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Item 1. Financial Statements

2022-11-02 compared with 2022-05-04 · 184 added, 232 removed, 400 unchanged (51% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts) April 1,

(In thousands, except share and par value amounts) September 30,

Current Assets:

Cash and cash equivalents $ 21,607 $ 36,877

Marketable securities 1,252 10,893

Accounts receivable, net 72,471 73,168

2 unchanged sentences

Customer service inventories 2,069 1,775

Assets held for sale — 2,218

Other current assets 16,279 12,437

1 unchanged sentence

Property, plant and equipment, net 11,923 8,887

Goodwill 4,950 —

Intangible assets, net 7,166 —

Deferred income taxes 92,310 95,412

Right of use assets 2,987 2,759

Marketable securities 2,515 —

Other assets 10,437 10,445

$ 319,682 $ 297,653

TOTAL ASSETS $ 326,728 $ 323,904

LIABILITIES AND EQUITY

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Preferred stock, $ 0.01 par value, 50,000,000 shares authorized, none issued

Common stock, $ 0.01 par value, 300,000,000 shares authorized, 11,166,918 shares issued and outstanding at April 1, 2022;

Common stock, $ 0.01 par value, 300,000,000 shares authorized, 11,312,974 shares issued and outstanding at September 30, 2022;

11,160,160 shares issued and outstanding at July 1, 2022

5 unchanged sentences

TOTAL LIABILITIES AND EQUITY $ 326,728 $ 323,904

$ 319,682 $ 297,653

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

(In thousands, except per share amounts) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

Three Months Ended

(In thousands, except per share amounts) September 30,

2022 October 1,

Revenue from product sales $ 55,101 $ 50,847

9 unchanged sentences

Selling and administrative expenses 17,504 12,698

Restructuring (recovery) charges ( 72 ) 1,162 ( 373 ) 1,162

Restructuring charges 1,950 659

Total operating expenses 25,541 19,267

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Income before income taxes 1,131 6,842

Provision for (benefit from) income taxes 1,278 ( 90,568 ) 6,490 ( 88,629 )

Net income $ 6,029 $ 94,731 $ 16,627 $ 107,308

Net income per share of common stock outstanding:

Provision for income taxes 3,877 2,160

Net (loss) income $ ( 2,746 ) $ 4,682

Net (loss) income per share of common stock outstanding:

Basic $ ( 0.25 ) $ 0.42

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AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Nine Months Ended

(In thousands) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

Net income $ 6,029 $ 94,731 $ 16,627 $ 107,308

Other comprehensive (loss) income:

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended

(In thousands) September 30,

2022 October 1,

Net (loss) income $ ( 2,746 ) $ 4,682

Other comprehensive (loss)

Net change in cumulative translation adjustments

( 1,113 ) ( 164 )

Other comprehensive (loss) income ( 786 ) ( 284 ) ( 1,058 ) 314

Comprehensive income $ 5,243 $ 94,447 $ 15,569 $ 107,622

Other comprehensive (loss) ( 1,113 ) ( 164 )

Comprehensive (loss) income $ ( 3,859 ) $ 4,518

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

(In thousands) April 1,

2022 April 2,

Three Months Ended

(In thousands) September 30,

2022 October 1,

Operating Activities

Net income $ 16,627 $ 107,308

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Net (loss) income $ ( 2,746 ) $ 4,682

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Depreciation and amortization of property, plant and equipment 1,344 1,264

(Recoveries) Provision for uncollectible receivables ( 56 ) 46

Amortization of intangible assets acquired 124 —

Provision for (Recoveries of) uncollectible receivables 182 ( 2 )

Share-based compensation 1,838 863

Deferred tax assets, net 5,437 ( 89,732 )

Deferred tax expense 3,338 1,116

Charges for inventory and customer service inventory write-downs 405 381

(Gain) loss on disposition of property, plant and equipment, net ( 66 ) 6

Noncash lease expense 206 276

Net gain on marketable securities ( 23 ) —

Restructuring (recoveries) charges ( 373 ) 1,162

Net loss on marketable securities 1,734 —

Changes in operating assets and liabilities:

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Payments for acquisition of property, plant and equipment ( 474 ) ( 349 )

Purchase of marketable securities ( 2,492 ) —

Proceeds from sale of asset held for sale 2,284 —

Proceeds from sale of marketable securities 7,907 —

Acquisition, net of cash acquired and purchases of intangible assets ( 15,769 ) —

Net cash used in investing activities ( 8,336 ) ( 349 )

Financing Activities

Proceeds from borrowings 15,000 —

Repayments of borrowings ( 15,000 ) —

4 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 347 ) ( 187 )

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 16,725 ) 4,192

Net decrease in cash, cash equivalents, and restricted cash ( 15,307 ) ( 658 )

Cash, cash equivalents, and restricted cash, beginning of period 37,104 48,198

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended April 1, 2022

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands, except share amounts) Shares $

Balance as of December 31, 2021 11,195,542 $ 112 $ ( 3,408 ) $ 820,791 $ ( 610,004 ) $ ( 14,599 ) $ 192,892

Net income — — — — 6,029 — 6,029

Other comprehensive loss, net of tax — — — — — ( 786 ) ( 786 )

Issuance of common stock under employee stock plans 37,327 1 — 345 — — 346

Stock repurchase ( 65,951 ) ( 1 ) ( 1,990 ) — — — ( 1,991 )

Share-based compensation — — — 840 — — 840

Balance as of April 1, 2022 11,166,918 $ 112 $ ( 5,398 ) $ 821,976 $ ( 603,975 ) $ ( 15,385 ) $ 197,330

Three Months Ended April 2, 2021

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands, except share amounts) Shares $

Balance as of January 1, 2021 11,119,536 $ 111 $ — $ 816,988 $ ( 718,164 ) $ ( 14,371 ) $ 84,564

Net income — — — — 94,731 — 94,731

Other comprehensive loss, net of tax — — — — — ( 284 ) ( 284 )

Issuance of common stock under employee stock plans 54,324 1 — 401 — — 402

Shares withheld for taxes related to vesting of equity awards ( 1,366 ) — — 1 — — 1

Stock repurchase ( 8,300 ) — ( 458 ) — — — ( 458 )

Share-based compensation — — — 765 — — 765

Balance as of April 2, 2021 11,164,194 $ 112 $ ( 458 ) $ 818,155 $ ( 623,433 ) $ ( 14,655 ) $ 179,721

Nine Months Ended April 1, 2022

Three Months Ended September 30, 2022

Common Stock Treasury Stock Additional

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Balance as of July 1, 2022 11,160,160 $ 112 $ ( 6,147 ) $ 823,259 $ ( 599,442 ) $ ( 16,029 ) $ 201,753

Net income — — — — 16,627 — 16,627

Other comprehensive income, net of tax — — — — — ( 1,058 ) ( 1,058 )

Net loss — — — — ( 2,746 ) — ( 2,746 )

Other comprehensive loss, net of tax — — — — — ( 1,113 ) ( 1,113 )

Issuance of common stock under employee stock plans 174,317 2 — 358 — — 360

Shares withheld for taxes related to vesting of equity awards ( 21,503 ) ( 1 ) — ( 669 ) — — ( 670 )

Stock repurchase ( 149,389 ) ( 2 ) ( 4,611 ) — — — ( 4,613 )

Share-based compensation — — — 1,838 — — 1,838

Balance as of April 1, 2022 11,166,918 $ 112 $ ( 5,398 ) $ 821,976 $ ( 603,975 ) $ ( 15,385 ) $ 197,330

Nine Months Ended April 2, 2021

Balance as of September 30, 2022 11,312,974 $ 113 $ ( 6,147 ) $ 824,786 $ ( 602,188 ) $ ( 17,142 ) $ 199,422

Three Months Ended October 1, 2021

Common Stock Treasury Stock Additional

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Share-based compensation — — — 863 — — 863

Balance as of April 2, 2021 11,164,194 $ 112 $ ( 458 ) $ 818,155 $ ( 623,433 ) $ ( 14,655 ) $ 179,721

Balance as of October 1, 2021 11,187,003 $ 112 $ ( 1,500 ) $ 819,711 $ ( 615,920 ) $ ( 14,491 ) $ 187,912

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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In the opinion of our management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for such periods.

The results for the three and nine months ended April 1, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year or future operating periods.

The results for the three months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year or future operating periods.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 1, 2022.

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We operate on a 52-week or 53-week year ending on the Friday closest to June 30.

The three months ended April 1, 2022 and the three months ended April 2, 2021 both consisted of 13 weeks.

Fiscal year 2022 will be comprised of 52 weeks and will end on July 1, 2022.

The three months ended September 30, 2022 and the three months ended October 1, 2021 both consisted of 13 weeks.

Fiscal year 2023 will be comprised of 52 weeks and will end on June 30, 2023.

Fiscal year 2022 was comprised of 52 weeks and ended on July 1, 2022.

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Changes in such estimates, based on more accurate information, or different assumptions or conditions, may affect amounts reported in future periods.

Such estimates affect significant items, including revenue recognition, provision for uncollectible receivables, inventory valuation, valuation allowances for deferred tax assets, uncertainties in income taxes, contingencies and recoverability of long-lived assets.

Such estimates affect significant items, including revenue recognition, business combinations, provision for uncollectible receivables, inventory valuation, valuation allowances for deferred tax assets, uncertainties in income taxes, contingencies and recoverability of long-lived assets.

The actual results that we experience may differ materially from our estimates.

Summary of Significant Accounting Policies

There have been no material changes in our significant accounting policies as of April 1, 2022 and for the nine months ended April 1, 2022, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 2, 2021.

There have been no material changes in our significant accounting policies as of September 30, 2022 and for the three months ended September 30, 2022, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 1, 2022.

Accounting Standards Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740).

This guidance simplifies the accounting for income taxes by removing certain

exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of enactment of tax laws and rate changes.

ASU 2019-12 became effective for us in our first quarter of fiscal 2022.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance:

ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2022-02 (collectively, Topic 326).

Topic 326 requires measurement and recognition of expected credit losses for financial assets held.

Topic 326 became effective for us in our first quarter of fiscal 2023.

The adoption had no material impact on our unaudited condensed consolidated financial statements.

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This guidance provides optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued.

This guidance is applicable for our borrowing instruments, which use LIBOR as a reference rate, and was effective March 12, 2020 through December 31, 2022.

The adoption of ASU 2020-04 will not have a material impact on our unaudited condensed consolidated financial statements..

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance:

ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, Topic 326).

Topic 326 requires measurement and recognition of expected credit losses for financial assets held.

Topic 326 will be effective for us in our first quarter of fiscal 2024 and earlier adoption is permitted.

We are evaluating the impact adopting Topic 326 will have on our unaudited condensed consolidated financial statements.

This guidance is applicable for our borrowing instruments, which use LIBOR as a reference rate, and will be effective through December 31, 2022.

We are currently evaluating the potential impact of ASU 2020-04 will have on our consolidated financial statements.

Balance Sheet Components

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The following table provides a summary of our cash, cash equivalents, and restricted cash reported within our unaudited condensed consolidated balance sheets that reconciles to the corresponding amount in our unaudited condensed consolidated statement of cash flows:

(In thousands) April 1,

(In thousands) September 30,

Cash and cash equivalents $ 21,607 $ 36,877

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Our net accounts receivable are summarized below:

(In thousands) April 1,

(In thousands) September 30,

Accounts receivable $ 73,587 $ 74,102

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Our inventories are summarized below

(In thousands) April 1,

(In thousands) September 30,

Finished products $ 18,703 $ 14,916

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$ 9,962 $ 9,796

We increased certain levels of inventory during the three and nine months ended April 1, 2022 primarily to mitigate supply chain constraints.

We currently rely on a few vendors for substantially all of our inventory purchases.

We record charges to adjust our inventory and customer service inventory due to excess and obsolete inventory resulting from lower sales forecasts, product transitioning, or discontinuance.

The charges during the three and nine months ended April 1, 2022 and April 2, 2021 were classified in cost of product sales as follows:

Three Months Ended Nine Months Ended

(In thousands) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

The charges during the three months ended September 30, 2022 and October 1, 2021 were classified in cost of product sales as follows:

Three Months Ended

(In thousands) September 30,

2022 October 1,

Excess and obsolete inventory $ 170 $ 133

1 unchanged sentence

Total inventory charges

$ 482 $ 563 $ 1,140 $ 1,148

Assets Held for Sale

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We completed the sale during the third quarter of fiscal 2022 with proceeds of $ 2.3 million, reflecting a gain of $ 0.1 million.

We have no additional assets held for sale.

We have no assets held for sale as of September 30, 2022.

Property, Plant and Equipment, net

Our property, plant and equipment, net are summarized below:

(In thousands) April 1,

(In thousands) September 30,

Land $ 210 $ 210

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Total property, plant and equipment, net $ 11,923 $ 8,887

Included in the total plant, property and equipment above there were no assets in progress which have not been placed in service as of April 1, 2022 and $ 0.3 million as of July 2, 2021.

Included in the total plant, property and equipment above there was $ 1.1 million of assets in progress which have not been placed in service as of September 30, 2022 and $ 1.2 million as of July 1, 2022.

Depreciation and amortization expense related to property, plant and equipment, including amortization of software developed for internal use, was as follows:

Three Months Ended Nine Months Ended

(In thousands) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

Three Months Ended

(In thousands) September 30,

2022 October 1,

Depreciation and amortization $ 1,344 $ 1,264

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Our accrued expenses are summarized below:

(In thousands) April 1,

(In thousands) September 30,

Accrued compensation and benefits $ 8,273 $ 11,625

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Changes in our warranty liability, which are included as a component of accrued expenses in our unaudited condensed consolidated balance sheets were as follows:

Three Months Ended Nine Months Ended

(In thousands) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

Three Months Ended

(In thousands) September 30,

2022 October 1,

Balance as of the beginning of the period $ 2,913 $ 3,228

Warranty provision recorded during the period 175 498

Assumed in Redline acquisition 55 —

Consumption during the period ( 388 ) ( 408 )

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Our advance payments and unearned revenue are summarized below:

(In thousands) April 1,

(In thousands) September 30,

Advance payments $ 2,477 $ 1,870

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Total advance payments and unearned revenue $ 35,483 $ 33,740

Excluded from the balances above are $ 7.6 million and $ 8.6 million in long-term unearned revenue as of April 1, 2022 and July 2, 2021, respectively.

Excluded from the balances above are $ 7.8 million and $ 8.9 million in long-term unearned revenue as of September 30, 2022 and July 1, 2022, respectively.

Fair Value Measurements of Assets and Liabilities

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• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair values, and valuation input levels of our assets and liabilities that are measured at fair value on a recurring basis as of April 1, 2022 and July 2, 2021 were as follows:

April 1, 2022 July 2, 2021 Valuation Inputs

The fair values, and valuation input levels of our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022 and July 1, 2022 were as follows:

September 30, 2022 July 1, 2022 Valuation Inputs

(In thousands) Fair Value Fair Value

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Our Level 1 items mainly are money market funds.

As of April 1, 2022 and July 2, 2021, these money market funds were valued at $1.00 net asset value per share.

Our marketable securities are included in non-current assets on our balance sheet as we intend to hold for longer than 12 months.

As of September 30, 2022 and July 1, 2022, these money market funds were valued at $ 1.00 net asset value per share.

Our marketable securities are included in current assets on our balance sheet as they are available to be converted into cash to fund current operations.

These marketable securities are publicly traded stock measured at fair value and classified within Level 1.

During the first quarter ended September 30, 2022, we recognized a loss of $ 1.2 million associated with the sales of our marketable securities.

We classify items in Level 2 if the observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources are available with reasonable levels of price transparency.

Our bank certificates of deposit and foreign exchange forward contracts are classified within Level 2.

As of April 1, 2022 and July 2, 2021, we did not have any recurring assets or liabilities that were valued using significant unobservable inputs.

Our bank certificates of deposit are classified within Level 2.

As of September 30, 2022 and July 1, 2022, we did not have any recurring assets or liabilities that were valued using significant unobservable inputs.

Our policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 as of the actual date of the events or change in circumstances that caused the transfer.

During the first nine months of fiscal 2022 and 2021, we had no transfers between levels of the fair value hierarchy of our assets or liabilities measured at fair value.

During the first three months of fiscal 2023 and 2022, we had no transfers between levels of the fair value hierarchy of our assets or liabilities measured at fair value.

The Company has facilities under non-cancelable operating lease agreements.

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Our obligations to make lease payments are included in "Short-term lease liabilities" and "Long-term lease liabilities" on our unaudited condensed consolidated balance sheets.

We did not enter into any finance leases during the nine months ended April 1, 2022.

We did not enter into any finance leases during the three months ended September 30, 2022.

The following summarizes our lease costs (in thousands):

Three Months Ended Nine Months Ended

2022 April 2, 2021 April 1,

2022 April 2, 2021

(In thousands) (In thousands)

Three Months Ended

September 30,

2022 October 1, 2021

(In thousands)

Operating lease costs $ 312 $ 317

3 unchanged sentences

$ 898 $ 1,031

The following summarizes our lease term and discount rate for the nine months ended April 1, 2022:

The following summarizes our lease term and discount rate for the three months ended September 30, 2022:

Weighted average remaining lease term 6.9 years

Weighted average discount rate 5.5 %

As of April 1, 2022, our future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):

As of September 30, 2022, our future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):

(In thousands)

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

As of April 1, 2022, available credit under the SVB Credit Facility was $ 21.7 million, reflecting the lower available limit of $ 25.0 million less outstanding letters of credit of $ 3.3 million.

As of July 3, 2020, our outstanding debt balance under the SVB Credit Facility, classified as a current liability, was $ 9.0 million, and the interest rate was 3.75 %.

We repaid the outstanding debt balance in July 2020.

We have not borrowed against the SVB Credit Facility during the nine months ended April 1, 2022 and there were no borrowing outstanding as of April 1, 2022 or July 2, 2021.

As of September 30, 2022, available credit under the SVB Credit Facility was $ 22.0 million, reflecting the lower available limit of $ 25.0 million less outstanding letters of credit of $ 3.0 million.

We borrowed and repaid $ 15.0 million against the SVB Credit Facility during the fiscal quarter and the interest rate was 5.83 %.

As of September 30, 2022 there was no borrowing outstanding.

The SVB Credit Facility carries an interest rate computed, at our option, based on either (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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Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equal to 5.00 % above the applicable interest rate.

As of April 1, 2022, we were in compliance with the quarterly financial covenants contained in the SVB Credit Facility, as amended.

We also obtained an uncommitted short-term line of credit of $ 0.4 million from a bank in New Zealand to support the operations of our New Zealand subsidiary.

This line of credit provides for up to $ 0.3 million in short-term advances at various interest rates, all of which was available as of April 1, 2022 and July 2, 2021.

The line of credit also provides for the issuance of standby letters of credit and company credit cards, of which none was outstanding as of April 1, 2022 and July 2, 2021.

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

As of September 30, 2022, we were in compliance with the quarterly financial covenants contained in the SVB Credit Facility, as amended.

Revenue Recognition

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The following table provides information about receivables and liabilities from contracts with customers (in thousands):

April 1, 2022 July 2, 2021

Contract Assets

September 30, 2022 July 1, 2022

Contract Balances

Accounts receivable, net $ 72,471 $ 73,168

Unbilled receivables $ 45,700 $ 37,521

Contract Assets $ 50,389 $ 45,857

Capitalized commissions $ 2,341 $ 2,341

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however, this will have no impact on our future obligation to bill and collect.

As of April 1, 2022, we had $ 45.7 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 18 % is expected to be recognized as revenue in the remainder of fiscal 2022 and the balance thereafter.

During the three and nine months ended April 1, 2022 we recognized $ 5.3 million and $ 18.8 million, respectively, of revenue which was included in advance payments and unearned revenue at July 2, 2021.

As of September 30, 2022, we had $ 43.3 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 44 % is expected to be recognized as revenue in the remainder of fiscal 2023 and the balance thereafter.

During the three months ended September 30, 2022 we recognized approximately $ 5.9 million of revenue which was included in advance payments and unearned revenue at July 1, 2022.

Remaining Performance Obligations

The aggregate amount of transaction price allocated to our unsatisfied (or partially unsatisfied) performance obligations was approximately $ 82.8 million at April 1, 2022.

The aggregate amount of transaction price allocated to our unsatisfied (or partially unsatisfied) performance obligations was approximately $ 120.1 million at September 30, 2022.

Of this amount, we expect to recognize approximately 50 % as revenue during the next 12 months, with the remaining amount to be recognized as revenue within two to five years .

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We report revenue by region and country based on the location where our customers accept delivery of our products and services.

Revenue by region for the three and nine months ended April 1, 2022 and April 2, 2021 was as follows:

Three Months Ended Nine Months Ended

(In thousands) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

Revenue by region for the three months ended September 30, 2022 and October 1, 2021 was as follows:

Three Months Ended

(In thousands) September 30,

2022 October 1,

North America

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$ 81,251 $ 73,158

The loss of a significant portion of business from any significant customers could adversely affect our unaudited condensed consolidated financial statements.

Customers accounting for 10% or more of our total revenue were as follows:

Three Months Ended Nine Months Ended

2022 April 2,

2021 April 1,

2022 April 2,

Three Months Ended

September 30,

2022 October 1,

Motorola Solutions, Inc.

10.5 % 15.0 %

State Government Customer * 12.5 % * *

Mobile Telephone Networks Group (MTN Group) 13.0 % * 10.0 % *

* Less than 10.0%

Customer accounting for 10% or more of our accounts receivable were as follows:

April 1, 2022 July 2, 2021

September 30,

2022 July 1, 2022

Mobile Telephone Networks Group (MTN Group) 12.4 % 17.0 %

Stock Repurchase Program

During the third quarter of fiscal 2022, we repurchased 65,951 shares of our common stock in the open market for an aggregate purchase price, including commissions, of $ 2.0 million.

During the nine months ended of fiscal 2022, we repurchased 149,389 shares of our common stock in the open market for an aggregate purchase price, including commission of $ 4.6 million.

These shares were recorded as treasury stock, and we do not anticipate retiring them.

In November 2021 our Board of Directors approved a stock repurchase program to purchase up to $ 10.0 million of our common stock.

As of April 1, 2022, $ 8.0 million remains available and we may choose to suspend or discontinue the repurchase program at any time.

As of September 30, 2022, $ 8.0 million remains available and we may choose to suspend or discontinue the repurchase program at any time.

During the first quarter of fiscal 2023, we did not repurchase any shares of our common stock in the open market.

Stock Incentive Programs

As of April 1, 2022, we had one stock incentive plan for our employees and non-employee directors, the 2018 Incentive Plan (the “2018 Plan”).

As of September 30, 2022, we had one stock incentive plan for our employees and non-employee directors, the 2018 Amended and Restated Incentive Plan (the “2018 Plan”).

The 2018 Plan provides for the issuance of share-based awards in the form of stock options, stock appreciation rights, restricted stock awards and units, and performance share awards and units.

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Market-based stock units vest upon meeting certain predetermined share price performance criteria and continued employment through the end of the applicable period.

During the nine months ended April 1, 2022, we granted 70,531 restricted stock units, 46,533 market-based stock units and 114,012 stock options to purchase shares of our common stock.

During the three months ended September 30, 2022, we granted 51,772 restricted stock units, 49,321 market-based stock units and 110,945 stock options to purchase shares of our common stock.

Total compensation expense for share-based awards included in our unaudited condensed consolidated statements of operations was as follows:

Three Months Ended Nine Months Ended

(In thousands) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

Three Months Ended

(In thousands) September 30,

2022 October 1,

By Expense Category:

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Total share-based compensation expense $ 1,838 $ 863

As of April 1, 2022, there was approximately $ 1.1 million of total unrecognized compensation expense related to non-vested stock options granted which is expected to be recognized over a weighted-average period of 1.3 years.

As of April 1, 2022, there was $ 4.8 million of total unrecognized compensation expense related to non-vested stock awards which is expected to be recognized over a weighted-average period of 1.3 years.

As of September 30, 2022, there was approximately $ 2.7 million of total unrecognized compensation expense related to non-vested stock options granted which is expected to be recognized over a weighted-average period of 2.1 years.

As of September 30, 2022, there was $ 11.8 million of total unrecognized compensation expense related to non-vested stock awards which is expected to be recognized over a weighted-average period of 1.9 years.

Restructuring Activities

The following table summarizes our restructuring-related activities:

Severance and Benefits Facilities and Other Total

(In thousands) Fiscal 2021 Plan Prior Years' Plan Fiscal 2015-2016 Plan

Severance and Benefits Total

(In thousands) Q1 2023 Plan Q4 2022 Plan Fiscal 2021 Plan

Accrual balance, July 1, 2022 $ — $ 295 $ 1,086 $ 1,381

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Cash payments ( 1,437 ) ( 272 ) ( 100 ) ( 1,809 )

Foreign exchange impact ( 7 ) — ( 6 ) ( 13 )

Accrual balance, October 1, 2021 2,504 262 242 3,008

Recovery, net ( 526 ) ( 198 ) ( 236 ) ( 960 )

Cash payments ( 253 ) — — ( 253 )

Foreign exchange impact ( 2 ) — ( 6 ) ( 8 )

Accrual balance, December 31, 2021 1,723 64 — 1,787

Recovery, net ( 72 ) — — ( 72 )

Cash payments ( 702 ) — — ( 702 )

Foreign exchange impact ( 14 ) — — ( 14 )

Accrual balance, April 1, 2022 $ 935 $ 64 $ — $ 999

As of April 1, 2022, the accrual balance of $ 1.0 million was in short-term restructuring liabilities on our unaudited condensed consolidated balance sheets.

Accrual balance, September 30, 2022 513 23 986 1,522

As of September 30, 2022, the accrual balance of $ 1.5 million was in short-term restructuring liabilities on our unaudited condensed consolidated balance sheets.

Included in the above plans for which we were carrying a provision were positions identified for termination that have not been executed from a restructuring perspective.

During the first quarter of fiscal 2023, our Board of Directors approved a restructuring plan, (the “Q1 2023 Plan”) from the acquisition of Redline Communications, Inc.

The Q1 2023 Plan which is anticipated to generate cost saving on integration of Redline, entails a reduction in force of approximately 20 employees due to integrating work into existing Aviat teams, to be implemented through the end of Q3 2023.

During the fourth quarter of fiscal 2022, our Board of Directors approved a restructuring plan (the “Q4 2022 Plan”) to restructure specific groups to optimize skill sets and align structure to execute on strategic deliverables.

The Q4 2022 Plan was anticipated to entail a reduction in force of approximately 11 employees to be implemented through early fiscal year 2023, with a certain number of positions being consolidated.

Fiscal 2021 Plan

During the third quarter of fiscal 2021, our Board of Directors approved a restructuring plan (the “Fiscal 2021 Plan”) in order to continue to reduce operating costs and improve profitability as part of our transformational initiative to optimize our business model and increase efficiencies.

The Fiscal 2021 Plan was anticipated to entail a reduction in force of approximately 30 employees to be implemented through the end of fiscal year 2022, with a certain number of positions being consolidated and/or relocated.

Prior Years’ Plan

Activities under the Fiscal 2015-2016 Plan primarily included reductions in workforce across the Company, but primarily in operations outside the United States.

Payments related to the accrued restructuring liability balance for this plan are complete.

The Q4 2020 Plan was completed in the second quarter of fiscal 2022.

During the third quarter of fiscal 2021, our Board of Directors approved restructuring plans (the “Fiscal 2021 Plan”) to continue to reduce our operating costs and improve profitability as part of our transformational initiative to optimize our

business model and increase efficiencies.

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

The Fiscal 2021 Plan was anticipated to entail a reduction in force of approximately 30 employees and will be completed in the current fiscal year, with a certain number of positions being consolidated and/or relocated.

In the first quarter of fiscal 2023, we completed the acquisition of Redline, a leading provider of mission-critical data infrastructure.

Acquiring Redline allows Aviat to expand its Private Networks Offering with Private LTE/5G, Unlicensed Wireless Access Solutions, by creating an integrated end-to-end offering for wireless access and transport in the Private Networks segment, leveraging Aviat's sales channel to address a large dollar Private LTE/5G addressable market and increasing Aviat’s reach in mission-critical industrial Private Networks.

The consideration paid by Aviat for this all-cash acquisition was $ 20.4 million.

Cash acquired as part of acquisition was $ 4.6 million for total net consideration of $ 15.8 million.

A summary of the preliminary allocation, pursuant to the completion of purchase price allocation, of the total purchase consideration is as follows:

(In thousands) Purchase consideration Net tangible assets acquired Purchased intangible assets Goodwill

Redline $ 20,411 $ 8,171 $ 7,290 $ 4,950

The following table presents details of our intangible assets:

(In thousands except for useful life)

Goodwill $ 4,950

Useful life in Years Gross Accumulate amortization Net

Purchased intangible with finite lives:

Patents 11 $ 630 $ ( 14 ) $ 616

Customer relationship 15 5,500 ( 92 ) 5,408

Trade names 16 1,160 ( 18 ) 1,142

Total purchased intangible assets with finite lives $ 7,290 $ ( 124 ) $ 7,166

Amortization of purchased intangible assets for the three months ended September 30, 2022 was $ 0.1 million included in operating expenses.

There were no impairment charges for the three months ended September 30, 2022.

Pro forma information for this acquisition is not provided because it did not have a material effect on the Company’s consolidated results of operations.

The estimated future amortization expense of intangible assets with finite lives as of September 30, 2022 is as follows (in thousands):

(In thousands)

Remainder of 2023 $ 372

Thereafter 4,810

Total $ 7,166

Our effective tax rate varies from the U.S.

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During interim periods, we accrue tax expenses for jurisdictions that are anticipated to be profitable for fiscal 2023.

The determination of our income taxes for the nine months ended April 1, 2022 and April 2, 2021 was based on our estimated annual effective tax rate adjusted for losses in certain jurisdictions for which no tax benefit can be recognized.

Our tax expense for the nine months ended April 1, 2022 was primarily due to tax expense related to U.S.

The determination of our income taxes for the three months ended September 30, 2022 and October 1, 2021 was based on our estimated annual effective tax rate adjusted for losses in certain jurisdictions for which no tax benefit can be recognized.

Our tax expense for the three months ended September 30, 2022 was primarily due to tax expense related to U.S.

and profitable subsidiaries, including deferred tax expense associated with our acquisition of Redline in July 2022 and the subsequent multi-step restructure plan where the two Redline Communication Canadian corporations converted to ULC companies and then amalgamated by the end of September 2022.

The tax expense for the three months ended October 1, 2021 was primarily due to tax expense related to U.S.

and profitable subsidiaries.

The tax benefit for the nine months ended April 2, 2021 was primarily due to the release of valuation allowance on our U.S.

federal and state deferred tax assets

We have a number of open income tax audits covering various tax years, which vary from jurisdiction to jurisdiction.

Our major tax jurisdictions that are open and subject to potential audits include the U.S., Singapore, Nigeria, Saudi Arabia and the Ivory Coast.

Our major tax jurisdictions that are open and subject to potential audits include the U.S., Singapore, Ghana, Kenya, Nigeria and Saudi Arabia.

The earliest years for these jurisdictions are as follows:

Singapore - 2015;

Ghana - 2016;

Kenya - 2018;

Nigeria - 2006;

Saudi Arabia - 2019, and Ivory Coast - 2017.

and Saudi Arabia - 2019.

We account for interest and penalties related to unrecognized tax benefits as part of our provision for federal, foreign, and state income taxes.

Such interest expense was not material for the nine months ended April 1, 2022 and April 2, 2021.

On December 27, 2020, the U.S.

enacted the Consolidated Appropriations Act of 2021 (“CAA”) which extended and expanded certain tax relief measures created by the CARES Act, including, but not limited to, (1) second round of Payroll Protection Program loans, and (2) the Employer Retention Credit for 2021.

Such interest expense was not material for the three months ended September 30, 2022 and October 1, 2021.

On March 11, 2021, the U.S.

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We continue to examine the elements of the CAA and ARPA and the impact they may have on our future business.

Net Income Per Share of Common Stock

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022 (“IRA”) which includes a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion and a 1% excise tax on stock repurchases by public corporations effective for taxable years beginning after December 31, 2022.

We will continue to evaluate the applicability and effect of the IRA as more guidance is issued.

Net (Loss) Income Per Share of Common Stock

The following table presents the computation of basic and diluted net income per share:

Three Months Ended Nine Months Ended

(In thousands, except per share amounts) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

Net income $ 6,029 $ 94,731 $ 16,627 $ 107,308

Three Months Ended

(In thousands, except per share amounts) September 30,

2022 October 1,

Net (loss) income $ ( 2,746 ) $ 4,682

Weighted-average shares outstanding, basic

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Effect of potentially dilutive equivalent shares

588 690 676 538

Weighted-average shares outstanding, diluted

11,200 11,954

Net income per share of common stock outstanding:

Net (loss) income per share of common stock outstanding:

$ ( 0.25 ) $ 0.42

$ ( 0.25 ) $ 0.39

The following table summarizes the weighted-average equity awards that were excluded from the diluted net income per share calculations since they were anti-dilutive:

Three Months Ended Nine Months Ended

(In thousands) April 1,

2022 April 2,

2021 April 1,

2022 April 2,

The following table summarizes the weighted-average equity awards that were excluded from the diluted net (loss) income per share calculations since they were anti-dilutive:

Three Months Ended

(In thousands) September 30,

2022 October 1,

Stock options 154 24

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Because these agreements do not specify fixed or minimum quantities, do not specify minimum or variable price provisions, and do not specify the approximate timing of the transaction, and we have no present intention to cancel or terminate any of these agreements, we currently do not believe that we have any future liability under these agreements.

As of April 1, 2022, we had outstanding purchase obligations with our suppliers or contract manufacturers of $ 40.1 million.

In addition, we had contractual obligations of approximately $ 3.7 million associated with software licenses as of April 1, 2022.

As of September 30, 2022, we had outstanding purchase obligations with our suppliers or contract manufacturers of $ 62.7 million.

In addition, we had contractual obligations of approximately $ 3.7 million associated with software licenses.

Financial Guarantees and Commercial Commitments

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The terms of the guarantees are generally equal to the remaining term of the related debt or other obligations and are generally limited to two years or less.

As of April 1, 2022, we had no guarantees applicable to our debt arrangements.

As of September 30, 2022, we had no guarantees applicable to our debt arrangements.

We have entered into commercial commitments in the normal course of business including surety bonds, standby letters of credit agreements, and other arrangements with financial institutions primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers.

As of April 1, 2022, we had commercial commitments of $ 65.1 million outstanding that were not recorded on our unaudited condensed consolidated balance sheets.

As of September 30, 2022, we had commercial commitments outstanding of $ 64.3 million, that were not recorded on our unaudited condensed consolidated balance sheets.

We do not believe, based on historical experience and information currently available, that it is probable that any significant amounts will be required to be paid on these performance guarantees in the future.

The following table presents details of our commercial commitments:

September 30,

Letters of credit $ 2,999

Indemnifications

Under the terms of substantially all of our license agreements, we have agreed to defend and pay any final judgment against our customers arising from claims against such customers that our products infringe the intellectual property rights of a third party.

As of April 1, 2022, we have not received any notice that any customer is subject to an infringement claim arising from the use of our products;

As of September 30, 2022, we have not received any notice that any customer is subject to an infringement claim arising from the use of our products;

we have not received any request to defend any customers from infringement claims arising from the use of our products;

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Because the outcome of infringement disputes is related to the specific facts of each case and given the lack of previous or current indemnification claims, we cannot estimate the maximum amount of potential future payments, if any, related to our indemnification provisions.

As of April 1, 2022, we had not recorded any liabilities related to these indemnifications.

As of September 30, 2022, we had not recorded any liabilities related to these indemnifications.

Legal Proceedings

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In September 2019, our directors of Aviat India appeared before the Ministry of Finance Enforcement Directorate.

No settlement offers were discussed at the meeting and the matter is still ongoing with no subsequent hearing date currently scheduled.

settlement offers were discussed at the meeting and the matter is still ongoing with no subsequent hearing date currently scheduled.

We have accrued an immaterial amount representing the estimated probable loss for which we would settle the matter.

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In March 2020, the World Health Organization characterized a recent pandemic of 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.

The pandemic continues to result 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 in various locations.

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

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

Additionally we have undertaken measures to protect our employees, suppliers, and customers, including encouraging, and in many cases requiring employees to work remotely as appropriate.

We have also modified some of our controls procedures but those changes have not been significant.

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

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We are maintaining social distancing for workers on-site and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

Our gross margin in the current quarter was negatively impacted by inflationary pressures incurred to overcome supply chain and logistical bottlenecks.

These were partially offset by price increases and surcharges.

We continue to monitor, assess and adapt to the situation and prepare for implications to our business, supply chain and customer demand.

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

Subsequent Events

We announced on April 13, 2022 that we have entered into an arrangement agreement under which we will acquire all outstanding shares of Redline Communications Group, Inc.

(“Redline”) (TSX:

RDL), for CAD$ 0.90 per common share (approximately USD$ 0.71 per share), in an all-cash transaction valued at approximately CAD $ 16.2 million (approximately USD $ 12.9 million).

We expect to fully fund the acquisition from cash on hand.

Subject to customary closing conditions and necessary regulatory approvals, the transaction is expected to close within four months .

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 1. Financial Statements