What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-08-25 compared with 2020-08-27 · 120 added, 194 removed, 297 unchanged (51% of the section changed)

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our fiscal year ended July 2, 2021 is referred to as “fiscal 2021” or “2021”;

our fiscal year ended June 28, 2019 is referred to as “fiscal 2019” or “2019”;

our fiscal year ended July 3, 2020 is referred to as “fiscal 2020” or “2020”;

and our fiscal year ended June 28, 2019 is referred to as “fiscal 2019” or “2019.” Our fiscal year ends on the Friday nearest to June 30.

Fiscal 2020 presented included 53 weeks while fiscal 2019 and fiscal 2018 each included 52 weeks.

This one extra week has impacted both our fiscal 2020 revenue and expenses.

We anticipate modest growth in revenue in fiscal 2021.

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

Fiscal 2021 presented included 52 weeks while fiscal 2020 included 53 weeks and fiscal 2019 included 52 weeks.

This one week difference between fiscal 2021 and fiscal 2020 impacts the comparison of both revenue and expenses.

We achieved revenue growth of 15.2% in fiscal 2021.

We anticipate further revenue growth in fiscal 2022.

We continue to have a strong backlog entering fiscal 2022 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 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.

Internationally, we are continuing a more conservative view of our revenue opportunity based on a variety of factors that have led to an overall capital spending decline and increased competitive intensity, especially from vendors based in China.

Our international sales grew in fiscal 2021.

In March 2020, the World Health Organization characterized the current respiratory illness caused by novel coronavirus disease, known as COVID-19, as a pandemic.

The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns.

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 pandemic.

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

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 ongoing vaccination efforts, any new variant strains of the underlying virus 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.

Employees whose tasks can be done offsite have been instructed to work from home.

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 year ended July 2, 2021.

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

We are monitoring, assessing and adapting to the situation and preparing for possible implications to our business, supply chain and customer demand.

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

The financial results for the year ended July 2, 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 next fiscal period or fiscal year.

Operations Review

The market for mobile backhaul continued to be our primary addressable market segment globally in 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.

In international markets, our business continued to rely on a combination of customers increasing their capacity to handle subscriber growth, the ongoing build-out of some large 3G deployments, and LTE deployments.

In North America, we supported 5G and 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.

In international markets, our business continued to rely on a combination of customers increasing their capacity to handle subscriber growth, the ongoing build-out of 3G deployments, 5G deployments and LTE deployments.

Our position continues to be to support our customers for 5G and LTE readiness and ensure that our technology roadmap is well aligned with evolving market requirements.

We continue to find that our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers in all markets.

However, as disclosed above and in the “Risk Factors” section in Item 1A of this Annual Report on Form 10-K, a number of factors could prevent us from achieving our objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that we service.

However, as disclosed in “Overview” above and in the “Risk Factors” section in Item 1A of this Annual Report on Form 10-K, a number of factors could prevent us from achieving our objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that we service.

We manage our sales activities primarily on a geographic basis in North America and three international geographic regions:

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Total Revenue $ 274,911 $ 238,642 $ 243,858 $ 36,269 $ (5,216) 15.2 % (2.1) %

During fiscal 2020 and 2019, we recognized revenue based on Accounting Standards Codification (“ASC”) 606 but revenue for fiscal 2018 was recognized based on ASC 605.

Therefore, the periods are not directly comparable.

See “Critical Accounting Estimates—Revenue Recognition” in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on our revenue recognition.

Our revenue from North America increased by $31.4 million, or 20.7%, in fiscal 2021 compared with fiscal 2020.

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Revenue from North America increased $18.8 million, or 14.2%, in fiscal 2020 compared with fiscal 2019.

The increase in North America revenue during fiscal 2019 was due to stronger order flow from private network customers.

Our revenue from Africa and the Middle East decreased by $10.7 million, or 22.2%, in fiscal 2020 compared with fiscal 2019.

The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the region.

The increase in North America revenue during fiscal 2020 was due to stronger order flow from private network customers, as well as increased sales to mobile operators.

Our revenue from Africa and the Middle East increased by $6.4 million, or 17.1%, in fiscal 2021 compared with fiscal 2020.

The increase in revenue was primarily due to increased sales to mobile operators in the region.

Revenue from Africa and the Middle East decreased $10.7 million, or 22.2%, in fiscal 2020 compared with fiscal 2019.

The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the region and completion of a one-time large Middle East project in fiscal 2018.

The decrease in revenue was primarily due to decreased sales to our mobile operator customers in the region.

Revenue from Europe and Russia decreased by $2.3 million, or 20.9%, in fiscal 2021 compared with fiscal 2020.

The decrease was due to lower sales to mobile operator customers, offset in part by increased sales to private network customers in the region.

The decrease in revenue was due to lower sales to mobile operator customers.

Revenue in Europe and Russia decreased $5.8 million, or 34.1%, in fiscal 2020 compared with fiscal 2019.

The decrease during fiscal 2019 was due to lower sales to mobile and private network customers in the region.

Revenue from Latin America and Asia Pacific decreased by $7.6 million, or 16.5%, in fiscal 2020 compared with fiscal 2019.

The decrease was due to lower sales to mobile operator customers.

Revenue in Latin America and Asia Pacific increased by $0.8 million, or 2.1%, in fiscal 2021 compared with fiscal 2020.

The increase in revenue was primarily due to higher sales to mobile operator customers in Asia Pacific offset in part by decreased revenue in Latin America.

Revenue from Latin America and Asia-Pacific decreased $7.6 million, or 16.5%, in fiscal 2020 compared with fiscal 2019.

The decrease was primarily due to lower sales volume from certain mobile operator customers in Asia Pacific offset in part by increased revenue in Latin America.

Revenue from Latin America and Asia-Pacific increased $11.0 million, or 31.6%, in fiscal 2019 compared with fiscal 2018.

The increase was primarily due to higher sales volume from certain mobile operator customers in Asia Pacific.

Fiscal Year $ Change % Change

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$ 274,911 $ 238,642 $ 243,858 $ 36,269 $ (5,216) 15.2 % (2.1) %

Our revenue from product sales decreased by $2.9 million, or 1.9%, in fiscal 2020 compared with fiscal 2019.

Our revenue from product sales increased by $32.0 million, or 20.8%, in fiscal 2021 compared with fiscal 2020.

Product volume increased with customers in North America and Middle East Africa, offset in part by small declines in the other international markets.

Our services revenue increased by $4.3 million, or 5.0%, in fiscal 2021 compared with fiscal 2020 from increased sales in North America.

Our revenue from product sales decreased $2.9 million, or 1.9%, in fiscal 2020 compared with fiscal 2019.

Product volume decreased with customers in international markets and was offset in part by increased product sales in North America.

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Decreased sales in international markets were offset in part by increased sales in North America.

Our revenue from product sales increased $5.0 million, or 3.3%, in fiscal 2019 compared with fiscal 2018.

Product volume increased primarily with mobile operators in Asia Pacific and a small increase in North America offsetting volume reductions in the other regions compared with fiscal 2018.

Our services revenue decreased by $3.7 million, or 4.1%, in fiscal 2019 compared with fiscal 2018.

Decreased sales in Africa and the Middle East were offset in part by increased sales in other regions.

Fiscal Year $ Change % Change

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Gross margin for fiscal 2021 increased by $17.9 million, or 21.2%, compared with fiscal 2020.

Gross margin as a percentage of revenue for fiscal 2020 increased to 35.5%, compared with 32.5% in fiscal 2019, primarily due to higher

margin rates for product sales and implementation of cost savings initiatives.

Gross margin as a percentage of revenue for fiscal 2021 increased to 37.3%, compared with 35.5% in fiscal 2020, primarily due to higher volume of Private Network business, increased sales through Aviat Store which serves primarily the Rural Broadband, and wins with our multiband products and software sales.

Gross margin for fiscal 2020 increased $5.4 million, or 6.8%, compared with fiscal 2019.

Gross margin as a percentage of revenue for fiscal 2020 increased to 35.5%, compared with 32.5% in fiscal 2019, primarily due to higher margin rates for product sales and implementation of cost savings initiatives.

The increased volume of product sales in North America, which generally has a higher gross margin compared to international, contributed most of the overall gross margin improvement in fiscal 2020.

Gross margin for fiscal 2019 decreased $1.2 million, or 1.5%, compared with fiscal 2018.

Gross margin as a percentage of revenue for fiscal 2019 decreased to 32.5%, compared with 33.2% in fiscal 2018, primarily due to lower margin rates for services.

Service margin as a percentage of service revenue declined in fiscal 2019 compared to fiscal 2018, primarily due to decreased margins in North America, the Middle East and Africa.

Research and Development Expenses

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% of revenue 7.9 % 8.1 % 8.7 %

Our research and development (“R&D”) expenses decreased by $1.8 million, or 8.7%, in fiscal 2020 compared with fiscal 2019.

Our research and development (“R&D”) expenses increased by $2.5 million, or 13.1%, in fiscal 2021 compared with fiscal 2020.

The increase was due to additional investments to support new product offerings.

Our R&D expenses decreased $1.8 million, or 8.7%, in fiscal 2020 compared with fiscal 2019.

The decrease was primarily due to consolidation of product development, lower variable compensation and costs reduction initiatives associated with COVID-19, offset in part by expenses associated with one extra week in our fiscal 2020 calendar.

Our R&D expenses increased $1.4 million, or 6.9%, in fiscal 2019 compared with fiscal 2018.

The increase was primarily due to increased development activity on new product lines.

Selling and Administrative Expenses

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% of revenue 20.5 % 24.3 % 23.0 %

Our selling and administrative expenses increased by $1.9 million, or 3.4%, in fiscal 2020 compared with fiscal 2019.

Our selling and administrative expenses decreased by $1.7 million, or 2.9%, in fiscal 2021 compared with fiscal 2020.

The decrease was primarily due to lower travel expenses and restructuring savings offset in part by higher sales-related expenses.

Our selling and administrative expenses increased $1.9 million, or 3.4%, in fiscal 2020 compared with fiscal 2019.

The increase was primarily due to higher variable compensation and expenses associated with one extra week in our fiscal 2020 calendar, partially offset by cost reductions initiatives associated with COVID-19.

Our selling and administrative expenses decreased $2.1 million, or 3.6%, in fiscal 2019 compared with fiscal 2018.

The decrease was primarily due to lower variable compensation.

Restructuring Charges

During the third and fourth quarters of fiscal 2021, our Board of Directors approved restructuring plans (the “Fiscal 2021 Plan”) to continue to reduce our operating costs and improve profitability.

We recorded restructuring charges of $2.4 million related to the Fiscal 2021 Plan in fiscal 2021.

Payments related to the accrued restructuring balances for this plan are expected to be fully paid in fiscal 2022.

During the fourth quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q4 2020 Plan”) in order to continue to reduce our operating costs and improve profitability to optimize our business model and increase efficiencies.

The Q4 2020 Plan is being implemented starting with our fourth fiscal quarter of 2020 through the second fiscal quarter of 2021.

We recorded restructuring charges of $1.9 million related to the Q4 2020 Plan in fiscal 2020.

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We recorded restructuring charges of $0.6 million related to the Q3 2020 Plan in fiscal 2020.

Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.

During the fourth quarter of fiscal 2019, our Board of Directors approved a restructuring plan (the “Fiscal 2020 Plan”) to primarily consolidate product development, right size our resources to support our International business and

other support functions.

Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.

Payments related to the accrued restructuring liability balance for this plan were fully paid in fiscal 2021.

During the fourth quarter of fiscal 2018, our Board of Directors approved a restructuring plan (the “Fiscal 2018-2019 Plan”) to consolidate back-office support functions and align resources by geography to lower our expense structure.

We completed the restructuring activities under the Fiscal 2018-2019 Plan at the end of fiscal 2019.

The remaining payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.

Payments related to the accrued restructuring liability balance for this plan were fully paid in fiscal 2021.

Our restructuring charges by plan for fiscal 2021, 2020 and 2019 are summarized in the table below:

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(In thousands, except percentages) 2021 2020 2019 2021/2020 2020/2019 2021/2020 2020/2019

Q4 2020 Plan $ 1,879 $ — $ — $ 1,879 $ — N/A N/A

Q3 2020 Plan $ 595 $ — $ — $ 595 $ — N/A N/A

Fiscal 2021 Plan $ 2,414 $ — $ — $ 2,414 $ — N/A N/A

Fiscal 2018-2019 Plan $ (150) $ 736 $ 1,532 $ (886) $ (796) (120.4) % N/A

Fiscal 2016-2017 Plan — — (5) — 5 N/A (100.0) %

Other prior years plans — — (248) — 248 N/A (100.0) %

Total $ 4,049 $ 736 $ 1,279 $ 3,313 $ (543) 450.1 % (42.5) %

Restructuring charges in fiscal 2020 of $4.0 million relate to employee severance and benefits for the Q4 2020 Plan, Q3 2020 Plan and the Fiscal 2020 Plan.

Restructuring charges for fiscal 2019 included $0.7 million of employee severance and benefits costs related to the Fiscal 2018-2019 Plan.

Restructuring charges for fiscal 2018 included $1.5 million of employee severance and benefits costs primarily related to the Fiscal 2018-2019 Plan and a reduction in the previously estimated accrual of $0.3 million of an older plan.

Q4 2020 Plan 92 1,879 — (1,787) 1,879 (95.1) % N/A

Prior Years' Plan (235) 2,170 736 (2,405) 1,434 (110.8) % 194.8 %

Restructuring charges $ 2,271 $ 4,049 $ 736 $ (1,778) $ 3,313 (43.9) % 450.1 %

Restructuring charges for fiscal 2021 included employee severance and benefits of $2.4 million the Fiscal 2021 Plan and a reduction in the previously estimated accrual of $0.2 million in Prior Years' Plan.

Restructuring charges for fiscal 2020 included employee severance and benefits costs of $1.9 million for the Q4 2020 Plan, $2.2 million for the Prior Years' Plan.

Restructuring charges for fiscal 2019 included $0.7 million of employee severance and benefits costs related to the Prior Years' Plan.

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

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Interest expense — (54) (102) 54 48 (100) % (47) %

Other income (expense), net — 17 (220) (17) 237 N/A N/A

Other income, net — — 17 — (17) N/A N/A

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 our Silicon Valley Bank (“SVB”) credit facility and discounts on customer letters of credit.

Other expense in fiscal 2018 included $0.2 million related to the foreign exchange loss on a dividend declared by our Nigeria entity (a partnership for U.S.

tax purposes) to our Aviat U.S.

Fiscal Year $ Change

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$ 22,440 $ 3,709 $ 1,550 $ 18,731 $ 2,159

Provision for (benefit from) income taxes 3,452 (8,188) (1,036) 11,640 (7,152)

(Benefit from) provision for income taxes (87,699) 3,452 (8,188) (91,151) 11,640

As % of income before income taxes

(390.8) % 93.1 % (528.3) %

Our provision for (benefit from) income taxes was $3.5 million of expense for fiscal 2020, $8.2 million of benefit for fiscal 2019 and $1.0 million of benefit for fiscal 2018.

The tax expense for fiscal 2020 was primarily due to tax expense related to profitable foreign subsidiaries and an increase in our reserve for uncertain tax positions.

Our tax benefit for fiscal 2019 was primarily due to the release of certain U.S.

federal and state valuation allowances of $7.5 million and a refundable foreign withholding tax credit, partially offset by losses in tax jurisdictions in which we cannot recognize tax benefits.

During the first quarter of fiscal 2019, we received notification from the Department of Federal Revenue of Brazil that our withholding tax refund request had been approved.

We recorded a net discrete income tax benefit of $1.6 million for the release of valuation allowance previously recorded as a deferred tax asset for the withholding tax credits.

This consisted of an income tax benefit of $1.9 million for the refundable withholding tax credit, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as a reduction to the withholding tax credits.

We expect to receive the refundable withholding tax credit during our fiscal year 2021.

Our (benefit from) provision for income taxes was $87.7 million of benefit for fiscal 2021, $3.5 million of expense for fiscal 2020 and $8.2 million of benefit for fiscal 2019.

Our tax benefit for fiscal 2021 was primarily due to the release of $92.2 million in valuation allowance on our U.S.

federal and state deferred tax assets, offset by tax expenses related to profitable foreign subsidiaries and an increase in our reserve for uncertain tax positions.

Our tax expense for fiscal 2020 was primarily due to tax expense related to profitable foreign subsidiaries and an increase in our reserve for uncertain tax positions.

Liquidity, Capital Resources and Financial Strategies

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Net cash provided by operating activities was $17.3 million for fiscal 2021, $17.5 million for fiscal 2020 and $2.9 million for fiscal 2019.

For fiscal 2020 compared to fiscal 2019, cash provided by operating activities increased by $14.5 million.

The net contribution of non-cash items to cash provided by operating activities increased by $9.3 million and the net contribution of changes in operating assets and liabilities to cash provided by operating activities increased by $10.3 million in fiscal 2020 as compared to fiscal 2019.

The $9.3 million increase in the net contribution of non-cash items to cash provided by operating activities was primarily attributable to a $8.6 million net change in deferred tax assets.

Changes in operating assets and liabilities resulted in an increase of $10.3 million to cash provided by operating activities for fiscal 2020 compared to fiscal 2019.

For fiscal 2021 compared to fiscal 2020, cash provided by operating activities decreased by $0.2 million.

The net contribution of non-cash items to cash provided by operating activities decreased by $92.3 million and the net contribution of changes in operating assets and liabilities to cash provided by operating activities decreased by $17.7 million in fiscal 2021 as compared to fiscal 2020.

The $92.3 million decrease in the net contribution of non-cash items to cash provided by operating activities was primarily attributable to a $90.4 million net change in deferred tax assets.

Net changes in operating assets and liabilities resulted in a decrease of $17.7 million to cash used by operating activities for fiscal 2021 compared to fiscal 2020.

Accounts receivable and unbilled costs fluctuate from period to period, depending on the amount and timing of sales and billing activities and cash collections.

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We used $2.3 million in cash during fiscal 2021 on expenses related to restructuring liabilities.

For fiscal 2019 compared to fiscal 2018, cash provided by operating activities declined by $5.3 million.

The net contribution of non-cash items to cash provided by operating activities decreased by $7.2 million and the net contribution of changes in operating assets and liabilities to cash provided by operating activities decreased by $5.5 million in fiscal 2019 as compared to fiscal 2018.

The $7.2 million decrease in the net contribution of non-cash items to cash provided by operating activities was primarily attributable to a $5.6 million net change in deferred tax assets, a $0.7 million decrease in depreciation and amortization and a $0.6 million decrease in share based compensation.

For fiscal 2020 compared to fiscal 2019, cash provided by operating activities increased by $14.5 million.

The net contribution of non-cash items to cash provided by operating activities increased by $9.3 million and the net changes in operating assets and liabilities to cash provided by operating activities increased by $10.3 million in fiscal 2020 as compared to fiscal 2019.

The $9.3 million increase in the net contribution of non-cash items to cash provided by operating activities was primarily attributable to a $8.6 million net change in deferred tax assets.

Investing Activities

Net cash used in investing activities was $4.6 million for fiscal year 2020, $5.2 million for fiscal 2019 and $6.3 million for fiscal 2018, which consisted primarily of capital expenditures.

Net cash used in investing activities was $2.8 million for fiscal year 2021, $4.6 million for fiscal 2020 and $5.2 million for fiscal 2019, which consisted of capital expenditures.

For fiscal 2022, we expect to spend between $5.0 million to $6.0 million for capital expenditures, primarily on equipment for development and manufacturing of new products and IT infrastructure.

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Financing cash flows consist primarily of proceeds 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 $2.5 million for fiscal year 2020, which was primarily attributable to $1.8 million for the repurchases of our common stock and a $0.8 million payment for taxes related to the net settlement of equity awards.

Net cash used by financing activities was $3.0 million for fiscal 2019 and net cash provided by financing activities was $12,000 for fiscal 2018.

Net cash used in financing activities was $8.0 million for fiscal year 2021, which was attributable to $9.0 million for the repayment of borrowings, $0.8 million for repurchase of common stock, $0.2 million payments for taxes related to net settlement of equity awards, offset by $1.9 million proceeds from the issuance of common stock from employee stock plans.

Net cash used by financing activities was $2.5 million for fiscal 2020 and $3.0 million for fiscal 2019.

As of July 2, 2021, our principal sources of liquidity consisted of the $47.9 million in cash and cash equivalents, $22.7 million of available credit under our $25.0 million credit facility with Silicon Valley Bank (“SVB Credit Facility”) which matures on June 28, 2024, and future collections of receivables from customers.

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Historically, our primary sources of liquidity have been cash flows from operations and credit facilities.

We believe that our existing cash and cash equivalents, the available line of credit under the SVB Credit Facility and future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for at least the next 12 months.

On May 17, 2021 we entered into Amendment No.

4 to Third Amended and Restated Loan and Security Agreement, which extended the expiration date to June 28, 2024.

While we intend to continue to renew the SVB Credit Facility annually, there can be no assurance that the SVB Credit Facility will be renewed.

While we intend to continue to renew the SVB Credit Facility in the future, there can be no assurance that the SVB Credit Facility will be renewed.

In addition, there can be no assurance that our business will generate cash flow from operations, that we will be in compliance with the quarterly financial covenants contained in the SVB Credit Facility, or that we will have a sufficient borrowing base under such facility.

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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.

On April 13, 2021, we filed a registration statement on Form S-3 with the SEC using a “shelf” registration process.

If and when we utilize the shelf registration, we will be able to, from time to time, offer and sell, either individually or in combination, in one or more offerings, up to a total dollar amount of $200 million of any combination of the securities described in the shelf registration statement.

Each time we offer securities under this shelf registration, we will provide a prospectus supplement that will contain more specific information about the terms of that offering.

Available Credit Facility, Borrowings and Repayment of Debt

On May 17, 2021, we entered into Amendment No.

3 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank.

4 to Third Amended and Restated Loan and Security Agreement to extend the maturity date to June 28, 2024.

The SVB Credit Facility provides for a $25.0 million accounts receivable formula-based revolving credit facility that can be borrowed by the U.S.

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The borrowing base is subject to certain eligibility criteria.

Availability under the accounts receivable formula-based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sub-limit.

Availability under the accounts

receivable formula-based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sub-limit.

We may prepay loans under the SVB Credit Facility in whole or in part at any time without premium or penalty.

As of July 3, 2020, available credit under the SVB Credit Facility was $13.3 million reflecting the calculated borrowing base of $23.8 million less existing borrowings of $9.0 million and outstanding letters of credit of $1.5 million.

As of July 2, 2021, available credit under the SVB Credit Facility was $22.7 million reflecting the calculated borrowing base of $25.0 million less outstanding letters of credit of $2.3 million.

We did not borrow against the SVB Credit Facility during fiscal 2021 and there was no borrowing outstanding as of July 2, 2021.

The SVB Credit Facility carries an interest rate, at our option, computed (i) at the prime rate reported in the Wall Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio;

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Any outstanding Singapore subsidiary-borrowed loans shall bear interest at an additional 2.00% above the applicable prime or LIBOR rate.

During fiscal 2020, the weighted-average interest rate on our outstanding loan was 3.97%.

As of July 3, 2020 and June 28, 2019, our outstanding debt balance under the SVB Credit Facility was $9.0 million, and the interest rate was 3.75% and 6.00%, respectively.

The SVB Credit Facility contains monthly and quarterly financial covenants for minimum adjusted quick ratio and minimum profitability (EBITDA) requirements, respectively.

In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB

Credit Facility.

In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB Credit Facility.

The SVB Credit Facility also imposes certain restrictions on our ability to dispose of assets, enter into a transaction resulting in a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments and enter into transactions with affiliates under certain circumstances.

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As of July 2, 2021, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility.

The $9.0 million borrowing was classified as a current liability as of July 3, 2020 and June 28, 2019.

We repaid the $9.0 million in July 2020.

Due to the current economic uncertainty stemming from the impact of the COVID-19 pandemic, on April 21, 2020, we entered into a Paycheck Protection Program Note (the “Note”) with Silicon Valley Bank as the lender (“Lender”) in an aggregate principal amount of $5.9 million pursuant to the Paycheck Protection Program under the CARES Act (the “PPP Loan”).

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(In thousands) Total < 1 year 1 - 3 years 3 - 5 years > 5 years Other

Borrowings under credit facility $ 9,000 $ 9,000 $ — $ — $ — $ —

Purchase obligations (1)(4)

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Operating lease commitments (5)

5,172 973 1,315 1,174 1,710 —

Reserve for uncertain tax positions (2)

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(4) These items are not recorded on our consolidated balance sheets.

(5) Includes operating leases with terms less than 1 year that are not recorded on our consolidated balance sheets.

Commercial Commitments

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We do not hold or issue derivatives for trading purposes or make speculative investments in foreign currencies.

We also enter into foreign exchange forward contracts to mitigate the change in fair value of specific non-functional currency assets and liabilities on the balance sheet.

We also enter into foreign exchange forward contracts to mitigate the change in fair value of specific non-functional currency assets and liabilities on the consolidated balance sheets.

All balance sheet hedges are marked to market through earnings every period.

Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities.

As of July 3, 2020, we had three foreign currency forward contracts outstanding as follows:

Currency Notional Contract Amount

(Local Currency) Notional

(In thousands)

New Zealand dollar 1,000 $ 643

British pound 600 742

Singapore dollar 300 216

Total of all currency forward contracts $ 1,601

As of July 2, 2021, we had no foreign currency forward contracts outstanding.

Net foreign exchange gain (loss) recorded in our consolidated statements of operations during fiscal 2021, 2020 and 2019 was as follows:

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Amount included in costs of revenues $ 1,015 $ 419 $ (664)

Amount included in other (expense) income, net — — (188)

Total foreign exchange gain (loss), net $ 1,015 $ 419 $ (664)

A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of July 3, 2020 would have an impact of approximately $0.2 million on the fair value of such instruments.

A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of July 2, 2021 would have an no impact as we held no foreign currency derivatives as of July 2, 2021.

Certain of our international business are transacted in non-U.S.

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dollars is included as a component of stockholders’ equity.

As of July 3, 2020 and June 28, 2019, the cumulative translation adjustment decreased our stockholders’ equity by $15.2 million and $12.7 million, respectively.

As of July 2, 2021 and July 3, 2020, the cumulative translation adjustment decreased our stockholders’ equity by $14.3 million and $15.0 million, respectively.

Interest Rate Risk

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Cash equivalents and short-term investments totaled $30.1 million as of July 2, 2021 and were comprised of money market funds and certificates of deposit.

Cash equivalents and short-term investments have been recorded at fair value on our balance sheets.

Cash equivalents and short-term investments have been recorded at fair value on our consolidated balance sheets.

We do not use derivative financial instruments in our short-term investment portfolio.

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Exposure on Borrowings

During fiscal 2020, we had $9.0 million of demand borrowings outstanding under our credit facility that incurred interest at the prime rate plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio.

During fiscal 2020, our weighted average interest rate was 3.97% and we recorded total interest expense of less than $0.1 million on these borrowings.

During fiscal 2021, we had no demand borrowings outstanding under our credit facility.

The interest would have been at the prime rate plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio.

During fiscal 2021, our weighted average interest rate would have been 3.75%.

A 10% change in interest rates on the current borrowings or on future borrowings is not expected to have a material impact on our financial position, results of operations or cash flows since interest on our borrowings is not material to our overall financial position.

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The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

• revenue recognition and valuation of accounts receivable;

• revenue recognition for estimated costs to complete overtime services;

• inventory valuation and provision for excess and obsolete inventory losses;

• impairment of long-lived assets;

• income taxes valuation.

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The Company and Summary of Significant Accounting Policies” in the notes to consolidated financial statements.

In preparing our financial statements and accounting for the underlying transactions and balances, we apply those accounting policies.

In preparing our financial statements and

accounting for the underlying transactions and balances, we apply those accounting policies.

We consider the estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain.

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Results for the reporting periods after June 29, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.

We recognize revenue by applying the following five-step approach:

Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, we recognize revenue by applying the following five-step approach:

(1) identification of the contract with a customer;

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and (5) recognition of revenue when, or as, we satisfy a performance obligation.

Contracts and customers purchase orders are used to determine the existence of an arrangement.

Revenue from product sales, recognized at a point-in-time, is generated predominately from the sales of products manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes.

Printed circuit assemblies, mechanical housings, and packaged modules are manufactured by contract manufacturing partners, with periodic business reviews of material levels and obsolescence.

Product assembly, product testing, complete system integration, and system testing may either be performed within our own facilities or at the locations of our third-party manufacturers.

Revenue from services includes certain network planning and design, engineering, installation and commissioning, extended warranty, customer support, consulting, training, and education.

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The network planning and design, engineering and installation related services noted are recognized based on an over-time recognition model using the cost-input method.

Revenues related to certain contracts for customized network solutions are recognized over time using the cost input method.

In using this input method, we generally apply the cost-to-cost method of accounting where sales and

profits are recorded based on the ratio of costs incurred to estimated total costs at completion.

Recognition of profit on these contracts requires estimates of the total contract value, the total cost at completion, and the measurement of progress towards completion.

Significant judgment is required when estimating total contract costs and progress to completion on the arrangements, as well as whether a loss is expected to be incurred on the contract.

If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made.

Certain judgment is required when estimating total contract costs and progress to completion on the over-time arrangements, as well as whether a loss is expected to be incurred on the contract.

The cost estimation process for these contracts is based on the knowledge and experience of the Company’s project managers, engineers, and financial professionals.

Changes in job performance and job conditions are factors that influence estimates of the total costs to complete those contracts and the Company’s revenue recognition.

If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made in a timely manner.

These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known to us.

We perform ongoing profitability analysis of our service contracts accounted for under this method in order to determine whether the latest estimates of revenues, costs, and profits require updating.

If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately.

We establish billing terms at the time project deliverables and milestones are agreed.

Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled receivables on the unaudited condensed consolidated balance sheet.

In addition, shipping documents and customer acceptances, when applicable, are used to verify delivery and transfer of control.

We typically satisfy our performance obligations upon shipment or delivery of product depending on the contractual terms.

Payment terms to customers generally range from net 30 to 120 days from invoice, which are considered to be standard payment terms.

We assess our ability to collect from our customers based primarily on the creditworthiness and past payment history of the customer.

While our customers do not have the right of return, we reserve for estimated product returns as an offset to revenue based primarily on historical trends.

Actual product returns may be different than what was estimated.

These factors and unanticipated changes in economic and industry condition could make actual results differ from our return estimates.

We present transactional taxes such as sales and use tax collected from customers and remitted to government authorities on a net basis.

Bill-and-Hold Sales

Certain customer arrangements consist of bill-and-hold characteristics under which transfer of control has been met (including the passing of title and significant risk and reward of ownership to the customers).

Therefore, the customers can direct the use of the bill-and-hold inventory while we retain physical possession of the product until it is installed at a customer site at a point in time in the future.

Termination Rights

The contract term is determined on the basis of the period over which the parties to the contract have present enforceable rights and obligations.

Certain customer contracts include a termination for convenience clause that allows the customer to terminate services without penalty, upon advance notification.

We concluded that the duration of support contracts does not extend beyond the non-cancellable portion of the contract.

Variable Consideration

The consideration associated with customer contracts is generally fixed.

Variable consideration includes discounts, rebates, refunds, credits, incentives, penalties, or other similar items.

The amount of consideration that can vary is not a substantial portion of total consideration.

Variable consideration estimates are re-assessed at each reporting period until a final outcome is determined.

The changes to the original transaction price due to a change in estimated variable consideration will be applied on a retrospective basis, with the adjustment recorded in the period in which the change occurs.

Changes to variable consideration will be tracked and material changes disclosed.

Stand-alone Selling Price

Stand-alone selling price is the price at which an entity would sell a good or service on a stand-alone (or separate) basis at contract inception.

Under the model, the observable price of a good or service sold separately provides the best evidence of stand-alone selling price.

However, in certain situations, stand-alone selling prices will not be readily observable and the entity must estimate the stand-alone selling price.

When allocating on a relative stand-alone selling price basis, any discount provided in the contract is allocated proportionately to all of the performance obligations in the contract.

The majority of products and services that we offer have readily observable selling prices.

For products and services that do not, we estimate stand-alone selling price using the market assessment approach based on expected selling price and adjust those prices as necessary to reflect our costs and margins.

As part of our stand-alone selling price policy, we review product pricing on a periodic basis to identify any significant changes and revise our expected selling price assumptions as appropriate.

Shipping and Handling

Shipping and handling costs are included as a component of costs of product sales in our consolidated statements of operations because they are also included in revenue that we bill our customers.

Costs to Obtain a Contract

We have assessed the treatment of costs to obtain or fulfill a contract with a customer.

Under ASC 606, we capitalize sales commissions related to multi-year service contracts and amortize the asset over the period of benefit, which is the estimated service period.

Sales commissions paid on contract renewals, including service contract renewals, is commensurate with the sales commissions paid on the initial contracts.

We elected the practical expedient to expense sales commissions as incurred when the amortization period of the related asset is one year or less.

These costs are recorded as sales and marketing expense and included in our consolidated balance sheet as accrued expenses until paid.

Our amortization expense was not material for the fiscal year ended July 3, 2020.

In rare circumstances if these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately.

Inventory Valuation and Provisions for Excess and Obsolete Losses

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Several factors may influence the sale and use of our inventories, including decisions to exit a product line, technological change, new product development and competing product offerings.

These factors could result in a change in the amount of obsolete inventory quantities on hand.

These factors could

result in a change in the amount of obsolete inventory quantities on hand.

Additionally, our estimates of future product demand may prove to be inaccurate, in which case the provision required for excess and obsolete inventory may be overstated or understated.

In the future, if we determine that our inventory is overvalued, we would be required to recognize such costs in cost of product sales and services in our consolidated statement of operations at the time of such determination.

In the future, if we determine that our inventory is overvalued, we would be required to recognize such costs in cost of product sales and services in our consolidated statements of operations at the time of such determination.

In the case of goods which have been written down below cost at the close of a fiscal quarter, such reduced amount is considered the new lower cost basis for subsequent accounting purposes, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

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Estimates of net realizable value involve significant estimates and judgments about the future, and revisions would be required if these factors differ from our estimates.

Impairment of Long-Lived Assets

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets.

If impairment exists, the impairment loss is measured and recorded based on discounted estimated future cash flows.

In estimating future cash flows, assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of cash flows from other asset groups.

Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future operating performance, growth rates and other factors.

The actual cash flows realized from these assets may vary significantly from our estimates due to increased competition, changes in technology, fluctuations in demand, consolidation of our customers, reductions in average selling prices and other factors.

Assumptions underlying future cash flow estimates are therefore subject to significant risks and uncertainties.

Income Taxes Valuation

We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities of amounts reported in our consolidated balance sheets, as well as operating loss and tax credit carryforwards.

Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.

Certain judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.

Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals.

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To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may result in an increase or decrease to our tax provision in a subsequent period in which such determination is made.

We record deferred taxes by applying enacted statutory tax rates to the respective jurisdictions and follow specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheets and provide necessary valuation allowances as required.

We record deferred taxes by applying enacted statutory tax rates to the respective jurisdictions and follow specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the consolidated balance sheets and provide necessary valuation allowances as required.

Future realization of deferred tax assets ultimately depends on meeting certain criteria in ASC 740, Income Taxes .

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Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions.

Prior to fiscal 2019, due to our U.S.

operating losses in previous years and continuing U.S.

earnings volatility which did not allow sustainable profitability, we had established and maintained a full valuation allowance for our U.S.

deferred tax assets.

While there had been a trend of positive evidence that had been strengthening in prior to fiscal 2019, it was not sufficiently persuasive to outweigh the negative evidence in future periods.

During the third quarter of fiscal 2019, we generated our third consecutive profitable year from a U.S.

pre-tax book income perspective.

Accordingly, we determined that it was more likely than not that we would realize a portion of our U.S.

deferred tax assets, primarily relating to certain net operating loss carryforwards and current temporary differences.

The positive evidence as of March 29, 2019, which outweighed the negative evidence to release a portion of the valuation allowance, included our fiscal 2019 and three-year cumulative U.S.

profitability driven by continued demand for our products in North America that have historically resulted in higher margins than international sales, reductions in operating expenses resulting from our previous restructurings, and our forecasted U.S.

operating profits in future periods.

The negative evidence primarily relates to certain net operating loss carryforwards and credits that are expected to expire prior to utilization.

We believed that our positive evidence was strong and continues to be strong in fiscal 2020.

The improved financial performance as it relates to U.S.

profitability in recent years is an objectively verifiable piece of positive evidence and is the result of a number of factors which have been present to a greater or lesser extent in prior years but had only gathered sufficient weight to deliver objectively verifiable, consistent U.S.

pre-tax book profits in fiscal 2019.

At each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets on a more likely than not basis.

During fiscal 2021, we recorded a valuation allowance release of $92.2 million as a discrete item based on management’s reassessment of the amount of its U.S.

federal and state deferred tax assets that are more likely than not to be realized, primarily as a result of increases in U.S.

profitability in the current period and expectations of continued profitability in future periods.

In performing our analysis, we used the most updated plans and estimates that we currently use to manage the underlying business and calculated the utilization of our deferred tax assets.

Accordingly, during fiscal 2019, we released $7.5 million of U.S.

allowance as a discrete item on certain deferred tax assets.

The remaining valuation allowance relates to deferred tax assets, for which we believe it is not more likely than not to be realized in future periods.

We performed this analysis in fiscal 2020, which resulted in no additional U.S.

valuation allowance release.

We continue to maintain a valuation allowance of $1.4 million on certain U.S.

federal and state deferred tax assets that we believe is not more likely than not to be realized in future periods.

The accounting estimates related to the liability for uncertain tax position require us to make judgments regarding the sustainability of each uncertain tax position based on its technical merits.

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Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will be same as these estimates.

These estimates are updated quarterly based on factors such as change in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues.

These estimates are updated

quarterly based on factors such as change in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues.

Impact of Recently Issued Accounting Pronouncements

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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 7. Management’s Discussion and Analysis