What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-03 compared with 2020-11-05 · 86 added, 67 removed, 160 unchanged (49% of the section changed)

58 unchanged sentences

In the discussion herein, our fiscal year ending July 2, 2021 is referred to as “fiscal 2021” or “2021” and our fiscal year ended July 3, 2020 is referred to as “fiscal 2020” or “2020.”

We anticipate modest growth in revenue in fiscal 2021.

We have a healthy backlog entering fiscal 2021 for North American private network projects and we anticipate continuing our strong momentum across these verticals.

We anticipate growth in revenue in fiscal 2021.

We have a healthy backlog entering fiscal 2021 and we anticipate continuing our strong momentum across all verticals.

We have made inroads into the U.S.

rural broadband and wireless internet service provider areas and there is now further evidence now of investment to support 5G deployments with our U.S.

rural broadband and wireless internet service provider areas and there is now further evidence of investment to support 5G deployments with our U.S.

service provider customers.

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The COVID-19 pandemic has had and is likely to continue to have an impact on our operations, supply chains and distribution systems.

COVID-19 pandemic has led to an increase in our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking or requiring.

The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with certainty, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating activities can resume.

Management is actively

monitoring the impact of COVID-19 pandemic on our financial condition, liquidity, operations, suppliers, industry, and workforce.

The COVID-19 pandemic has led to an increase in our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking or requiring.

The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with certainty, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, including the ongoing vaccination efforts and how quickly and to what extent normal economic and operating activities can resume.

Management is actively monitoring the impact of the COVID-19 pandemic on our financial condition, liquidity, operations, suppliers, industry, and workforce.

Our first priority remains the health and safety of our employees and their families.

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Our manufacturing sites remain operational, and we are maintaining social distancing and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

The impact to our supply chain lead times and ability to fulfill orders was minimal for the three months ended October 2, 2020.

The impact to our supply chain lead times and ability to fulfill orders was minimal for the three and six months ended January 1, 2021.

However, depending on pandemic-related factors like the uncertain duration of temporary manufacturing restrictions as well as our ability to perform field services during shelter in place orders, we could experience constraints and delays in fulfilling customer orders in future periods.

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We expect these challenges to continue until business and economic activities return to more normal levels.

The financial results for the three months ended October 2, 2020 reflect some of the reduced activity experienced during the period in various locations around the world and are not necessarily indicative of the results for the full year.

The financial results for the three and six months ended January 1, 2021 reflect some of the reduced activity experienced during the period in various locations around the world and are not necessarily indicative of the results for the full year.

Operations Review

The market for mobile backhaul continued to be our primary addressable market segment globally in the first quarter of fiscal 2021.

The market for mobile backhaul continued to be our primary addressable market segment globally in the first half of fiscal 2021.

In North America, we supported long-term evolution (“LTE”) deployments of our mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers.

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(1) Africa and the Middle East, (2) Europe and Russia, and (3) Latin America and Asia Pacific.

Revenue by region for the three months ended October 2, 2020 and September 27, 2019 and the related changes were as follows:

Three Months Ended

(In thousands, except percentages) October 2, 2020 September 27, 2019 $ Change % Change

Revenue by region for the three and six months ended January 1, 2021 and December 27, 2019 and the related changes were as follows:

Three Months Ended Six Months Ended

(In thousands, except percentages) January 1, 2021 December 27, 2019 $ Change % Change January 1, 2021 December 27, 2019 $ Change % Change

North America $ 49,158 $ 36,472 $ 12,686 34.8 % $ 94,657 $ 76,239 $ 18,418 24.2 %

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$ 70,531 $ 55,997 $ 14,534 26.0 % $ 136,821 $ 114,611 $ 22,210 19.4 %

Our revenue in North America increased by $5.7 million, or 14.4%, during the first quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to an increase in private network projects as well as an increase in mobile operator sales.

Our revenue in Africa and the Middle East was consistent for the first quarter of fiscal 2021 compared with the same period of fiscal 2020.

Revenue in Europe and Russia decreased by $1.1 million, or 33.6%, for the first quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to lower sales to mobile operator customers in the region.

Revenue in Latin America and Asia Pacific increased by $3.1 million, or 64.2%, during the first quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to higher sales to mobile operator customers in the region.

Three Months Ended

(In thousands, except percentages) October 2, 2020 September 27, 2019 $ Change % Change

Our revenue in North America increased by $12.7 million, or 34.8%, during the second quarter of fiscal 2021 compared with the same period of fiscal 2020.

Revenue in North America increased by $18.4 million, or 24.2%, during the first six months of fiscal 2021 compared with the same period of fiscal 2020.

The increase in North America revenue during the three and six months of fiscal 2021 was primarily due to an increase in the number of private network projects.

Our revenue in Africa and the Middle East increased by $1.8 million or 20.4% during the second quarter of fiscal 2021 compared with the same period of fiscal 2020.

Revenue in Africa and the Middle East increased by $1.8 million, or 9.2%, during the first six months of fiscal 2021 compared with the same period of fiscal 2020.

This increase in revenue during the three and six months of fiscal 2021 was primarily due to increased sales to mobile operators in the region.

Revenue in Europe and Russia decreased by $0.9 million, or 37.5%, for the second quarter of fiscal 2021 compared with the same period of fiscal 2020.

Revenue in Europe and Russia decreased by $2.1 million, or 35.2%, during the first six months of fiscal 2021 compared with the same period of fiscal 2020.

This decrease during the three and six months of fiscal 2021 was primarily due to lower sales to mobile operators in the region.

Revenue in Latin America and Asia Pacific increased by $0.9 million, or 11.5%, during the second quarter of fiscal 2021 compared with the same period of fiscal 2020.

Revenue in Latin America and Asia Pacific increased by $4.1 million, or 31.0%, during the first six months of fiscal 2021 compared with the same period of fiscal 2020.

This increase during the three and six months of fiscal 2021 was primarily due to increased sales to mobile operators in the region.

Three Months Ended Six Months Ended

(In thousands, except percentages) January 1, 2021 December 27, 2019 $ Change % Change January 1, 2021 December 27, 2019 $ Change % Change

Product sales $ 46,691 $ 34,152 $ 12,539 36.7 % $ 91,155 $ 70,746 $ 20,409 28.8 %

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$ 70,531 $ 55,997 $ 14,534 26.0 % $ 136,821 $ 114,611 $ 22,210 19.4 %

Our revenue from product sales increased by $7.9 million, or 21.5%, for the first quarter of fiscal 2021 compared with the same quarter of fiscal 2020.

Product sales increased compared to the same period in fiscal 2020 in all regions, except for Europe and Russia.

Three Months Ended

(In thousands, except percentages) October 2, 2020 September 27, 2019 $ Change % Change

Our revenue from product sales increased by $12.5 million, or 36.7%, for the second quarter of fiscal 2021 compared with the same quarter of fiscal 2020.

Product sales increased compared to the same period in fiscal 2020 in North America, Africa and the Middle East, and in Latin America, with small declines in the other regions.

Our services revenue increased by $2.0 million, or 9.1%, during the second quarter of fiscal 2021 compared with the same quarter of fiscal 2020.

Services revenue increased in North America and Latin America and Asia Pacific, offset by lesser declines in Africa and the Middle East and Europe and Russia.

Our revenue from product sales increased by $20.4 million, or 28.8%, for the first six months of fiscal 2021 compared with the same period of fiscal 2020.

Product sales increased for all regions, except for Europe and Russia compared to the same period in fiscal 2020.

Our services revenue increased by $1.8 million, or 4.1%, during the first six months of fiscal 2021 compared with the same period of fiscal 2020.

Service sales increased for all regions, except for Europe and Russia and Africa and the Middle East compared to the same period in fiscal 2020.

Three Months Ended Six Months Ended

(In thousands, except percentages) January 1, 2021 December 27, 2019 $ Change % Change January 1, 2021 December 27, 2019 $ Change % Change

Revenue $ 70,531 $ 55,997 $ 14,534 26.0 % $ 136,821 $ 114,611 $ 22,210 19.4 %

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32.2 % 32.7 % 33.7 % 31.7 %

Gross margin for the first quarter of fiscal 2021 increased by $1.7 million, or 7.5% compared with the same quarter of fiscal 2020.

Our gross margin increased from the same period last year primarily due to the increased volume of product sales and improved profitability of services.

Product margin as a percentage of product revenue decreased in the first quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to product and regional mix.

Service margin as a percentage of service revenue increased in the first quarter of fiscal 2021 compared with the same period in fiscal 2020 from improved profitability in most regions.

Gross margin for the second quarter of fiscal 2021 increased by $8.6 million, or 46.9% compared with the same quarter of fiscal 2020.

Gross margin for the first six months of fiscal 2021 increased by $10.3 million, or 25.2%.

For the three and six months of fiscal 2021, gross margin improved over the same period in fiscal 2020 primarily due to higher volume and increased profitability of product and service businesses, mainly in North America.

Product margin as a percentage of product revenue increased in the second quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to improved margins in North America.

Service margin as a percentage of service revenue decreased in the second quarter of fiscal 2021 compared with the same period in fiscal 2020 primarily due to regional and service mix.

Product margin and service margin as a percentage of product revenue and service revenue, respectively, improved in the first six months of fiscal 2021 compared with the same period of fiscal 2020 due to improved product and service margins in all regions, except Europe and Russia.

Research and Development Expenses

Three Months Ended

(In thousands, except percentages) October 2, 2020 September 27, 2019 $ Change % Change

Three Months Ended Six Months Ended

(In thousands, except percentages) January 1, 2021 December 27, 2019 $ Change % Change January 1, 2021 December 27, 2019 $ Change % Change

Research and development $ 5,419 $ 4,978 $ 441 8.9 % $ 10,266 $ 10,194 $ 72 0.7 %

Our research and development expenses decreased by $0.4 million, or 7.1%, in the first quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to cost savings initiatives implemented in the second half of fiscal 2020.

7.7 % 8.9 % 7.5 % 8.9 %

Our research and development expenses increased by $0.4 million, or 8.9%, in the second quarter of fiscal 2021 compared with the same period of fiscal 2020 primarily due to increased product development activities.

Our research and development expenses were relatively flat for the six months of fiscal 2021 compared to the comparable periods of fiscal 2020.

Selling and Administrative Expenses

Three Months Ended

(In thousands, except percentages) October 2, 2020 September 27, 2019 $ Change % Change

Three Months Ended Six Months Ended

(In thousands, except percentages) January 1, 2021 December 27, 2019 $ Change % Change January 1, 2021 December 27, 2019 $ Change % Change

Selling and administrative $ 13,612 $ 14,457 $ (845) (5.8) % $ 26,449 $ 29,101 $ (2,652) (9.1) %

19.3 % 25.8 % 19.3 % 25.4 %

Our selling and administrative expenses decreased by $1.8 million, or 12.3%, in the first quarter of fiscal 2021 compared with the same period in fiscal 2020 primarily due to cost savings initiatives implemented in the second half of fiscal 2020.

Our selling and administrative expenses decreased by $0.8 million, or 5.8%, in the second quarter of fiscal 2021 compared with the same period in fiscal 2020.

Our selling and administrative expenses decreased by $2.7 million, or 9.1%, for the six months of fiscal 2021 compared with the same period in fiscal 2020.

The decreases for the three and six months of fiscal 2021 compared to comparable periods of fiscal 2020 were primarily due to lower travel expenses and restructuring savings.

Restructuring Charges

Three Months Ended

(In thousands, except percentages) October 2, 2020 September 27, 2019 $ Change % Change

Three Months Ended Six Months Ended

(In thousands, except percentages) January 1, 2021 December 27, 2019 $ Change % Change January 1, 2021 December 27, 2019 $ Change % Change

Restructuring charges $ — $ 381 $ (381) — % $ — $ 1,558 $ (1,558) (100.0) %

We recognized in the first quarter of fiscal 2020 restructuring charges of $1.2 million related to the Fiscal 2020 Plan, which was primarily to consolidate product development, right size our resources to support our International business and other support functions.

Interest Income, Interest Expense and Other (Expense) Income, Net

Three Months Ended

(In thousands, except percentages) October 2, 2020 September 27, 2019 $ Change % Change

In the second quarter of fiscal 2020 and the first six months of fiscal 2020, we recognized restructuring charges of $0.4 million and $1.6 million, respectively, related to the Fiscal 2020 Plan, which was primarily to consolidate product development, right size our resources to support our international business and other support functions.

Interest Income and Interest Expense

Three Months Ended Six Months Ended

(In thousands, except percentages) January 1, 2021 December 27, 2019 $ Change % Change January 1, 2021 December 27, 2019 $ Change % Change

Interest income $ 38 $ 120 $ (82) (68.3) % $ 74 $ 206 $ (132) (64.1) %

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Interest income reflected interest earned on our cash equivalents, which were comprised of money market funds and bank certificates of deposit.

Interest expense was primarily related to interest associated with borrowings under the SVB Credit Facility and discounts on customer letters of credit.

Three Months Ended

(In thousands, except percentages) October 2, 2020 September 27, 2019 $ Change % Change

Income before income taxes $ 6,600 $ 1,602 $ 4,998 312.0 %

Interest expense was primarily related to interest associated with borrowings under the SVB Credit Facility.

Three Months Ended Six Months Ended

(In thousands, except percentages) January 1, 2021 December 27, 2019 $ Change % Change January 1, 2021 December 27, 2019 $ Change % Change

Income (loss) before income taxes $ 7,916 $ (1,378) $ 9,294 (674.5) % $ 14,516 $ 224 $ 14,292 6,380.4 %

Provision for income taxes $ 1,275 $ 293 $ 982 335.2 % $ 1,939 $ 1,841 $ 98 5.3 %

We estimate our annual effective tax rate at the end of each quarterly period, and we record the tax effect of certain discrete items in the interim period in which they occur, including changes in judgment about uncertain tax positions and deferred tax valuation allowances.

The tax expense for the first quarter of fiscal 2021 was primarily due to tax expense related to profitable subsidiaries.

The tax expense for the first quarter of fiscal 2020 was primarily due to tax expense related to profitable subsidiaries and a $0.6 million increase in our reserves for uncertain tax positions.

The tax expense for the first six months of fiscal 2021 and the comparable periods in fiscal 2020 was primarily due to tax expense related to profitable subsidiaries and $0.4 million of tax expense related to an audit settlement with the Financial Administration of the Republic of Slovenia.

The tax expense for the first six months of fiscal 2020 was primarily due to tax expense related to profitable subsidiaries and certain withholding taxes as well as a $0.6 million increase in our reserves for uncertain tax positions.

During the first quarter of 2021, we received a tax refund of $1.2 million from the Federal Revenue of Brazil related to our withholding tax refund claim and recorded minimal tax expense related to interest as a discrete item.

During the second quarter of 2021, we effectively settled a tax audit with the Financial Administration of the Republic of Slovenia for fiscal years 2016 to 2018 and recorded $0.4 million of tax expense related to the denial of research and development tax relief as a discrete item.

During the second quarter of 2021, we effectively settled a tax audit with the General Authority of Zakat and Tax in Saudi Arabia for fiscal years 2016 to 2018 and recorded minimal tax benefit related to the release of previously recorded ASC 740-10 reserve as a discrete item.

We continue to record a partial valuation allowance on our U.S.

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If future events cause us to conclude that it is not more likely than not that we will be able to recover more or less of the current anticipated portion of deferred tax assets, we would be required to either decrease or increase the valuation allowance on our deferred tax assets at that time, which would result in a charge to income tax expense and a material increase or decrease in net income in the period in which we change our judgment.

During the first quarter of fiscal 2021, we did not record any adjustment to valuation allowance on our U.S.

During the second quarter of fiscal 2021, we did not record any adjustment to valuation allowance on our U.S.

deferred tax assets.

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Sources of Cash

As of October 2, 2020, our total cash and cash equivalents were $36.2 million.

As of January 1, 2021, our total cash and cash equivalents were $43.0 million.

Approximately $27.0 million, or 62.6%, was held in the United States.

The remaining balance of $16.1 million, or 37.4%, was held by entities outside the United States.

Of the amount of cash and cash equivalents held by our foreign subsidiaries at October 2, 2020, $14.4 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Of the amount of cash and cash equivalents held by our foreign subsidiaries on January 1, 2021, $15.5 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Operating Activities

Cash provided by or used in operating activities is presented as net income adjusted for non-cash items and changes in operating assets and liabilities.

Net cash provided by operating activities was $4.2 million for the first three months of fiscal 2021, compared to $5.6 million for the first three months of fiscal 2020;

Net cash provided by operating activities was $10.2 million for the first six months of fiscal 2021, compared to $10.8 million for the first six months of fiscal 2020;

this difference was primarily related to a net change in Accounts receivable and partially offset by the net change in Net income.

Net cash provided by noncash items was $2.8 million for the first three months 2021, compared to $2.3 million for the comparable period in Fiscal 2020.

The net changes in operating assets and liabilities resulted in a net use of cash of $4.5 million for the first three months of fiscal 2021, compared to net cash provided by $3.3 million for the same period in fiscal 2020.

Changes in operating assets and liabilities resulted in a net use of cash for the first three months of fiscal 2021 was primarily related to Accounts receivable that fluctuate from period to period, depending on the amount, timing of sales and billing activities and cash collections;

Net cash provided by noncash items was $5.7 million for the first six months of both 2021 and 2020.

The net changes in operating assets and liabilities resulted in a net use of cash of $8.0 million for the first six months of fiscal 2021, compared to net cash provided by operating activities of $7.2 million for the same period in fiscal 2020.

Changes in operating assets and liabilities resulted in a net use of cash for the first six months of fiscal 2021 primarily related to Accounts receivable that fluctuate from period to period, depending on the amount, timing of sales and billing activities and cash collections;

and the timing of Accrued expenses.

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Investing Activities

Net cash used in investing activities was $1.0 million and $1.3 million for the first three months of fiscal 2021 and 2020, respectively, which consisted of capital expenditures.

Net cash used in investing activities was $1.4 million and $2.4 million for the first six months of fiscal 2021 and 2020, respectively, which consisted of capital expenditures.

During the remainder of fiscal year 2021, we expect to spend approximately $3.5 million for capital expenditures, primarily on equipment for development and manufacturing of new products and IT infrastructure.

Financing Activities

Financing cash flows consist primarily of proceeds and repayments of short-term debt, repurchase of stock and proceeds from sale of share of common stock through employee equity plans.

Net cash used in financing activities was $8.7 million for the first three months of fiscal 2021, primarily due to $9.0 million repayment of short-term debt.

As of October 2, 2020, our principal sources of liquidity consisted of $36.2 million in cash and cash equivalents;

Financing cash flows consist primarily of proceeds from and repayments of short-term debt, repurchase of stock and proceeds from the sale of shares of common stock through employee equity plans.

Net cash used in financing activities was $7.7 million for the first six months of fiscal 2021, primarily due to $9.0 million repayment of short-term debt partially offset by cash proceeds from the issuance of common stock under employee stock plans of $1.5 million.

Net cash used in financing activities was $2.1 million for the first six months of fiscal 2020, primarily due to repurchases of common stock of $1.4 million and the payments for taxes related to net settlement of equity awards of $0.7 million.

As of January 1, 2021, our principal sources of liquidity consisted of $43.0 million in cash and cash equivalents;

$23.5 million of available credit under our $25.0 million credit facility with Silicon Valley Bank (“SVB Credit Facility”), which matures on June 28, 2021, and future collections of receivables from customers.

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Over the longer term, if we are unable to maintain cash balances or generate sufficient cash flow from operations to service our obligations that may arise in the future, we may be required to sell assets, reduce capital expenditures, or obtain financing.

If we need to obtain additional financing, we cannot be assured

that it will be available on favorable terms, or at all.

If we need to obtain additional financing, we cannot be assured that it will be available on favorable terms, or at all.

Our ability to make scheduled principal payments or pay interest on or refinance any future indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the microwave communications market and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

As of October 2, 2020, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility.

We repaid the outstanding balance of $9.0 million during the first three months of fiscal 2021;

therefore, there was no amount outstanding as of October 2, 2020.

As of January 1, 2021, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility and there was no amount outstanding.

In addition, we have an uncommitted short-term line of credit of $0.4 million from a bank in New Zealand to support the operations of our subsidiary located there.

This line of credit provides for $0.2 million in short-term advances at various interest rates, all of which was available as of October 2, 2020 and July 3, 2020.

The line of credit also provides for the issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of October 2, 2020 and July 3, 2020.

This line of credit provides for $0.3 million in short-term advances at various interest rates, all of which was available as of January 1, 2021 and July 3, 2020.

The line of credit also provides for the issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of January 1, 2021 and July 3, 2020.

This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee.

Restructuring Payments

We had liabilities for restructuring activities totaling $1.8 million as of October 2, 2020, which was classified as current liabilities and expected to be paid out in cash over the next 12 months.

We had liabilities for restructuring activities totaling $1.4 million as of January 1, 2021, which were classified as current liabilities and expected to be paid out in cash over the next 12 months.

We expect to fund these future payments with available cash and cash provided by operations.

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The amounts disclosed in our fiscal 2020 Annual Report on Form 10-K filed with the SEC on August 27, 2020 include our commercial commitments and contractual obligations.

During the first three months of fiscal 2021, no material changes occurred in our contractual obligations to purchase goods and services or to make payments under operating leases or our contingent liabilities on outstanding letters of credit, guarantees, and other arrangements as disclosed in our fiscal 2020 Annual Report on Form 10-K.

During the first six months of fiscal 2021, no material changes occurred in our contractual obligations to purchase goods and services or to make payments under operating leases or our contingent liabilities on outstanding letters of credit, guarantees, and other arrangements as disclosed in our fiscal 2020 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

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Currently we are not participating in transactions that generate relationships with unconsolidated entities or financial partnerships, including variable interest entities, and we do not have any material retained or contingent interest in assets as defined above.

As of October 2, 2020, we did not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity.

As of January 1, 2021, we did not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity.

In addition, we are not currently a party to any related party transactions that materially affect our results of operations, cash flows or financial condition.

As of October 2, 2020, we had commercial commitments of $58.7 million.

As of January 1, 2021, we had commercial commitments of $59.7 million.

Please refer to “Note 12 Commitments and Contingencies” of the Notes to unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q for Contractual Obligations and Off-Balance Sheet Arrangements.

3 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis