limit our supplier relationships, and ASIC’s and MMICs (types of integrated circuit used in manufacturing microwave radios), which we procure at volume discount from a single source.

Our supply chain plan includes mitigation plans for alternative manufacturing sites which would also mitigate COVID-19 risks.

Although we have been affected by performance issues of some of our suppliers and subcontractors, we have not been materially adversely affected by the inability to obtain raw materials or products.

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We also license intellectual property to and from third parties.

As of June 28, 2019 , we held 270 U.S.

As of July 3, 2020, we held 413 U.S.

patents and 496 international patents and had 10 U.S.

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Radio communications are also subject to governmental regulation.

Equipment produced by us is subject to domestic and international requirements to avoid interference among users of radio frequencies and to permit interconnection of telecommunications equipment.

Equipment produced by us is subject to domestic and international requirements to avoid interference among users of radio frequencies and to permit

interconnection of telecommunications equipment.

We believe that we have complied with such rules and regulations with respect to our existing products, and we intend to comply with such rules and regulations with respect to our future products.

Reallocation of the frequency spectrum also could impact our business, financial condition and results of operations.

Reallocation of the frequency spectrum could impact our business, financial condition and results of operations.

We have a comprehensive policy and procedures in effect concerning conflict minerals compliance.

As of June 28, 2019 , we employed 708 people compared with 704 people as of the end of fiscal 2018 , and 710 as of the end of fiscal 2017 .

As of June 28, 2019, 268 of our employees are located in the U.S.

We also utilized 30 and 32 independent contractors as of June 28, 2019 and June 29, 2018 , respectively.

As of July 3, 2020, we employed 674 people compared with 708 people as of the end of fiscal 2019, and 704 as of the end of fiscal 2018.

As of July 3, 2020, 272 of our employees were located in the U.S.

Of the 674 employees employed as of July 3, 2020, 656 were full-time employees.

We also utilized 18 and 30 independent contractors as of July 3, 2020 and June 28, 2019, respectively.

None of our employees in the U.S.

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The name, age, position held with us, and principal occupation and employment during at least the past 5 years for each of our executive officers as of August 27, 2020, are as follows:

Position Currently Held and Past Business Experience

Pangia has been our President and Chief Executive Officer and a member of our board of directors (the “Board”) since July 18, 2011.

From March 2009 to July 2011, he served as our Chief Sales Officer responsible for company-wide operations of the global sales and services organization.

Prior to joining Aviat Networks, from 2008 to 2009, Mr.

Pangia served as Senior Vice President, global sales operations and strategy at Nortel, where he was responsible for all operational aspects of the global sales function.

From 2006 to 2008, he was President of Nortel’s Asia region where his key responsibilities included sales and overall business management for all countries where Nortel did business in the region.

Stan Gallagher, 56

Gallagher joined Aviat Networks in June 2018 as our Senior Vice President, Chief Operating Officer and Principal Financial Officer.

Gallagher is responsible for the operations, finance and IT organizations.

Before joining Aviat, Mr.

Gallagher was a Director and Operational Excellence/Supply Chain Management Lead at Synergetics Installations Worldwide, Inc.

since 2012, and a Senior Consultant with LeadFirst Leadership Development Consultants since 2010.

From 2007 to 2010, Mr.

Gallagher held a number of leadership positions with various subsidiaries of General Electric.

Shaun McFall, 59

McFall was appointed Senior Vice President, Corporate Development in July 2018.

McFall was Chief Strategy Officer from 2015 to July 2018.

He was our Chief Marketing Officer since July 2008.

Previously, from 2000 to 2008, he served as Vice President, Marketing for Aviat Networks and Stratex Networks.

He has been with us since 1989.

Eric Chang, 46

Chang joined Aviat Networks in February 2016 as our Vice President, Corporate Controller and Principal Accounting Officer responsible for worldwide accounting, reporting, compliance and taxation.

Name and Age Position Currently Held and Past Business Experience

Smith, 54 Mr.

Smith was appointed President and Chief Executive Officer in January 2020.

Prior to joining Aviat Networks, Mr.

Smith served as Senior Vice President, US Windows and Canada for Jeld-Wen from March 2017 to December 2019.

Prior to Jeld-Wen, he served as President of Polypore International’s Transportation and Industrial segment from October 2013 to March 2017.

Previously, he served as Chief Executive Officer and a director of Voltaix Inc.

from September 2011 to October 2013.

Earlier in his career, Mr.

Smith held various executive leadership positions at Fortune 100 and Fortune 500 companies, including Cooper Industries, Dover Knowles Electronics and Honeywell Specialty Materials.

Smith also served on the board of Soleras Advanced Coatings from August 2015 to October 2018.

He has both a Bachelor of Science degree in Material (Ceramics) Engineering and PhD in Material Science and Engineering from Rutgers University, and holds a Master of Business Administration degree from Arizona State University.

Eric Chang, 47 Mr.

Chang was appointed Senior Vice President and Chief Financial Officer in April 2020.

Chang joined Aviat Networks in February 2016 as our Vice President, Corporate Controller and Principal Accounting Officer.

Prior to joining Aviat Networks, from 2013 to 2016, Mr.

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From 2003 to 2007, he was at Ernst & Young LLP, most recent as Senior Audit Manager.

There is no family relationship between any of our executive officers or directors, and there are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was appointed or elected as an officer or director, other than arrangements or understandings with our direc tors.

Web site Access to Aviat Networks’ Reports;

Chang is a Certified Public Accountant in California and holds a Bachelor of Science degree in Accounting and Computer Information Systems from Indiana University Kelley School of Business.

Website Access to Aviat Networks’ Reports;

Available Information

We maintain an Internet Web site at http://www.aviatnetworks.com.

Our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge on our Web site as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

We maintain a website at http://www.aviatnetworks.com.

Our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge on our website as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

Our website and the information posted thereon are not incorporated into this Annual Report on Form 10-K or any current or other periodic report that we file or furnish to the SEC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business