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Item 7. Management’s Discussion and Analysis

2023-08-30 compared with 2022-09-14 · 145 added, 195 removed, 150 unchanged (69% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview of Business;

Operating Environment and Key Factors Impacting Fiscal 2022 and 2021 Results

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand our results of operations and financial condition.

MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes.

In the discussion below, our fiscal year ended July 1, 2022 is referred to as “fiscal 2022” or “2022”;

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

and our fiscal year ended July 3, 2020 is referred to as “fiscal 2020” or “2020.” Our fiscal year ends on the Friday nearest to June 30.

Fiscal 2022 and fiscal 2021 presented included 52 weeks while fiscal 2020 included 53 weeks.

This one week difference between fiscal 2022 and 2021 to fiscal 2020 impacts the comparison of both revenue and expenses.

Aviat sells radios, routers, software and services.

The following discussion and analysis is intended to help the reader understand our results of operations and financial condition during the two-year period ended June 30, 2023 (our fiscal 2023 and 2022).

All references herein for the years 2023, 2022 and 2021 represent the fiscal years ended June 30, 2023, July 1, 2022, and July 2, 2021, respectively.

Our fiscal year ends on the Friday nearest to June 30.

This discussion should be read in conjunction with our consolidated financial statements and the accompanying notes.

For a comparison of our results of operations for fiscal 2022 and 2021, see our Annual Report on Form 10-K for the fiscal year ended July 1, 2022, filed with the SEC on September 14, 2022.

Aviat Networks, Inc.

(“Aviat”, “we”, or the “Company”) is a global supplier of microwave networking and access networking solutions, backed by an extensive suite of professional services and support.

We sell radios, routers, software and services integral to the functioning of data transport networks.

We have more than 3,000 customers and significant relationships with global service providers and private network operators.

Our manufacturing base in North America consists of a combination of contract manufacturing and assembly and test operated in Austin, Texas by Aviat.

Our North America manufacturing base consists of a combination of contract manufacturing and assembly and testing operated in Austin, Texas by Aviat.

Additionally, we utilize a contract manufacturer based in Asia for much of our international equipment demand.

Our technology is underpinned by more than 500 patents.

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We have a global presence.

The COVID-19 pandemic related disruptions to our business, operations, customers and suppliers lessened over the course of fiscal 2022.

While supply chain lead-times remain extended and difficult to manage, the impact on our ability to fulfill orders for the year ended July 1, 2022 was minimal.

Depending on the progression of pandemic-related factors such as supply constraints, potential for temporary manufacturing restrictions and our ability to perform field services during shelter in place orders, we could experience constraints and delays in fulfilling customer orders in future periods.

We are monitoring, assessing and adapting to the situation to mitigate impacts on our business, supply chain and customer demand.

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

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

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

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

While supply chain lead-times were difficult to manage through parts of fiscal 2023 and certain components remain on allocation, we have seen recent improvements in the supply chain environment.

The impact that supply chain constraints had on our ability to fulfill orders during fiscal 2023 was minimal.

Depending on the progression of factors such as supply allocations, lead-time trends and our ability to perform field services, we could experience constraints and delays in fulfilling customer orders in future periods.

We continually monitor, assess and adapt to each situation to mitigate impacts on our business, supply chain and customer demand.

We expect the potential for these challenges to continue.

We continue to be impacted by inflationary pressures incurred to overcome supply chain and logistical bottlenecks.

We will 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.

NEC’s Wireless Transport Business

On May 9, 2023, the Company entered into the Purchase Agreement with NEC Corporation.

Pursuant to the Purchase Agreement, the Company will purchase certain assets and liabilities from NEC relating to NEC’s wireless backhaul business.

Initial consideration due at the closing of the NEC Transaction will be comprised of (i) an amount in cash equal to $45.0 million, subject to certain post-closing adjustments, and (ii) the issuance of $25.0 million in Company common stock.

Aggregate consideration will be approximately $70.0 million.

The Company has obtained permanent financing to fund the cash portion of the NEC Transaction.

Credit Facility and Debt for further information.

The Purchase Agreement contains certain customary termination rights, including, among others, (i) the right of the Company or NEC to terminate if all the conditions to closing have not been either waived or satisfied on or before February 9, 2024 and (ii) there is a final non-appealable order of a government entity prohibiting the consummation of the NEC Transaction.

The NEC Transaction remains subject to, among other things, regulatory approvals and satisfaction of other customary closing conditions.

The Company expects to complete the NEC Transaction in the fourth quarter of calendar year 2023.

NEC is a leader in wireless backhaul networks with an extensive installed base of their Pasolink series products.

Redline Communications Group Inc.

On July 5, 2022, we acquired Redline Communications Group Inc.

(“Redline”), for a purchase price of $20.4 million.

Redline is a leading provider of mission-critical data infrastructure.

The acquisition of Redline allows Aviat to expand its Private Networks Offering with Private LTE/5G and 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.

Operations Review

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In North America, we supported 5G and long-term evolution (“LTE”) deployments of our mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers.

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

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

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

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

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

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

Additionally, we operate an e-commerce platform that provides low cost services, a simple experience, and fast delivery to mobile operator and private network customers.

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

Fiscal 2023 Compared to Fiscal 2022

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

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

Revenue by region for fiscal 2022, 2021 and 2020 and the related changes are shown in the table below:

Fiscal Year $ Change % Change

(In thousands, except percentages) 2022 2021 2020 2022/2021 2021/2020 2022/2021 2021/2020

Revenue by region for fiscal 2023 and 2022 and the related changes were as follows:

(In thousands, except percentages) 2023 2022 $ Change % Change

North America $ 202,096 $ 199,801 $ 2,295 1.1 %

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Total Revenue $ 346,593 $ 302,959 $ 43,634 14.4 %

We achieved revenue growth of 10.2% in fiscal 2022.

We have progressed in the U.S.

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

service provider customers.

Our revenue from North America increased by $16.7 million, or 9.1%, in fiscal 2022 compared with fiscal 2021.

The increase in North America revenue during fiscal 2022 was due to revenue growth with private network customers and rural broadband customers.

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

The increase in North America revenue during fiscal 2021 was due to stronger order flow from private network customers, as well as increased sales to mobile operators.

Our revenue from Africa and the Middle East increased by $3.5 million, or 8.0%, in fiscal 2022 compared with fiscal 2021.

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

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

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

Revenue from Europe increased by $4.1 million, or 47.0%, in fiscal 2022 compared with fiscal 2021.

The increase in revenue was due to higher sales to private network customers.

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

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

Revenue in Latin America and Asia Pacific increased by $3.7 million, or 9.4%, in fiscal 2022 compared with fiscal 2021.

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

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

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

Fiscal Year $ Change % Change

(In thousands, except percentages)

2022 2021 2020 2022/2021 2021/2020 2022/2021 2021/2020

We achieved revenue growth of 14.4% in fiscal 2023 driven by significant international share gains and the contribution from the Redline acquisition.

Revenue in North America increased by $2.3 million, or 1.1%, in fiscal 2023 primarily due to increased tier one revenue, partially offset by lower private network volumes.

Revenue in Africa and the Middle East increased by $12.9 million, or 27.1%, in fiscal 2023 primarily due to increased product sales to mobile and private network operators in the region and the contribution from the Redline acquisition.

Revenue in Europe increased by $5.8 million, or 44.7%, in fiscal 2023 primarily due to higher sales to mobile operators.

Revenue in Latin America and Asia Pacific increased by $22.7 million, or 53.1%, in fiscal 2023 primarily driven by a key customer win in Asia Pacific and increased product sales to mobile operators in Latin America.

(In thousands, except percentages) 2023 2022 $ Change % Change

Product sales

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$ 346,593 $ 302,959 $ 43,634 14.4 %

Our revenue from product sales increased by $22.3 million, or 12.0%, in fiscal 2022 compared with fiscal 2021.

Product volume increased with customers in all regions.

Our services revenue increased by $5.7 million, or 6.4%, in fiscal 2022 compared with fiscal 2021 from increased sales in all regions, except for Asia Pacific.

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

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

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

Fiscal Year $ Change % Change

(In thousands, except percentages) 2022 2021 2020 2022/2021 2021/2020 2022/2021 2021/2020

Our revenue from product sales and services increased by 15.0% and 13.1% respectively in fiscal 2023 compared with fiscal 2022.

The relatively proportionate increases were driven by the same overall factors of revenue growth discussed previously.

(In thousands, except percentages) 2023 2022 $ Change % Change

Revenue $ 346,593 $ 302,959 $ 43,634 14.4 %

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Service margin % 33.4 % 35.4 %

Gross margin for fiscal 2022 increased by $6.6 million, or 6.5%, compared with fiscal 2021.

Gross margin as a percentage of revenue for fiscal 2022 decreased to 36.1%, compared with 37.3% in fiscal 2021, primarily due to inflationary pressures during the year.

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

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

Gross margin for fiscal 2023 increased by $14.9 million, or 13.7%, primarily due to higher volume of private network and mobile operator business as well as the contribution from the Redline acquisition.

Gross margin as a percentage of revenue for fiscal 2023 remained flat at 35.8%, primarily due to a higher mix of revenues generated outside of North America where margins are typically lower, offset by the contribution of the Redline acquisition.

Research and Development Expenses

Fiscal Year $ Change % Change

(In thousands, except percentages) 2022 2021 2020 2022/2021 2021/2020 2022/2021 2021/2020

(In thousands, except percentages) 2023 2022 $ Change % Change

Research and development expenses

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% of revenue 7.2 % 7.5 %

Our research and development (“R&D”) expenses increased by $0.8 million, or 3.6%, in fiscal 2022 compared with fiscal 2021.

The increase was due to additional investments to support new product offerings and redesigns to mitigate supply chain constraints.

Our R&D expenses increased $2.5 million, or 13.1%, in fiscal 2021 compared with fiscal 2020.

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

Our research and development expenses increased by $2.3 million, or 10.2%, in fiscal 2023 compared with fiscal 2022.

The increase was primarily attributable to the addition of Redline’s research and development program.

Selling and Administrative Expenses

Fiscal Year $ Change % Change

(In thousands, except percentages) 2022 2021 2020 2022/2021 2021/2020 2022/2021 2021/2020

(In thousands, except percentages) 2023 2022 $ Change % Change

Selling and administrative expenses

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% of revenue 20.2 % 19.0 %

Our selling and administrative expenses increased by $1.3 million, or 2.4%, in fiscal 2022 compared with fiscal 2021.

The increase was primarily due to higher corporate expenses.

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

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

Our selling and administrative expenses increased by $12.2 million, or 21.1%, in fiscal 2023 primarily due to the Redline acquisition, share-based compensation and merger and acquisition related expenses.

Restructuring Charges

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

The Q4 2022 Plan was anticipated to be implemented through early fiscal year 2023, with a certain number of positions being consolidated.

We recorded $0.4 million restructuring charges for this plan in Fiscal Year 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.

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

Payments related to the accrued restructuring balances for this plan are expected to be fully paid in fiscal 2023.

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

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

Payments related to the accrued restructuring liability balance for this plan were fully paid in fiscal 2022.

During the third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”) to reduce our operating costs and improve profitability to optimize our business model and increase efficiencies.

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

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

Our restructuring charges by plan for fiscal 2022, 2021 and 2020 are summarized in the table below:

Fiscal Year $ Change % Change

(In thousands, except percentages) 2022 2021 2020 2022/2021 2021/2020 2022/2021 2021/2020

Q4 2022 Plan $ 434 $ — $ — $ 434 $ — N/A N/A

Fiscal 2021 Plan 271 2,414 — (2,143) 2,414 (88.8) % N/A

Prior Years Plans (231) (143) 4,049 (88) (4,192) 61.5 % (103.5) %

Prior Year Plan:

Facilities and Other (236) — — (236) — N/A N/A

(In thousands, except percentages) 2023 2022 $ Change % Change

Restructuring charges $ 3,012 $ 238 $ 2,774 1,165.5 %

Restructuring charges for fiscal 2022 included employee and severance and benefits of $0.4 million under the Q4 2022 Plan and $0.3 million under the Fiscal 2021 Plan and reductions of Prior Years Plans estimated accruals of $0.5 million.

Restructuring charges for fiscal 2021 included employee severance and benefits of $2.4 million, the Fiscal 2021 Plan and a reduction in the previously estimated accrual of $0.1 million in Prior Years Plans.

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

% of revenue 0.9 % 0.1 %

During fiscal 2023, our Board of Directors approved restructuring plans, primarily associated with the acquisition of Redline and reductions in workforce in our operations outside the United States.

The fiscal 2023 plans are expected to be completed through the end of first half of fiscal 2024.

Our successfully executed restructuring initiatives have enabled us to restructure specific groups to optimize skill sets and align structure to execute on strategic deliverables, in addition to aligning cost structure with core of the business.

Other Income (Expense), Net

Fiscal Year $ Change % Change

(In thousands, except percentages) 2022 2021 2020 2022/2021 2021/2020 2022/2021 2021/2020

Other income, net 1,690 230 331 1,460 (101) 635 % (31) %

Our other income, net increased by $1.5 million, in fiscal 2022 compared with fiscal 2021, primarily due to gains in marketable securities partially offset by movement in foreign exchange.

Fiscal Year $ Change

(In thousands, except percentages) 2022 2021 2020 2022/2021 2021/2020

Other (Expense) Income, Net

(In thousands, except percentages) 2023 2022 $ Change % Change

Other (expense) income, net $ (3,306) $ 1,690 $ (4,996) (295.6) %

Our other (expense) income, net changed by $5.0 million, in fiscal 2023 compared with fiscal 2022, primarily due to losses recognized on the sale of marketable securities, higher interest expense and foreign exchange losses.

(In thousands, except percentages) 2023 2022 $ Change % Change

Income before income taxes

$ 23,103 $ 30,435 $ (7,332) (24.1) %

Provision for (benefit from) income taxes 9,275 (87,699) 3,452 96,974 (91,151)

Provision for income taxes 11,575 9,275 2,300 24.8 %

As % of income before income taxes

50.1 % 30.5 %

Our provision for (benefit from) income taxes was $9.3 million of expense for fiscal 2022, $87.7 million of benefit for fiscal 2021 and $3.5 million of expense for fiscal 2020.

Our provision for income taxes was $11.6 million of expense for fiscal 2023 and $9.3 million of expense for fiscal 2022.

Our tax expense for fiscal 2023 was primarily due to tax expense related to U.S.

and profitable foreign subsidiaries, including tax expense associated with our acquisition of Redline in July 2022 and subsequent restructuring and integration impact.

Acquisitions.

Our tax expense for fiscal 2022 was primarily due to tax expenses related to U.S.

and profitable foreign subsidiaries.

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

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

Fiscal 2022 Compared to Fiscal 2021

For a comparison of our results of operations for fiscal 2022 and 2021, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended July 1, 2022, filed with the SEC on September 14, 2022.

Liquidity, Capital Resources and Financial Strategies

As of July 1, 2022, our cash and cash equivalents and marketable securities totaled $47.8 million.

As of June 30, 2023, our cash and cash equivalents totaled $22.2 million.

Approximately $7.5 million, or 33.9%, was held in the United States.

The remaining balance of $14.7 million, or 66.1%, was held by entities outside the United States.

This amount includes $14.0 million moved in advance of the Redline acquisition closure.

Of the amount of cash and cash equivalents held by our foreign subsidiaries at July 1, 2022, $29.2 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Of the amount of cash and cash equivalents held by our foreign subsidiaries at June 30, 2023, $13.8 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Operating Activities

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

Net cash provided by operating activities was $2.8 million for fiscal 2022, $17.3 million and $17.5 million, respectively, were provided by operating activities for fiscal 2021 and fiscal 2020.

For fiscal 2022 compared to fiscal 2021, cash provided by operating activities decreased by $14.5 million.

The net contribution of non-cash items to cash provided by operating activities increased by $97.4 million and the net contribution of changes in operating assets and liabilities to cash provided by operating activities decreased by $22.9 million in fiscal 2022 as compared to fiscal 2021.

The $97.4 million increase in the net contribution of non-cash items to cash provided by operating activities was primarily attributable to a $98.6 million net change in deferred tax assets.

Net changes in operating assets and liabilities resulted in a decrease of $22.9 million additional cash used by operating activities for fiscal 2022 compared to fiscal 2021.

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

The fluctuations in accounts payable and accrued expenses during fiscal 2022 were primarily due to the timing of liabilities incurred and vendor payments.

The change in inventories and in customer service inventories during fiscal 2022 were primarily driven by forecasted demand and to secure component parts in shortage.

The decrease in customer advance payments and unearned revenue during fiscal 2022 was due to the timing of payment from customers and revenue recognition.

We used $1.6 million in cash during fiscal 2022 on expenses related to restructuring liabilities.

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

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

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

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

Net cash used in operating activities was $1.6 million for fiscal 2023,

compared with $2.8 million provided by operating activities for fiscal 2022.

Cash used in operating activities increased by $4.4 million, primarily attributable to net changes in operating assets and liabilities, partially offset by improved net income prior to non-cash adjustments related to share-based compensation expense, depreciation of property, plant and equipment and losses recognized on the sale of marketable securities.

Net changes in operating assets and liabilities resulted in $5.8 million of additional cash used by operating activities for fiscal 2023, primarily attributable to increases in accounts receivable and unbilled costs as a result of the timing of sales and billing activities and cash collections.

Investing Activities

Net cash used in investing activities was $7.8 million for fiscal year 2022, $2.8 million for fiscal 2021 and $4.6 million for fiscal 2020, which consisted of purchases of marketable securities and capital expenditures net of cash received from sale of a real estate asset.

For fiscal 2023, we expect to spend between $5.0 million to $6.0 million for capital expenditures, primarily on equipment for development and manufacturing of new products and IT infrastructure.

Net cash used in investing activities was $11.9 million for fiscal 2023, compared to $7.8 million for fiscal 2022.

The $4.2 million increase is primarily due to the acquisition of Redline and higher capital expenditures, partially offset by proceeds on the sale of marketable securities originally purchased in fiscal 2022.

Financing Activities

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

Net cash used in financing activities was $4.9 million for fiscal year 2022, which was attributable to $5.4 million for repurchase of common stock relating to treasury shares, $0.5 million payments for taxes related to net settlement of equity awards, offset by $1.0 million proceeds from the issuance of common stock from employee stock plans.

Net cash used by financing activities was $8.0 million for fiscal 2021 and $2.5 million for fiscal 2020.

As of July 1, 2022, our principal sources of liquidity consisted of the $47.8 million in cash and cash equivalents and marketable securities, $21.7 million of available credit under our $25.0 million credit facility with Silicon Valley Bank (“SVB Credit Facility”) which matures on June 28, 2024, and future collections of receivables from customers.

Financing cash flows consist primarily of borrowings and repayments under our revolving credit line, repurchase of stock, and proceeds from the exercise of employee stock options.

Net cash used in financing activities was $0.7 million for fiscal 2023, compared to $4.9 million in fiscal 2022.

The $4.2 million decrease is primarily due to no share repurchases in the current year, partially offset by $0.8 million of payments of deferred financing costs associated with the Credit Facility (as defined below) entered into with Wells Fargo Bank in May 2023.

As of June 30, 2023, our principal sources of liquidity consisted of $22.2 million in cash and cash equivalents, $40.0 million of available credit under our Credit Facility, and future collections of receivables from customers.

We regularly require letters of credit from certain customers and, from time to time, these letters of credit are discounted without recourse shortly after shipment occurs to meet immediate liquidity requirements and to reduce our credit and sovereign risk.

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

On May 17, 2021 we entered into Amendment No.

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

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

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

If we are not in compliance with the financial covenants or do not have sufficient eligible accounts receivable to support our borrowing base, the availability of our credit facility is not certain or may be diminished.

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

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

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

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

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

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

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

Additionally, we have an effective shelf registration statement on Form S-3 allowing us to offer and sell, either individually or in combination, in one or more offerings, up to a total dollar amount of $200.0 million of any combination of the securities described in the shelf registration statement or a related prospectus supplement.

We believe that our existing cash and cash equivalents, the available borrowings under our Credit Facility, the availability under our effective shelf registration statement and future cash collections from customers will be sufficient to provide for our anticipated requirements and plans for cash for the next 12 months.

In addition, we believe these sources of liquidity will be sufficient to provide for our anticipated requirements and plans for cash beyond the next 12 months.

Available Credit Facility, Borrowings and Repayment of Debt

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

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

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

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 all 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 July 1, 2022, available credit under the SVB Credit Facility was $21.7 million reflecting the calculated borrowing base of $25.0 million less outstanding letters of credit of $3.3 million.

We did not borrow against the SVB Credit Facility during fiscal 2022 and there was no borrowing outstanding as of July 1, 2022.

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

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 monthly and quarterly financial covenants for minimum adjusted quick ratio and minimum profitability (EBITDA) requirements, respectively.

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

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

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

During fiscal 2022, we terminated our uncommitted short-term line of credit from a bank in New Zealand.

On May 9, 2023, we entered into a Secured Credit Facility Agreement (the “Credit Facility” or “Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender and Wells Fargo Securities LLC, Citigroup Global Markets Inc., and Regions Capital Markets as lenders.

The Credit Facility provides for a $40.0 million revolving credit facility (“the Revolver”) and a $50.0 million Delayed Draw Term Loan Facility (the “Term Loan”) with a maturity date of May 8, 2028.

The $40.0 million revolving credit facility can be borrowed with a $10.0 million sublimit for letters of credit, and a $10.0 million swingline loan sublimit.

The Term Loan has a funding date on or prior to the closing date of the previously announced NEC Transaction with the proceeds used to settle the cash portion of the consideration and related expense.

Acquisitions for further information.

As of June 30, 2023, available credit under the Revolver was $40.0 million.

We borrowed $36.5 million and repaid $36.5 million against the Revolver during fiscal 2023.

As of June 30, 2023 there was no borrowing outstanding for either the Revolver or Term Loan.

Outstanding borrowings under the Credit Facility bear interest at either:

(a) Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus the applicable margin;

or (b) the Base Rate plus the applicable margin.

The pricing levels for interest rate margins are determined based on the Consolidated Total Leverage Ratio as determined and adjusted quarterly.

The Credit Facility requires the Company and its subsidiaries to maintain a fixed charge coverage ratio to be greater than 1.25 to 1.00 as of the last day of any fiscal quarter of the Company.

The Credit Facility also requires that the Company maintain a maximum leverage ratio of 3.00 times EBITDA, with a step-down to 2.75 times EBITDA after four full quarters, and 2.50 times EBITDA after eight full quarters.

The Credit Facility contains customary affirmative and negative covenants, including, among others, covenants limiting the ability of the Company and its subsidiaries 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, in each case subject to customary exceptions.

As of June 30, 2023, we were in compliance with all financial covenants contained in the Credit Agreement.

On May 9, 2023, the Company and Silicon Valley Bank (“SVB”) terminated the Third Amended and Restated Loan and Security Agreement dated June 29, 2018, and as amended May 17, 2021 (the “SVB Credit Facility”), by and between the Company, as borrower, and SVB, as lender.

We borrowed $65.7 million and repaid $65.7 million against the SVB Credit Facility during fiscal 2023.

As of June 30, 2023, we had $2.6 million of collateralized cash on deposit with SVB associated with certain commercial commitments.

Restructuring Payments

We had liabilities for restructuring activities totaling $1.4 million as of July 1, 2022, which was classified as current liability and expected to be paid in cash over the next 12 months.

We had liabilities for restructuring activities totaling $0.6 million as of June 30, 2023, which was classified as current liability and expected to be paid in cash over the next 12 months.

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

Restructuring Activities for further information.

Financial Risk Management

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We conduct business globally in numerous currencies and are therefore exposed to foreign currency risks.

We use derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates.

We use derivative instruments from time to time to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates.

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

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

As of July 1, 2022, we had multiple forward contracts in one foreign currency outstanding as follows:

Notional Contract Amount Notional Contract Amount

Currency (Local Currency) (USD)

(In thousands)

Euro 1,500 $ 1,681

Net foreign exchange (loss) gain recorded in our consolidated statements of operations during fiscal 2022, 2021 and 2020 were $(1.1) million, $(1.0) million, and $0.4 million, respectively.

A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of July 1, 2022 would have no impact as we held no foreign currency derivatives as of July 1, 2022.

We did not have any foreign exchange forward contracts outstanding as of June 30, 2023.

Net foreign exchange losses recorded in our consolidated statements of operations during fiscal 2023 and 2022 were $1.0 million and $1.1 million, respectively.

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

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dollars is included as a component of stockholders’ equity.

As of July 1, 2022 and July 2, 2021, the cumulative translation adjustment decreased our stockholders’ equity by $16.0 million and $14.3 million, respectively.

As of June 30, 2023 and July 1, 2022, the cumulative translation adjustment decreased our stockholders’ equity by $16.0 million and $16.0 million, respectively.

Interest Rate Risk

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Exposure on Cash Equivalents and Short-term Investments

We had $47.8 million in total cash and cash equivalents and marketable securities as of July 1, 2022.

Cash equivalents and short-term investments totaled $9.0 million as of July 1, 2022 and were comprised of money market funds and certificates of deposit.

We had $22.2 million in total cash and cash equivalents as of June 30, 2023.

Cash equivalents and short-term investments totaled $4.4 million as of June 30, 2023 and were comprised of money market funds and certificates of deposit.

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

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Actual gains and losses due to the sale of our investments prior to maturity have been immaterial.

The investments held as of July 1, 2022, had weighted-average days to maturity of 36 days, and an average yield of 6.43% per annum.

The investments held as of June 30, 2023, had weighted-average days to maturity of 43 days, and an average yield of 4.5% per annum.

A 10% change in interest rates on our cash equivalents and short-term investments is not expected to have a material impact on our financial position, results of operations or cash flows.

Exposure on Borrowings

During fiscal 2022, we had no demand borrowings outstanding under our credit facility.

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

During fiscal 2022, our weighted average interest rate would have been 5.25%.

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

Our borrowings under the current Credit Facility bear interest at either:

(a) Adjusted Term SOFR plus the applicable margin;

or (b) the Base Rate plus the applicable margin.

The pricing levels for interest rate margins are determined based on the Consolidated Total Leverage Ratio as determined and adjusted quarterly.

Our borrowings under the now terminated SVB Credit Facility incurred interest at the prime rate plus a spread of 0.50% to 1.50% with such spread determined based on our adjusted quick ratio.

During fiscal 2023, the weighted-average interest rate under our available credit facilities was 7.6%.

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

Critical Accounting Estimates

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

• revenue recognition for estimated costs to complete overtime services;

• revenue recognition for estimated costs to complete over-time services;

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

• income taxes valuation;

• business combinations.

In some cases, the accounting treatment of a particular transaction is specifically dictated by U.S.

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Our significant accounting policies are more fully described in “Note 1.

The Company and Summary of Significant

Accounting Policies” in the notes to consolidated financial statements.

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

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

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Revenue Recognition

Effective June 30, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, using the modified retrospective method applied to those contracts that were not completed as of June 29, 2018.

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

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

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

(1) identification of the contract with a customer;

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Inventory Valuation and Provisions for Excess and Obsolete Losses

Our inventories have been valued at the lower of cost and net realizable value.

Our inventories have been valued at the lower of cost or net realizable value.

Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

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

In the case of goods which have been written down below cost at the close of a fiscal quarter, such

reduced amount is considered the new lower cost basis for subsequent accounting purposes, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

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

We did not make any material changes in the valuation methodology during the past three fiscal years.

Our customer service inventories are stated at the lower of cost and net realizable value.

Our customer service inventories are stated at the lower of cost or net realizable value.

We carry service parts because we generally provide product warranty for 12 to 36 months and earn revenue by providing enhanced and extended warranty and repair service during and beyond this warranty period.

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We record adjustments to reduce the carrying value of customer service inventories to their net realizable value.

Factors influencing these adjustments include product life cycles, end of service life plans and volume of enhanced or extended warranty service contracts.

Factors influencing these adjustments include product life cycles, end of service life plans and volume of enhanced or extended warranty service

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

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

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

One of the major criteria is the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law.

Future realization of deferred tax assets ultimately depends on meeting certain criteria in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC 740”).

One of the major criteria is the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carry-back or carry-forward periods available under the tax law.

We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.

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It is inherently difficult and subjective to estimate our reserves for the uncertain tax positions.

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

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

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

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

Business Combinations

The Company accounts for acquisitions as required by FASB ASC Topic 805, Business Combinations (“ASC 805”).

The assets and liabilities of acquired businesses are recorded at their estimated fair values at the date of acquisition.

The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of estimates and assumptions.

If our assumptions or estimates in the fair value calculation change based on information that becomes available during the one-year period from the acquisition date, we may record adjustments to the net assets acquired with a corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Impact of Recently Issued Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis