AVIAT NETWORKS, INC. 10-Q

Item 1. Financial Statements AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and par value amounts) September 30, 2022 July 1, 2022 ASSETS Current Assets: Cash and cash equivalents $ 21,607 $ 36,877 Marketable securities 1,252 10,893 Accounts receivable, net 72,471 73,168 Unbilled receivables 50,389 45,857 Inventories 32,888 25,394 Customer service inventories 2,069 1,775 Other current assets 16,279 12,437 Total current assets 196,955 206,401 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 Other assets 10,437 10,445 TOTAL ASSETS $ 326,728 $ 323,904 LIABILITIES AND EQUITY Current Liabilities: Accounts payable $ 48,236 $ 42,394 Accrued expenses 24,806 26,451 Short-term lease liabilities 833 513 Advance payments and unearned revenue 35,483 33,740 Restructuring liabilities 1,522 1,381 Total current liabilities 110,880 104,479 Unearned revenue 7,844 8,920 Long-term lease liabilities 2,407 2,412 Other long-term liabilities 246 273 Reserve for uncertain tax positions 5,366 5,504 Deferred income taxes 563 563 Total liabilities 127,306 122,151 Commitments and contingencies (Note 13) Equity: Preferred stock, $ 0.01 par value, 50,000,000 shares authorized, none issued — — Common stock, $ 0.01 par value, 300,000,000 shares authorized, 11,312,974 shares issued and outstanding at September 30, 2022; 11,160,160 shares issued and outstanding at July 1, 2022 113 112 Treasury stock ( 6,147 ) ( 6,147 ) Additional paid-in-capital 824,786 823,259 Accumulated deficit ( 602,188 ) ( 599,442 ) Accumulated other comprehensive loss ( 17,142 ) ( 16,029 ) Total equity 199,422 201,753 TOTAL LIABILITIES AND EQUITY $ 326,728 $ 323,904 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 5 AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended (In thousands, except per share amounts) September 30, 2022 October 1, 2021 Revenues: Revenue from product sales $ 55,101 $ 50,847 Revenue from services 26,150 22,311 Total revenues 81,251 73,158 Cost of revenues: Cost of product sales 35,253 31,925 Cost of services 16,544 15,152 Total cost of revenues 51,797 47,077 Gross margin 29,454 26,081 Operating expenses: Research and development expenses 6,087 5,910 Selling and administrative expenses 17,504 12,698 Restructuring charges 1,950 659 Total operating expenses 25,541 19,267 Operating income 3,913 6,814 Other expense (income), net 2,782 ( 28 ) Income before income taxes 1,131 6,842 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 Diluted $ ( 0.25 ) $ 0.39 Weighted-average shares outstanding: Basic 11,200 11,159 Diluted 11,200 11,954 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 6 AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) Three Months Ended (In thousands) September 30, 2022 October 1, 2021 Net (loss) income $ ( 2,746 ) $ 4,682 Other comprehensive (loss) Net change in cumulative translation adjustments ( 1,113 ) ( 164 ) Other comprehensive (loss) ( 1,113 ) ( 164 ) Comprehensive (loss) income $ ( 3,859 ) $ 4,518 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 7 AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended (In thousands) September 30, 2022 October 1, 2021 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 Amortization of intangible assets acquired 124 — Provision for (Recoveries of) uncollectible receivables 182 ( 2 ) Share-based compensation 1,838 863 Deferred tax expense 3,338 1,116 Charges for inventory and customer service inventory write-downs 405 381 Noncash lease expense 206 276 Net loss on marketable securities 1,734 — Changes in operating assets and liabilities: Accounts receivable 4,279 ( 11,382 ) Unbilled receivables ( 5,570 ) ( 2,251 ) Inventories ( 2,214 ) ( 339 ) Customer service inventories ( 513 ) ( 667 ) Accounts payable ( 346 ) 7,099 Accrued expenses ( 2,619 ) ( 3,852 ) Advance payments and unearned revenue ( 2,496 ) 3,114 Income taxes payable or receivable 91 753 Other assets and liabilities ( 3,087 ) ( 73 ) Change in lease liabilities ( 264 ) ( 300 ) Net cash (used in) provided by operating activities ( 6,314 ) 682 Investing Activities Payments for acquisition of property, plant and equipment ( 474 ) ( 349 ) 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 ) — Payments for repurchase of common stock - treasury shares — ( 713 ) Payments for taxes related to net settlement of equity awards ( 670 ) ( 358 ) Proceeds from issuance of common stock under employee stock plans 360 267 Net cash used in financing activities ( 310 ) ( 804 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 347 ) ( 187 ) 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 Cash, cash equivalents, and restricted cash, end of period $ 21,797 $ 47,540 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 8 AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) Three Months Ended September 30, 2022 Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity (In thousands, except share amounts) Shares $ Amount $ Amount Balance as of July 1, 2022 11,160,160 $ 112 $ ( 6,147 ) $ 823,259 $ ( 599,442 ) $ ( 16,029 ) $ 201,753 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 ) Share-based compensation — — — 1,838 — — 1,838 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 Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity (In thousands, except share amounts) Shares $ Amount $ Amount Balance as of July 2, 2021 11,153,445 $ 112 $ ( 787 ) $ 818,939 $ ( 620,602 ) $ ( 14,327 ) $ 183,335 Net income — — — — 4,682 — 4,682 Other comprehensive loss, net of tax — — — — — ( 164 ) ( 164 ) Issuance of common stock under employee stock plans 66,235 — — 267 — — 267 Shares withheld for taxes related to vesting of equity awards ( 10,134 ) — — ( 358 ) — — ( 358 ) Stock repurchase ( 22,543 ) — ( 713 ) — — — ( 713 ) Share-based compensation — — — 863 — — 863 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. 9 AVIAT NETWORKS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. The Company and Basis of Presentation The Company Aviat Networks, Inc. (the “Company,” “we,” “us,” and “our”) designs, manufactures, and sells a range of wireless networking solutions and services to mobile and fixed telephone service providers, private network operators, government agencies, transportation and utility companies, public safety agencies, and broadcast system operators across the globe. Our products include broadband wireless access base stations and customer premises equipment for fixed and mobile, point-to-point digital microwave radio systems for access, backhaul, trunking, license-exempt applications, supporting new network deployments, network expansion, and capacity upgrades. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information, and we have made estimates, assumptions and judgments affecting the amounts reported in our unaudited condensed consolidated financial statements and the accompanying notes, as discussed in greater detail below. Accordingly, the statements do not include all information and footnotes required by U.S. GAAP for annual consolidated financial statements. 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 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. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated. We operate on a 52-week or 53-week year ending on the Friday closest to June 30. 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. Use of Estimates The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments affecting the amounts reported and related disclosures. Estimates are based upon historical factors, current circumstances and the experience and judgment of our management. We evaluate our estimates and assumptions on an ongoing basis and may employ outside experts to assist us in making these evaluations. 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, 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 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. 10 Accounting Standards Adopted 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. Accounting Standards Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). 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 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. Note 2. Balance Sheet Components Cash, Cash Equivalents, and Restricted Cash 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) September 30, 2022 July 1, 2022 Cash and cash equivalents $ 21,607 $ 36,877 Restricted cash included in other assets 190 227 Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows $ 21,797 $ 37,104 Accounts Receivable, net Our net accounts receivable are summarized below: (In thousands) September 30, 2022 July 1, 2022 Accounts receivable $ 73,587 $ 74,102 Less: Allowances for collection losses ( 1,116 ) ( 934 ) Total accounts receivable, net $ 72,471 $ 73,168 Inventories Our inventories are summarized below (In thousands) September 30, 2022 July 1, 2022 Finished products $ 18,703 $ 14,916 Raw materials and supplies 14,185 10,478 Total inventories $ 32,888 $ 25,394 Consigned inventories included within raw materials and supplies $ 9,962 $ 9,796 We currently rely on a few vendors for substantially all of our inventory purchases. 11 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 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, 2021 Excess and obsolete inventory $ 170 $ 133 Customer service inventory write-downs 235 248 Total inventory charges $ 405 $ 381 Assets Held for Sale We consider properties to be Assets held for sale when management approves and commits to a plan to dispose of a property or group of properties. The property held for sale prior to the sale date is separately presented on the balance sheet as Assets held for sale. During the second quarter of fiscal 2021 management initiated the sale of our facility located in the United Kingdom. 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 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) September 30, 2022 July 1, 2022 Land $ 210 $ 210 Buildings and leasehold improvements 5,888 5,796 Software 16,611 21,368 Machinery and equipment 47,212 49,584 Total property, plant and equipment, gross 69,921 76,958 Less: Accumulated depreciation and amortization ( 57,998 ) ( 68,071 ) Total property, plant and equipment, net $ 11,923 $ 8,887 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 (In thousands) September 30, 2022 October 1, 2021 Depreciation and amortization $ 1,344 $ 1,264 Accrued Expenses Our accrued expenses are summarized below: (In thousands) September 30, 2022 July 1, 2022 Accrued compensation and benefits $ 8,273 $ 11,625 Accrued agent commissions 1,476 1,864 Accrued warranties 2,755 2,913 Other 12,302 10,049 Total accrued expenses $ 24,806 $ 26,451 12 Accrued Warranties We accrue for the estimated cost to repair or replace products under warranty. 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 (In thousands) September 30, 2022 October 1, 2021 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 ) Balance as of the end of the period $ 2,755 $ 3,318 Advance Payments and Unearned Revenue Our advance payments and unearned revenue are summarized below: (In thousands) September 30, 2022 July 1, 2022 Advance payments $ 2,477 $ 1,870 Unearned revenue 33,006 31,870 Total advance payments and unearned revenue $ 35,483 $ 33,740 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. Note 3. Fair Value Measurements of Assets and Liabilities Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market in the absence of a principal market) for the asset or liability in an orderly transaction between market participants as of the measurement date. We maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value and establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows: • Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities; • Level 2 — Observable market-based inputs or observable inputs that are corroborated by market data; and • 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 September 30, 2022 and July 1, 2022 were as follows: September 30, 2022 July 1, 2022 Valuation Inputs (In thousands) Fair Value Fair Value Assets: Cash and cash equivalents: Money market funds $ 6,637 $ 5,367 Level 1 Bank certificates of deposit $ 3,612 $ 3,682 Level 2 Marketable securities $ 1,252 $ 10,893 Level 1 We classify items within Level 1 if quoted prices are available in active markets. Our Level 1 items mainly are money market funds. As of September 30, 2022 and July 1, 2022, these money market funds were valued at $ 1.00 net asset value per share. 13 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 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 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. Note 4. Leases The Company has facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to 20 years and contain leasehold improvement incentives, rent holidays and escalation clauses. We determine if an arrangement contains a lease at inception. These operating leases are included in "Right of use assets" on our unaudited condensed consolidated balance sheets and represent our right to use the underlying asset for the lease term. 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 three months ended September 30, 2022. The following summarizes our lease costs (in thousands): Three Months Ended September 30, 2022 October 1, 2021 (In thousands) Operating lease costs $ 312 $ 317 Short-term lease costs 551 687 Variable lease costs 35 27 Total lease costs $ 898 $ 1,031 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 % 14 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): Amount (In thousands) Remainder of 2023 $ 824 2024 705 2025 597 2026 476 2027 169 Thereafter 1,386 Total lease payments 4,157 Less: interest ( 917 ) Present value of lease liabilities $ 3,240 Note 5. Credit Facility and Debt On May 17, 2021, we entered into Amendment No. 4 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “SVB Credit Facility”) which extended the expiration 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 our U.S. company, with a $ 25.0 million sub-limit that can be borrowed by our U.S. and Singapore entities. Loans may be advanced under the SVB Credit Facility based on a borrowing base equal to a specified percentage of the value of eligible accounts of the borrowers under the SVB Credit Facility. 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. We may prepay loans under the SVB Credit Facility in whole or in part at any time without premium or penalty. 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; or (ii) if we satisfy a minimum adjusted quick ratio, a LIBOR rate determined in accordance with the SVB Credit Facility, plus a spread of 2.75 %. Any outstanding Singapore subsidiary borrowed loans shall bear interest at an additional 2.00 % above the applicable prime or LIBOR rate. The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with Silicon Valley Bank 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, permit 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. Certain of our assets, including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an event of default, outstanding obligations would be immediately due and payable. 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 September 30, 2022, we were in compliance with the quarterly financial covenants contained in the SVB Credit Facility, as amended. Note 6. Revenue Recognition Contract Balances, Performance Obligations, and Backlog 15 The following table provides information about receivables and liabilities from contracts with customers (in thousands): September 30, 2022 July 1, 2022 Contract Balances Accounts receivable, net $ 72,471 $ 73,168 Contract Assets $ 50,389 $ 45,857 Capitalized commissions $ 2,341 $ 2,341 Contract Liabilities Advance payments and unearned revenue $ 35,483 $ 33,740 Unearned revenue, long-term $ 7,844 $ 8,920 Significant changes in contract balances may arise as a result of recognition over time for services, transfer of control for equipment, and periodic payments (both in arrears and in advance). From time to time, we may experience unforeseen events that could result in a change to the scope or price associated with an arrangement. When such events occur, we update the transaction price and measure of progress for the performance obligation and recognize the change as a cumulative catch-up to revenue. Because of the nature and type of contracts we engage in, the timeframe to completion and satisfaction of current and future performance obligations can shift; however, this will have no impact on our future obligation to bill and collect. 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 $ 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 . Note 7. Segment and Geographic Information We operate in one reportable business segment: the design, manufacturing, and sale of a range of wireless networking products, solutions, and services. Our financial performance is regularly reviewed by our chief operating decision maker who is our Chief Executive Officer (“CEO”). 16 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 months ended September 30, 2022 and October 1, 2021 was as follows: Three Months Ended (In thousands) September 30, 2022 October 1, 2021 North America $ 48,848 $ 50,937 Africa and the Middle East 10,984 10,702 Europe 4,500 2,703 Latin America and Asia Pacific 16,919 8,816 Total revenue $ 81,251 $ 73,158 Customers accounting for 10% or more of our total revenue were as follows: Three Months Ended September 30, 2022 October 1, 2021 Motorola Solutions, Inc. 10.5 % 15.0 % Customer accounting for 10% or more of our accounts receivable were as follows: September 30, 2022 July 1, 2022 Mobile Telephone Networks Group (MTN Group) 12.4 % 17.0 % Note 8. Equity Stock Repurchase Program 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 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 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. Under the 2018 Plan, option exercise prices are equal to the fair market value of our common stock on the date the options are granted using our closing stock price. After vesting, options generally may be exercised within seven years after the date of grant. Restricted stock units are not transferable until vested and the restrictions lapse upon the achievement of continued employment or service over a specified time period. Restricted stock units issued to employees generally vest three years from the date of grant ( three-year cliff or annually over three years ). Restricted stock units issued to non-executive board members annually generally vest on the day before the annual stockholders’ meeting. Vesting of performance share awards and units is subject to the achievement of predetermined financial performance criteria and continued employment through the end of the applicable period. 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 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. 17 Total compensation expense for share-based awards included in our unaudited condensed consolidated statements of operations was as follows: Three Months Ended (In thousands) September 30, 2022 October 1, 2021 By Expense Category: Cost of revenues $ 172 $ 68 Research and development 135 76 Selling and administrative 1,531 719 Total share-based compensation expense $ 1,838 $ 863 By Types of Award: Options $ 510 $ 174 Restricted and performance stock awards and units 1,328 689 Total share-based compensation expense $ 1,838 $ 863 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. Note 9. Restructuring Activities The following table summarizes our restructuring-related activities: 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 Charges, net 1,950 — — 1,950 Cash payments ( 1,437 ) ( 272 ) ( 100 ) ( 1,809 ) 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. Q1 2023 Plan 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. (“Redline”). 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. Q4 2022 Plan 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 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 18 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. Note 10. Acquisition 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. 19 The estimated future amortization expense of intangible assets with finite lives as of September 30, 2022 is as follows (in thousands): Amount (In thousands) Remainder of 2023 $ 372 2024 496 2025 496 2026 496 2027 496 Thereafter 4,810 Total $ 7,166 Note 11. Income Taxes Our effective tax rate varies from the U.S. federal statutory rate of 21% primarily due to results of foreign operations that are subject to income taxes at different statutory rates and certain jurisdictions where we cannot recognize tax benefit on current losses. 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 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. 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, Ghana, Kenya, Nigeria and Saudi Arabia. The earliest years for these jurisdictions are as follows: U.S. - 2003; Singapore - 2015; Ghana - 2016; Kenya - 2018; Nigeria - 2006; 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 three months ended September 30, 2022 and October 1, 2021. On March 11, 2021, the U.S. enacted the American Rescue Plan Act of 2021 (“ARPA”) which expands Section 162(m) to cover the next five most highly compensated employees for the taxable year, in addition to the “covered employees” effective for taxable years beginning after December 31, 2026. We continue to examine the elements of the CAA and ARPA and the impact they may have on our future business. 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. 20 Note 12. 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 (In thousands, except per share amounts) September 30, 2022 October 1, 2021 Numerator: Net (loss) income $ ( 2,746 ) $ 4,682 Denominator: Weighted-average shares outstanding, basic 11,200 11,159 Effect of potentially dilutive equivalent shares — 795 Weighted-average shares outstanding, diluted 11,200 11,954 Net (loss) income per share of common stock outstanding: Basic $ ( 0.25 ) $ 0.42 Diluted $ ( 0.25 ) $ 0.39 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, 2021 Stock options 154 24 Restricted stock units and performance stock units 48 27 Total shares of common stock excluded 202 51 Note 13. Commitments and Contingencies Purchase Orders and Other Commitments From time to time in the normal course of business, we may enter into purchasing agreements with our suppliers that require us to accept delivery of, and remit full payment for, finished products that we have ordered, finished products that we requested be held as safety stock, and work in process started on our behalf, in the event we cancel or terminate the purchasing agreement. 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 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 Guarantees issued by banks, insurance companies, or other financial institutions are contingent commitments issued to guarantee our performance under borrowing arrangements, such as bank overdraft facilities, tax and customs obligations, and similar transactions, or to ensure our performance under customer or vendor contracts. 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 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 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. 21 The following table presents details of our commercial commitments: September 30, 2022 Letters of credit $ 2,999 Bonds 61,345 $ 64,344 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 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; and we have not paid any final judgment on behalf of any customer related to an infringement claim arising from the use of our products. 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 September 30, 2022, we had not recorded any liabilities related to these indemnifications. Legal Proceedings We are subject from time to time to disputes with customers concerning our products and services. In May 2016, we received notification of a claim for damages from a customer alleging that certain of our products were defective which we settled with an immaterial amount during the third quarter of 2021. From time to time, we may be involved in various other legal claims and litigation that arise in the normal course of our operations. We are aggressively defending all current litigation matters. Although there can be no assurances and the outcome of these matters is currently not determinable, we currently believe that none of these claims or proceedings are likely to have a material adverse effect on our financial position. We expect to defend each of these disputes vigorously. There are many uncertainties associated with any litigation and these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, if any. We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. We have not recorded any accrual for loss contingencies associated with such legal claims or litigation discussed above. Contingent Liabilities We record a loss contingency as a charge to operations when (i) it is probable that an asset has been impaired or a liability has been incurred at the date of the unaudited condensed consolidated financial statements; and (ii) the amount of the loss can be reasonably estimated. Disclosure in the Notes to the unaudited condensed consolidated financial statements is required for loss contingencies that do not meet both those conditions if there is a reasonable possibility that a loss may have been incurred. Gain contingencies are not recorded until realized. We expense all legal costs incurred to resolve regulatory, legal, and tax matters as incurred. In March 2016, an enforcement action by the Indian Department of Revenue, Ministry of Finance was brought against our subsidiary Aviat Networks (India) Private Limited (“Aviat India”) relating to the non-realization of intercompany receivables and non-payment of intercompany payables, which originated from 1999 to 2012, within the time frames dictated by the Indian regulations under the Foreign Exchange Management Act. In November 2017, the Indian Department of Revenue, Ministry of Finance also initiated a similar action against Telsima Communications Private Limited (“Telsima India”), a subsidiary of the Company, relating to the non-realization of intercompany receivables and non-payment of intercompany payables which originated from the period prior to our acquisition of Telsima India in February 2009. In September 2019, our directors of Aviat India appeared before the Ministry of Finance Enforcement Directorate. No 22 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. We currently cannot form an estimate of the range of loss in excess of our amounts already accrued. If the outcome of this matter is greater than the current immaterial amount accrued, we intend to dispute it vigorously. Periodically, we review the status of each significant matter to assess the potential financial exposure. If a potential loss is considered probable and the amount can be reasonably estimated, we reflect the estimated loss in our unaudited condensed consolidated statement of operations. Significant judgment is required to determine the probability that a liability has been incurred or an asset impaired and whether such loss is reasonably estimable. Further, estimates of this nature are highly subjective, and the final outcome of these matters could vary significantly from the amounts that have been included in our unaudited condensed consolidated financial statements. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise estimates accordingly. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. COVID-19 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 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. The COVID-19 pandemic may have an impact on our operations, supply chains and distribution systems and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking or requiring. The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with certainty, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating activities can resume. Management is actively monitoring the impact of 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 off-site have been instructed to work from home. Our manufacturing sites support essential businesses and remain operational. We are maintaining social distancing for workers on-site and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate. 23