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Item 1. Financial Statements

2023-11-01 compared with 2023-05-03 · 374 added, 479 removed, 168 unchanged (84% of the section changed)

1 unchanged sentence

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

(In thousands, except per share amounts) September 29,

2023 September 30,

Product sales $ 59,545 $ 55,101

Services 28,021 26,150

Total revenues 87,566 81,251

Cost of revenues:

Product sales 36,313 35,253

Services 19,401 16,544

Total cost of revenues 55,714 51,797

Gross margin 31,852 29,454

Operating expenses:

Research and development 6,424 6,087

Selling and administrative 19,237 17,504

Restructuring charges 644 1,950

Total operating expenses 26,305 25,541

Operating income 5,547 3,913

Other expense, net 901 2,782

Income before income taxes 4,646 1,131

Provision for income taxes 641 3,877

Net income (loss) $ 4,005 $ ( 2,746 )

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

Basic $ 0.35 $ ( 0.25 )

Diluted $ 0.34 $ ( 0.25 )

Weighted-average shares outstanding:

Basic 11,574 11,200

Diluted 11,943 11,200

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

(In thousands) September 29,

2023 September 30,

Net income (loss) $ 4,005 $ ( 2,746 )

Other comprehensive income (loss):

Net change in cumulative translation adjustments

Other comprehensive income (loss) 33 ( 1,113 )

Comprehensive income (loss) $ 4,038 $ ( 3,859 )

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts) March 31,

(In thousands, except share and par value amounts) September 29,

2023 June 30,

Current Assets:

Cash and cash equivalents $ 35,465 $ 22,242

Marketable securities — 10,893

Accounts receivable, net 88,458 73,168

Accounts receivable, net of allowances of $ 726 and $ 719

94,497 101,653

Unbilled receivables 60,975 58,588

Inventories 30,659 33,057

Customer service inventories 1,857 1,775

Other current assets 22,814 22,164

6 unchanged sentences

Other assets 13,436 13,978

$ 364,662 $ 323,904

Total assets $ 370,299 $ 364,496

LIABILITIES AND EQUITY

Current Liabilities:

Short-term debt $ 6,200 $ —

Accounts payable $ 61,767 $ 60,141

11 unchanged sentences

Commitments and contingencies (Note 13)

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

Common stock, $ 0.01 par value, 300,000,000 shares authorized, 11,436,542 shares issued and outstanding at March 31, 2023;

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

Stockholders’ equity:

Preferred stock, $ 0.01 par value, 50.0 million shares authorized, none issued

Common stock, $ 0.01 par value, 300.0 million shares authorized, 11.7 million shares issued and outstanding at September 29, 2023;

11.5 million shares issued and outstanding at June 30, 2023

Treasury stock ( 6,147 ) ( 6,147 )

2 unchanged sentences

Accumulated other comprehensive loss ( 15,971 ) ( 16,004 )

Total equity 215,354 201,753

TOTAL LIABILITIES AND EQUITY

$ 364,662 $ 323,904

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

(In thousands, except per share amounts) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

Revenue from product sales $ 54,811 $ 52,047 $ 175,473 $ 156,361

Revenue from services 28,669 22,469 79,941 69,177

Total revenues 83,480 74,516 255,414 225,538

Cost of revenues:

Cost of product sales 35,745 31,850 111,567 97,789

Cost of services 17,902 15,130 52,340 45,976

Total cost of revenues 53,647 46,980 163,907 143,765

Gross margin 29,833 27,536 91,507 81,773

Operating expenses:

Research and development expenses 6,518 5,259 18,652 17,338

Selling and administrative expenses 15,842 14,867 49,913 41,304

Restructuring (recovery) charges ( 23 ) ( 72 ) 2,855 ( 373 )

Total operating expenses 22,337 20,054 71,420 58,269

Operating income 7,496 7,482 20,087 23,504

Other (income)/expense, net 428 175 2,750 387

Income before income taxes 7,068 7,307 17,337 23,117

Provision for income taxes 2,179 1,278 9,148 6,490

Net income $ 4,889 $ 6,029 $ 8,189 $ 16,627

Net income per share of common stock outstanding:

Basic $ 0.43 $ 0.54 $ 0.72 $ 1.49

Diluted $ 0.41 $ 0.51 $ 0.69 $ 1.40

Weighted-average shares outstanding:

Basic 11,413 11,173 11,319 11,172

Diluted 11,884 11,761 11,829 11,848

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Nine Months Ended

(In thousands) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

Net income $ 4,889 $ 6,029 $ 8,189 $ 16,627

Other comprehensive income (loss):

Net change in cumulative translation adjustments

370 ( 786 ) 258 ( 1,058 )

Other comprehensive income (loss) 370 ( 786 ) 258 ( 1,058 )

Comprehensive income $ 5,259 $ 5,243 $ 8,447 $ 15,569

Total stockholders’ equity 226,150 220,098

Total liabilities and stockholders’ equity $ 370,299 $ 364,496

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

(In thousands) March 31,

2023 April 1,

Three Months Ended

(In thousands) September 29,

2023 September 30,

Operating Activities

Net income $ 8,189 $ 16,627

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization of property, plant and equipment 4,193 3,444

Amortization of intangible assets acquired 372 —

Provision for/(recovery from) uncollectible receivables 476 ( 56 )

Net income (loss) $ 4,005 $ ( 2,746 )

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

Depreciation of property, plant and equipment 1,168 1,344

Amortization of intangible assets 176 124

Provision for uncollectible receivables 14 182

Share-based compensation 1,834 1,838

Deferred tax assets, net 5,189 5,437

Charges for inventory and customer service inventory write-downs 1,715 1,140

Loss (gain) on disposition of property, plant and equipment, net 34 ( 66 )

Deferred taxes 39 3,338

Charges for inventory write-downs 547 405

Noncash lease expense 177 206

Net loss (gain) on marketable securities 1,730 ( 23 )

Restructuring charges (recoveries) — ( 373 )

Net loss on marketable securities — 1,734

Other non-cash operating activities, net 17 —

Changes in operating assets and liabilities:

2 unchanged sentences

Inventories 1,955 ( 2,727 )

Customer service inventories ( 958 ) ( 1,061 )

Accounts payable 1,787 ( 346 )

1 unchanged sentence

Advance payments and unearned revenue 1,998 ( 2,496 )

Income taxes payable or receivable 1,932 ( 1,400 )

Income taxes 331 91

Other assets and liabilities ( 769 ) ( 3,351 )

Change in lease liabilities ( 528 ) ( 641 )

Net cash used in operating activities ( 9,005 ) ( 10,788 )

Net cash provided by (used in) operating activities 13,980 ( 6,314 )

Investing Activities

1 unchanged sentence

Proceeds from sale of marketable securities — 7,907

Purchase of marketable securities — ( 2,492 )

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

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

3 unchanged sentences

Repayments of borrowings ( 25,200 ) ( 15,000 )

Payments for repurchase of common stock - treasury shares — ( 4,611 )

Payments for taxes related to net settlement of equity awards ( 105 ) ( 670 )

2 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 223 ) ( 347 )

Net decrease in cash, cash equivalents, and restricted cash ( 14,438 ) ( 16,725 )

Net increase (decrease) in cash, cash equivalents, and restricted cash 13,220 ( 15,307 )

Cash, cash equivalents, and restricted cash, beginning of period 22,521 37,104

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended March 31, 2023

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands, except share amounts) Shares $

Balance as of December 30, 2022 11,377,066 $ 114 $ ( 6,147 ) $ 826,812 $ ( 596,142 ) $ ( 16,141 ) $ 208,496

Net income — — — — 4,889 — 4,889

Other comprehensive income, net of tax — — — — — 370 370

Issuance of common stock under employee stock plans 71,281 ( 1 ) — 328 — — 327

Shares withheld for taxes related to vesting of equity awards ( 11,805 ) 1 — ( 367 ) — — ( 366 )

Share-based compensation — — — 1,638 — — 1,638

Balance as of March 31, 2023 11,436,542 $ 114 $ ( 6,147 ) $ 828,411 $ ( 591,253 ) $ ( 15,771 ) $ 215,354

Three Months Ended April 1, 2022

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands, except share amounts) Shares $

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

Net income — — — — 6,029 — 6,029

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

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

Shares withheld for taxes related to vesting of equity awards — — — — — — —

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

Share-based compensation — — — 840 — — 840

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

Nine Months Ended March 31, 2023

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands, except share amounts) Shares $

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

Three Months Ended September 29, 2023

Common Stock Treasury Stock Additional Paid-in Capital

Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands) Shares $

Balance as of June 30, 2023 11,518 $ 115 $ ( 6,147 ) $ 830,048 $ ( 587,914 ) $ ( 16,004 ) $ 220,098

Net income — — — — 4,005 — 4,005

Other comprehensive income, net of tax — — — — — 258 258

Other comprehensive income — — — — — 33 33

Issuance of common stock under employee stock plans 204 2 — 283 — — 285

Shares withheld for taxes related to vesting of equity awards ( 3 ) — — ( 105 ) — — ( 105 )

Stock repurchase — — — — — — —

Share-based compensation — — — 1,834 — — 1,834

Balance as of March 31, 2023 11,436,542 $ 114 $ ( 6,147 ) $ 828,411 $ ( 591,253 ) $ ( 15,771 ) $ 215,354

Nine Months Ended April 1, 2022

Balance as of September 29, 2023 11,719 $ 117 $ ( 6,147 ) $ 832,060 $ ( 583,909 ) $ ( 15,971 ) $ 226,150

Three Months Ended September 30, 2022

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands, except share amounts) Shares $

(In thousands) Shares $

Balance as of July 1, 2022 11,161 $ 112 $ ( 6,147 ) $ 823,259 $ ( 599,442 ) $ ( 16,029 ) $ 201,753

Net income — — — — 16,627 — 16,627

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

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

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

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

Shares withheld for taxes related to vesting of equity awards ( 22 ) ( 1 ) — ( 669 ) — — ( 670 )

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

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

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

Balance as of September 30, 2022 11,313 $ 113 $ ( 6,147 ) $ 824,786 $ ( 602,188 ) $ ( 17,142 ) $ 199,422

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Aviat Networks, Inc.

(“Aviat,” 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.

(“Aviat,” the “Company,” “we,” “us,” and “our”) designs, manufactures, and sells wireless networking and access 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.

Aviat’s 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 and 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.

GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information, and Aviat has made estimates, assumptions and judgments affecting the amounts reported in its 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 and nine months ended March 31, 2023 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.

In the opinion of the Company’s 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 29, 2023 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 Aviat’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

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 March 31, 2023 and the three months ended April 1, 2022 both consisted of 13 weeks.

Certain amounts in the financial statements have been reclassified for comparative purposes to conform to the current period financial statement presentation.

Aviat’s fiscal year includes 52 or 53 weeks and ends on the Friday nearest to June 30.

The three months ended September 29, 2023 and September 30, 2022 both consisted of 13 weeks.

Fiscal year 2024 will be comprised of 52 weeks and will end on June 28 , 2024.

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

Fiscal year 2023 was comprised of 52 weeks and ended on June 30, 2023.

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.

GAAP requires the Company 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 the Company’s management.

The Company evaluates estimates and assumptions on an ongoing basis and may employ outside experts to assist 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.

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

Actual results may differ materially from estimates.

Summary of Significant Accounting Policies

There have been no material changes in our significant accounting policies as of March 31, 2023 and for the nine months ended March 31, 2023, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 1, 2022.

Accounting Standards Adopted

In 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.

There have been no material changes in the Company’s significant accounting policies as of and for the three months ended September 29, 2023, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

Accounting Standards Not Yet Adopted

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”).

The Company determined at this time that all ASUs issued but not yet adopted are either not applicable or are expected to have a minimal impact on its financial position and results of operations.

Net Income (Loss) 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 29,

2023 September 30,

Net income (loss) $ 4,005 $ ( 2,746 )

Weighted-average shares outstanding, basic

11,574 11,200

Effect of potentially dilutive equivalent shares

Weighted-average shares outstanding, diluted

11,943 11,200

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

$ 0.35 $ ( 0.25 )

$ 0.34 $ ( 0.25 )

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

Three Months Ended

(In thousands) September 29,

2023 September 30,

Stock options 259 154

Restricted stock units and performance stock units 58 48

Total shares of common stock excluded 317 202

Revenue Recognition

Contract Balances, Performance Obligations, and Backlog

(In thousands)

September 29, 2023 June 30, 2023

Contract assets

Accounts receivable, net $ 94,497 $ 101,653

Contract assets

$ 60,975 $ 58,588

Capitalized commissions $ 3,070 $ 3,492

Contract liabilities

Advance payments and unearned revenue $ 46,050 $ 44,268

Unearned revenue, long-term $ 7,627 $ 7,416

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, the Company may experience unforeseen events that could result in a change to the scope or price associated with an arrangement.

When such events occur, the transaction price and measurement of progress for the performance obligation are updated and this change is recognized as a cumulative catch-up to revenue.

Because of the nature and type of contracts, the timeframe to completion and satisfaction of current and future performance obligations can shift;

however, this will have no impact on the Company’s future obligation to bill and collect.

As of September 29, 2023, the Company reported $ 53.7 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 40 % is expected to be recognized as revenue in the remainder of fiscal 2024 and the remainder thereafter.

Approximately $ 7.4 million of revenue was recognized during the three months ended September 29, 2023, which was included in advance payments and unearned revenue at June 30, 2023.

Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $ 152.4 million at September 29, 2023.

Of this amount, approximately 50 % is expected to be recognized as revenue during the next 12 months, with the remaining amount to be recognized thereafter.

Three Months Ended

September 29,

2023 September 30, 2022

(In thousands)

Operating lease costs $ 221 $ 312

Short-term lease costs 414 551

Variable lease costs 12 35

Total lease costs

The weighted average lease term and discount rate for the three months ended September 29, 2023 were as follows:

Weighted average remaining lease term 5.7 years

Weighted average discount rate 5.5 %

As of September 29, 2023, future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):

Remainder of fiscal 2024 $ 724

Thereafter 1,235

Total lease payments 3,979

interest ( 820 )

Present value of lease liabilities $ 3,159

Balance Sheet Components

Cash, Cash equivalents, and Restricted cash

The following table provides a summary of the 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) March 31,

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

(In thousands) September 29,

2023 June 30,

Cash and cash equivalents $ 35,465 $ 22,242

1 unchanged sentence

Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows $ 35,741 $ 22,521

Accounts Receivable, net

Our net accounts receivable are summarized below:

(In thousands) March 31,

Accounts receivable $ 89,174 $ 74,102

Allowances for collection losses ( 716 ) ( 934 )

Total accounts receivable, net $ 88,458 $ 73,168

Our inventories are summarized below:

(In thousands) March 31,

(In thousands) September 29,

2023 June 30,

Finished products $ 17,104 $ 18,502

Raw materials and supplies 11,771 12,794

Customer service inventories $ 1,784 $ 1,761

Total inventories

2 unchanged sentences

$ 9,937 $ 11,224

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

The charges during the three and nine months ended March 31, 2023 and April 1, 2022, respectively, consisted of the following which were recorded in cost of product sales:

Three Months Ended Nine Months Ended

(In thousands) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

The Company records charges to adjust inventories due to excess and obsolete inventory resulting from lower sales forecasts, product transitioning or discontinuance.

The charges incurred during the three months ended September 29, 2023 and September 30, 2022 were included in cost of product sales as follows:

Three Months Ended

(In thousands)

September 29,

2023 September 30,

Excess and obsolete inventory $ 294 $ 170

1 unchanged sentence

Total inventory charges $ 547 $ 405

$ 577 $ 482 $ 1,715 $ 1,140

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 our unaudited condensed consolidated 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 March 31, 2023 and July 1, 2022.

Other Current Assets

(In thousands) September 29,

2023 June 30,

Contract manufacturing assets $ 5,782 $ 6,487

Prepaid and other current assets 17,032 15,677

Total other current assets $ 22,814 $ 22,164

Property, Plant and Equipment, net

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

(In thousands) March 31,

(In thousands) September 29,

2023 June 30,

Land $ 210 $ 210

3 unchanged sentences

Total property, plant and equipment, gross 70,185 70,238

Accumulated depreciation and amortization ( 59,748 ) ( 68,071 )

Accumulated depreciation

( 61,150 ) ( 60,786 )

Total property, plant and equipment, net $ 9,035 $ 9,452

Included in the total plant, property and equipment above there were $ 0.8 million of assets in progress which have not been placed in service as of March 31, 2023 and $ 1.2 million as of July 1, 2022.

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

Three Months Ended Nine Months Ended

(In thousands) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

Depreciation and amortization $ 1,428 $ 1,051 $ 4,193 $ 3,444

Included in the total property, plant and equipment, gross were $ 0.6 million and $ 0.4 million of assets in progress which have not been placed in service as of September 29, 2023 and June 30, 2023, respectively.

Depreciation expense related to property, plant and equipment, was as follows:

Three Months Ended

(In thousands) September 29,

2023 September 30,

Depreciation $ 1,168 $ 1,344

Accrued Expenses

Our accrued expenses are summarized below:

(In thousands) March 31,

Accrued compensation and benefits $ 8,119 $ 11,625

Accrued agent commissions 1,119 1,864

Accrued warranties 2,311 2,913

(In thousands) September 29,

2023 June 30,

Compensation and benefits $ 7,256 $ 10,368

Taxes 5,109 4,553

Warranties 2,100 2,100

Commissions 1,339 1,453

Professional fees 944 2,104

Other 3,813 3,864

Total accrued expenses $ 20,561 $ 24,442

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 Nine Months Ended

(In thousands) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

The Company accrues for the estimated cost to repair or replace products under warranty.

Changes in the warranty liability were as follows:

Three Months Ended

(In thousands) September 29,

2023 September 30,

Balance as of the beginning of the period $ 2,100 $ 2,913

Warranty provision recorded during the period 375 175

Assumed in Redline acquisition — — 55 —

Assumed in acquisition — 55

Consumption during the period ( 375 ) ( 388 )

1 unchanged sentence

Advance Payments and Unearned Revenue

Our advance payments and unearned revenue are summarized below:

(In thousands) March 31,

(In thousands) September 29,

2023 June 30,

Advance payments $ 2,049 $ 1,607

1 unchanged sentence

Total advance payments and unearned revenue $ 46,050 $ 44,268

Excluded from the balances above are $ 7.6 million and $ 8.9 million in long-term unearned revenue as of March 31, 2023 and July 1, 2022, respectively.

Excluded from the balances above are $ 7.6 million and $ 7.4 million in long-term unearned revenue as of September 29, 2023 and June 30, 2023, respectively.

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 Company maximizes the use of observable inputs and minimizes the use of unobservable inputs in measuring fair value and established a three-level fair value hierarchy that prioritizes the observable inputs used to measure fair value.

The three levels of inputs used to measure fair value are as follows:

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

The fair values, and valuation input levels of our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and July 1, 2022 were as follows:

March 31, 2023 July 1, 2022 Valuation Inputs

The estimated fair values and valuation input levels of assets and liabilities that are measured at fair value on a recurring basis as of September 29, 2023 and June 30, 2023 were as follows:

September 29, 2023 June 30, 2023 Valuation Inputs

(In thousands) Fair Value Fair Value

Cash and cash equivalents:

Money market funds

$ — $ 5,367 Level 1

Bank certificates of deposit

$ 3,690 $ 3,682 Level 2

Marketable securities $ — $ 10,893 Level 1

We classify items within Level 1 if quoted prices are available in active markets.

Historically our Level 1 items mainly are money market funds.

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

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

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

For the nine months ended March 31, 2023 we recognized a loss of $ 1.7 million associated with the sales of our marketable securities recorded in Other (income)/expense, net.

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 March 31, 2023 and July 1, 2022, we did not have any recurring assets or liabilities that were valued using significant unobservable inputs.

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

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

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

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 nine months ended March 31, 2023.

The following summarizes our lease costs:

Three Months Ended Nine Months Ended

2023 April 1, 2022 March 31,

2023 April 1, 2022

(In thousands)

Operating lease costs $ 270 $ 251 $ 817 $ 813

Short-term lease costs 490 623 1,507 1,823

Variable lease costs 12 64 92 138

Total lease costs

$ 772 $ 938 $ 2,416 $ 2,774

The following summarizes our lease term and discount rate for the nine months ended March 31, 2023:

Weighted average remaining lease term 6.8 years

Weighted average discount rate 5.7 %

As of March 31, 2023, our future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):

(In thousands)

Remainder of 2023

Thereafter 1,385

Total lease payments 3,742

interest ( 766 )

Present value of lease liabilities $ 2,976

Money market funds $ 8,259 $ 571 Level 1

Bank certificates of deposit $ 3,533 $ 3,793 Level 2

Items are classified within Level 1 if quoted prices are available in active markets.

The Company’s Level 1 items are primarily money market funds.

As of September 29, 2023 and June 30, 2023, these money market funds were valued at $ 1.00 net asset value per share.

Items are classified within 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.

The Company’s bank certificates of deposit are classified within Level 2.

The carrying value of bank certificates of deposit approximates their fair value.

As of September 29, 2023 and June 30, 2023, there were no recurring assets or liabilities valued using significant unobservable inputs.

The Company’s 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 2024 and 2023, there were no transfers of assets or liabilities measured at fair value between levels of the fair value hierarchy.

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.

Under Federal Deposit Insurance Corporation (“FDIC”) receivership, SVB became SVB Bridge Bank as of March 13, 2023, but the Credit Facility remained in full force and effect.

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 March 31, 2023, available credit under the SVB Credit Facility was $ 15.8 million , reflecting the available limit of $ 25.0 million less outstanding letters of credit of $ 3.0 million.

We borrowed $ 50.2 million and repaid $ 44.0 million against the SVB Credit Facility during the nine months ended March 31, 2023 at the weighted average interest rate was 6.96 %.

As of March 31, 2023 there was $ 6.2 million of 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 March 31, 2023, we were not in compliance with the affirmative covenant in Section 6.8 of the SVB Credit Facility, as amended, which restricts Aviat from having domestic operating or depository accounts with banks other than SVB.

We opened a non-SVB deposit account with Wells Fargo Bank, N.A.

in the immediate aftermath of the SVB closure by regulatory authorities on March 10, 2023 so that we could continue receiving customer remittances.

We subsequently

requested and received a waiver from the lender for this noncompliance.

We were in compliance with all other aspects of the credit agreement as of March 31, 2023.

At March 31, 2023, the Company held cash and cash equivalents at Silicon Valley Bridge Bank, N.A.

(“SVB Bridge Bank”) in excess of government insured limits.

On March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, and the FDIC was appointed as receiver and Silicon Valley Bank was subsequently transferred into a new entity, SVB Bridge Bank.

On March 12, 2023, the U.S.

Treasury Department, the Federal Reserve and the FDIC jointly announced enabling actions that fully protect all Silicon Valley Bank depositors’ insured and uninsured deposits, and that such depositors would have access to all of their funds starting March 13, 2023.

On March 14, 2023, the Company was able to access its full deposits with SVB Bridge Bank.

Revenue Recognition

Contract Balances, Performance Obligations, and Backlog

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

March 31, 2023 July 1, 2022

Contract Balances

Accounts receivable, net $ 88,458 $ 73,168

Contract Assets $ 63,344 $ 45,857

Capitalized commissions $ 2,231 $ 2,341

Contract Liabilities

Advance payments and unearned revenue $ 40,348 $ 33,740

Unearned revenue, long-term $ 7,628 $ 8,920

Capitalized commissions are classified as current and long term and included in Other current assets and Other assets, respectively.

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 March 31, 2023, we had $ 48.0 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 20 % is expected to be recognized as revenue in the remainder of fiscal 2023 and the balance thereafter.

During the three and nine months ended March 31, 2023 we recognized $ 5.0 million and $ 16.9 million , respectively, 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 $ 111.8 million at March 31, 2023.

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 .

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”).

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

Revenue by region for the three and nine months ended March 31, 2023 and April 1, 2022 was as follows:

Three Months Ended Nine Months Ended

(In thousands) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

North America

$ 46,064 $ 49,042 $ 146,961 $ 151,025

Africa and the Middle East 19,235 13,123 44,354 37,360

Europe 3,871 2,898 13,705 8,509

Latin America and Asia Pacific 14,310 9,453 50,394 28,644

Total revenue

$ 83,480 $ 74,516 $ 255,414 $ 225,538

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

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

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

Motorola Solutions, Inc.

* 12.0 % * 13.0 %

Mobile Telephone Networks Group (MTN Group) 12.0 % 13.0 % * 10.0 %

* Less than 10.0%

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

March 31, 2023 July 1, 2022

Mobile Telephone Networks Group (MTN Group) 16.0 % 17.0 %

In May 2023, the Company entered into a Secured Credit Facility Agreement (the “Credit Facility”) 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 Revolver 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 NEC Transaction (as defined below) with the proceeds intended to be used to settle the cash portion of the consideration and any related expenses.

Acquisitions for further information.

Deferred financing costs of $ 0.8 million were paid in association with entering into the Credit Facility.

As of September 29, 2023, the available credit under the Revolver was $ 38.8 million, reflecting the available limit of $ 40.0 million less outstanding letters of credit of $ 1.2 million.

The available credit under the Term Loan was $ 50.0 million.

The Company borrowed $ 25.2 million and repaid $ 25.2 million against the Revolver during the three months ended September 29, 2023.

There was no borrowing outstanding for either the Revolver or Term Loan as of September 29, 2023.

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.

As of September 29, 2023, the applicable margin on Adjusted Term SOFR and Base Rate borrowings was 2.75 % and 1.75 %, respectively.

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 September 29, 2023, the Company was in compliance with all financial covenants contained in the Credit Facility.

Restructuring

Employee Severance and Benefits

(In thousands) Fiscal 2024 Plans

Prior Years’ Plans

Accrual balance, June 30, 2023 $ — $ 600 $ 600

Charges, net 333 348 681

Cash payments ( 221 ) ( 948 ) ( 1,169 )

Accrual balance, September 29, 2023 112 — 112

As of September 29, 2023, the accrual balance of $ 0.1 million was classified as current and included in restructuring liabilities on the unaudited condensed consolidated balance sheets.

Fiscal 2024 Plans

During fiscal 2024, the Company’s Board of Directors approved restructuring plans, primarily associated with reductions in workforce to optimize skill sets and align cost structure.

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

Prior Years’ Plans

Activities under the prior years’ plans primarily included reductions in workforce across the Company, associated with the acquisition of Redline (as defined below) and certain of the Company’s operations outside the United States.

Payments related to the accrued restructuring balance for these plans are complete.

Stockholders’ 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 March 31, 2023, $ 8.0 million remains available and we may choose to suspend or discontinue the repurchase program at any time.

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

In November 2021 the Company’s Board of Directors approved a stock repurchase program to purchase up to $ 10.0 million of the Company’s common stock.

As of September 29, 2023, $ 7.3 million remains available and Aviat may choose to suspend or discontinue the repurchase program at any time.

During the first quarter of fiscal 2024, the Company did not repurchase any shares of common stock.

Stock Incentive Programs

As of March 31, 2023, we have a stock incentive plan for our employees and non-employee directors, the 2018 Incentive Plan (the “2018 Plan”).

As of September 29, 2023, the Company had one stock incentive plan for its employees and non-employee directors, the 2018 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.

Under the 2018 Plan, option exercise prices are equal to the fair market value of Aviat common stock on the date the options are granted using the closing stock price.

After vesting, options generally may be exercised within seven years after the date of grant.

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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 generally vest on the day before the next 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 nine months ended March 31, 2023, we granted 74,827 restricted stock units, 49,321 market-based stock units and 110,945 stock options to purchase shares of our common stock.

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

Three Months Ended Nine Months Ended

(In thousands) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

Restricted stock units issued annually to non-executive board members 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 and share price criteria, and continued employment through the end of the applicable period.

During the three months ended September 29, 2023, the Company granted 63,889 restricted stock units, 63,889 performance share awards and 145,250 stock options.

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

Three Months Ended

(In thousands) September 29,

2023 September 30,

By Expense Category:

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Total share-based compensation expense $ 1,834 $ 1,838

By Types of Award:

By Type of Award:

Options $ 346 $ 510

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Total share-based compensation expense $ 1,834 $ 1,838

As of March 31, 2023, there was approximately $ 2.0 million of total unrecognized compensation expense related to non-vested stock options granted which is expected to be recognized over a weighted-average period of 1.6 years.

As of March 31, 2023, there was $ 9.2 million of total unrecognized compensation expense related to non-vested stock awards which is expected to be recognized over a weighted-average period of 1.6 years.

Restructuring Activities

The following table summarizes our restructuring-related activities:

Severance and Benefits Total

(In thousands) Q2 2023 Plan 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

Charges, net 928 — — — 928

Cash payments ( 452 ) ( 377 ) — ( 149 ) ( 978 )

Accrual balance, December 30, 2022 476 136 23 837 1,472

Charges, net — — ( 23 ) — ( 23 )

Cash payments ( 75 ) — — ( 490 ) ( 565 )

Accrual balance, March 31, 2023 $ 401 $ 136 $ — $ 347 $ 884

As of March 31, 2023, the accrual balance of $ 0.9 million was in short-term restructuring liabilities on our unaudited condensed consolidated balance sheets.

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

During the second quarter of fiscal 2023, our Board of Directors approved a restructuring plan, (the “Q2 2023 Plan”) which is anticipated to generate cost savings from the elimination of six roles.

The Q2 2023 plan is expected to be implemented through the end of first half of fiscal 2024.

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

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

The Q1 2023 Plan is expected to be implemented through the end of fiscal 2023.

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

The Q4 2022 Plan was completed during third quarter of fiscal 2023 with a reduction in force of approximately 11 employees 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 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 through the end of fiscal 2023, with a certain number of positions being consolidated and/or relocated.

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

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

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

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

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

(In thousands)

Purchase consideration

Net tangible assets acquired

Purchased intangible assets

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

The following table presents details of our intangible assets:

(In thousands except for useful life)

Useful life in Years

Accumulate amortization

Purchased intangible with finite lives:

11 $ 630 $ ( 43 ) $ 587

Customer relationship

15 5,500 ( 275 ) 5,225

As of September 29, 2023, there was approximately $ 3.6 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 2.3 years.

As of September 29, 2023, there was $ 10.7 million of total unrecognized compensation expense related to non-vested stock awards which is expected to be recognized over a weighted-average period of 1.7 years.

Segment and Geographic Information

Aviat operates in one reportable business segment:

the design, manufacturing, and sale of wireless networking products, solutions, and services.

The Company’s financial performance is regularly reviewed by its chief operating decision maker who is its Chief Executive Officer (“CEO”).

The Company reports revenue by region and country based on the location where its customers accept delivery of products and services.

Revenue by region for the three months ended September 29, 2023 and September 30, 2022 was as follows:

Three Months Ended

(In thousands) September 29,

2023 September 30,

North America

$ 55,508 $ 48,848

Total purchased intangible assets with finite lives

Africa and the Middle East 9,953 10,984

Europe 5,252 4,500

Latin America and Asia Pacific 16,853 16,919

Total revenue

$ 87,566 $ 81,251

Amortization of purchased intangible assets for the nine months ended March 31, 2023 was $ 0.4 million included in operating expenses.

There were no impairment charges for the three or nine months ended March 31, 2023.

Pro forma results of operations for this acquisition have not been presented because the effects on revenue and net income were not material to our historic consolidated financial statements.

The estimated future amortization expense of intangible assets with finite lives as of March 31, 2023 is as follows:

(In thousands)

Remainder of 2023 $ 124

Thereafter 4,810

Total $ 6,918

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 nine months ended March 31, 2023 and April 1, 2022 was based on our estimated annual effective tax rate adjusted for losses in certain jurisdictions for which no tax benefit can be recognized.

Our tax expense for the nine months ended March 31, 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 impact.

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

The Company’s effective tax rate varies from the U.S.

federal statutory rate of 21% primarily due to global intangible low-taxed income inclusion (GILTI) in the U.S., state taxes, foreign operations that are subject to income taxes at different statutory rates, and certain jurisdictions where the tax benefit on current losses cannot be recognized.

During interim periods, tax expenses are accrued for jurisdictions that are anticipated to be profitable for fiscal 2024.

The determination of income taxes for the three months ended September 29, 2023 and September 30, 2022 was based on the Company’s estimated annual effective tax rate adjusted for losses in certain jurisdictions for which no tax benefit can be recognized.

Tax expense for the three months ended September 29, 2023 was primarily due to tax expense related to U.S.

and profitable foreign 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.

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

and profitable foreign subsidiaries, including deferred tax expense associated with the acquisition of Redline in July 2022 and the subsequent multi-step restructuring plan in which two Canadian Redline corporations converted to unlimited liability companies and then amalgamated by the end of September 2022.

Aviat has a number of years with open tax audits which vary from jurisdiction to jurisdiction.

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

The earliest years for these jurisdictions are as follows:

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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 nine months ended March 31, 2023 and April 1, 2022.

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 ARPA and the impact they may have on our future business.

Saudi Arabia – 2019 and Tanzania - 2017.

Interest and penalties related to unrecognized tax benefits are accounted for as part of the provision for federal, foreign, and state income taxes.

Such interest expense was not material for the three months ended September 29, 2023 and September 30, 2022.

On March 11, 2021, the US 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.

The Company will continue to examine the elements of the ARPA and the impact it may have on 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, effective for taxable years beginning after December 31, 2022, and a 1% excise tax on stock repurchases by public corporations after December 31, 2022.

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

Net Income Per Share of Common Stock

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

Three Months Ended Nine Months Ended

(In thousands, except per share amounts) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

Net income $ 4,889 $ 6,029 $ 8,189 $ 16,627

Weighted-average shares outstanding, basic

11,413 11,173 11,319 11,172

Effect of potentially dilutive equivalent shares

471 588 510 676

Weighted-average shares outstanding, diluted

11,884 11,761 11,829 11,848

Net income per share of common stock outstanding:

$ 0.43 $ 0.54 $ 0.72 $ 1.49

$ 0.41 $ 0.51 $ 0.69 $ 1.40

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

Three Months Ended Nine Months Ended

(Shares in thousands) March 31,

2023 April 1,

2022 March 31,

2023 April 1,

Stock options 211 121 189 112

Restricted stock units and performance stock units

Total shares of common stock excluded

236 174 209 157

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

NEC’s Wireless Transport Business

On May 9, 2023, the Company entered into a Master Sale of Business Agreement (the “Purchase Agreement”), with NEC Corporation (“NEC”).

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

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.

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

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

Redline Communications Group Inc.

In the first quarter of fiscal 2023, the Company acquired all of the issued and outstanding shares of Redline Communications Group Inc.

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

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

Acquisitions to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 for the final purchase price allocation, valuation methodology, and other information related to the completion of the Redline acquisition.

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.

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

As of March 31, 2023, we had outstanding purchase obligations with our suppliers or contract manufacturers of $ 47.6 million.

In addition, we had contractual obligations of approximately $ 3.9 million associated with software licenses as of March 31, 2023.

From time to time in the normal course of business, the Company may enter into purchasing agreements with its suppliers that require the Company to accept delivery of, and remit full payment for, finished products that it has ordered, finished products that it requested be held as safety stock, and work in process started on its behalf, in the event it cancels or terminates 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 the Company has no present intention to cancel or terminate any of these agreements, the Company currently does not believe that it has any future liability under these agreements.

As of September 29, 2023, the Company had outstanding purchase obligations with its suppliers or contract manufacturers of $ 34.1 million.

In addition, the Company had contractual obligations of approximately $ 5.7 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.

Guarantees issued by banks, insurance companies, or other financial institutions are contingent commitments issued to guarantee performance under borrowing arrangements, such as bank overdraft facilities, tax and customs obligations, and similar transactions, or to ensure 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 March 31, 2023, 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 March 31, 2023, we had commercial commitments of $ 62.8 million outstanding that were not recorded on our unaudited condensed consolidated balance sheets.

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

The following table presents details of our commercial commitments:

(In thousands) March 31,

As of September 29, 2023, the Company had no guarantees applicable to its debt arrangements.

The Company has 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 29, 2023, the Company had commercial commitments outstanding of $ 60.5 million, that were not recorded on the unaudited condensed consolidated balance sheets.

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

The following table presents details of the Company’s commercial commitments:

(In thousands)

September 29,

Letters of credit $ 2,588

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 March 31, 2023, 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 March 31, 2023, we had not recorded any liabilities related to these indemnifications.

Under the terms of substantially all of the Company’s license agreements, it has agreed to defend and pay any final judgment against its customers arising from claims against such customers that the Company’s products infringe the intellectual property rights of a third party.

As of September 29, 2023, the Company has not received any notice that any customer is subject to an infringement claim arising from the use of its products;

the Company has not received any request to defend any customers from infringement claims arising from the use of its products;

and the Company has not paid any final judgment on behalf of any customer related to an infringement claim arising from the use of its 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, the Company cannot estimate the maximum amount of potential future payments, if any, related to its indemnification provisions.

As of September 29, 2023, the Company 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.

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.

The Company is subject from time to time to disputes with customers concerning its products and services.

From time to time, the Company may be involved in various other legal claims and litigation that arise in the normal course of its operations.

The Company is aggressively defending all current litigation matters.

Although there can be no assurances and the outcome of these matters is currently not determinable, the Company currently believes that none of these claims or proceedings are likely to have a material adverse effect on its financial position.

There are many uncertainties associated with any litigation and these actions or other third-party claims against the Company may cause it to incur costly litigation and/or

substantial settlement charges.

As a result, the Company’s 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 the Company’s estimates, if any.

The Company records accruals for its 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.

The Company evaluates, 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.

The Company has not recorded any significant 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;

The Company records 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 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.

Disclosure in the notes to the financial statements is required for loss contingencies that do not meet both 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.

The Company expenses 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 Aviat’s 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.

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

No settlement offers were discussed at the meeting and the matter is still ongoing with no subsequent hearing date currently scheduled as of March 31, 2023.

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.

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

No settlement offers were discussed at the meeting and the matter is still ongoing with no subsequent hearing date currently scheduled as of September 29, 2023.

The Company has accrued an immaterial amount representing the estimated probable loss for which it would settle the matter.

The Company currently cannot form an estimate of the range of loss in excess of its amounts already accrued.

If the outcome of this matter is greater than the current immaterial amount accrued, the Company intends to dispute it vigorously.

Periodically, the Company reviews 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, the estimated loss is reflected in our results 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.

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 the consolidated financial statements.

As additional information becomes available, the Company will reassess the potential liability related to its pending claims and litigation and may revise estimates accordingly.

Such revisions in the estimates of the potential liabilities could have a material impact on the Company’s results of operations and financial position.

Goodwill and Intangible Assets

The following presents details of goodwill and intangible assets (in thousands except useful life):

September 29, 2023 June 30, 2023

Goodwill $ 5,112 $ 5,112

The Company performs its annual goodwill impairment test on the first day of its fourth fiscal quarter.

No indicators of impairment were identified during the current period that required the Company to perform an interim assessment or recoverability test.

Useful life in Years September 29, 2023 June 30, 2023

Intangible assets:

Patents 10 $ 690 $ 690

Customer relationships 14 7,730 7,730

Trade names 16 1,330 1,330

Total gross intangible assets $ 9,750 $ 9,750

Accumulated amortization ( 880 ) ( 704 )

Total net intangible assets $ 8,870 $ 9,046

Amortization of finite-lived intangibles is included in selling and administrative expenses.

There were no impairment charges recorded for the three months ended September 29, 2023 and September 30, 2022.

As of September 29, 2023, the estimated future amortization expense of finite-lived intangible assets is as follows (in thousands):

Remainder of 2024 $ 528

Thereafter 5,526

Total $ 8,870

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

What changed 10-Q

Item 1. Financial Statements