What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-01 compared with 2023-05-03 · 101 added, 171 removed, 56 unchanged (83% of the section changed)

21 unchanged sentences

Forward-looking statements may be identified by the use of forward-looking terminology, such as “anticipates,” “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “strategy,” “projects,” “targets,” “goals,” “seeing,” “delivering,” “continues,” “forecasts,” “future,” “predict,” “might,” “could,” “potential,” or the negative of these terms, and similar words or expressions.

These forward-looking statements are based on estimates reflecting the current beliefs of the senior management of the Company.

These forward-looking statements are based on estimates reflecting the current beliefs of the senior management of Aviat Networks, Inc.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.

Forward-looking statements should therefore be considered in light of various important factors, including those set forth in this Quarterly Report on Form 10-Q.

Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to, the following:

• the impact of COVID-19 on our business, operations and cash flows;

• disruptions relating to the ongoing conflict between Russia and Ukraine;

• continued price and margin erosion as a result of increased competition in the microwave transmission industry;

• our ability to realize the anticipated benefits of any proposed or recent acquisitions within the anticipated timeframe or at all, including the risk that proposed or recent acquisitions will not be integrated successfully;

• the impact of the volume, timing, and customer, product, and geographic mix of our product orders;

• our ability to meet financial covenant requirements which could impact, among other things, our liquidity;

• the timing of our receipt of payment for products or services from our customers;

• our ability to meet projected new product development dates or anticipated cost reductions of new products;

• our suppliers’ inability to perform and deliver on time as a result of their financial condition, component shortages, the effects of COVID-19 or other supply chain constraints;

• customer acceptance of new products;

• the ability of our subcontractors to timely perform;

• weakness in the global economy affecting customer spending;

• retention of our key personnel;

• our ability to manage and maintain key customer relationships;

• uncertain economic conditions in the telecommunications sector combined with operator and supplier consolidation;

• our failure to protect our intellectual property rights or defend against intellectual property infringement claims by others;

• the results of our restructuring efforts;

• the ability to preserve and use our net operating loss carryforwards;

• the effects of currency and interest rate risks;

• the effects of current and future government regulations, including the effects of current restrictions on various commercial and economic activities in response to the COVID-19 pandemic;

• general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States and other countries where we conduct business;

• the conduct of unethical business practices in developing countries;

• the impact of political turmoil in countries where we have significant business;

• the impact of tariffs, the adoption of trade restrictions affecting our products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships;

• our ability to implement our stock repurchase program or that it will enhance long-term stockholder value;

• the impact of adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions.

Other factors besides those listed here could also adversely affect us.

See “Item 1A.

Risk Factors” in our fiscal 2022 Annual Report on Form 10-K filed with the SEC on September 14, 2022 for more information regarding factors that may cause our results to differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Risk Factors” in the Company’s fiscal 2023 Annual Report on Form 10-K filed with the SEC on August 30, 2023 for more information regarding factors that may cause its results to differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q.

You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of the filing of this Quarterly Report on Form 10-Q.

2 unchanged sentences

Operating Environment and Key Factors Impacting Fiscal 2024 and 2023 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 unaudited condensed consolidated financial statements and the accompanying notes.

In the discussion herein, our fiscal year ending June 30, 2023 is referred to as “fiscal 2023” or “2023” and our fiscal year ended July 1, 2022 is referred to as “fiscal 2022” or “2022.”

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

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

In the discussion herein, the fiscal year ending June 28 , 2024 is referred to as “fiscal 2024” or “2024” and the fiscal year ended June 30, 2023 is referred to as “fiscal 2023” or “2023.”

Aviat is a global supplier of microwave networking and access networking solutions, backed by an extensive suite of professional services and support.

Aviat sells 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.

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

Our technology is underpinned by more than 200 patents.

We compete on the basis of total cost of ownership, microwave radio expertise and solutions for mission critical communications.

We have a global presence.

While supply chain lead-times remain extended and difficult to manage 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 for the current quarter 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 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 worldwide.

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 until business and economic activities return to more normal levels.

Business Combination with Redline Communications

On July 5, 2022, Aviat acquired Redline Communications, Inc.

(“Redline”), a leading provider of mission-critical data infrastructure.

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 the large Private LTE/5G market and increasing Aviat’s reach in mission-critical industrial Private Networks.

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

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

Additionally, Aviat utilizes a contract manufacturer based in Asia for much of its international equipment demand.

Aviat’s technology is underpinned by more than 500 patents.

Aviat competes on the basis of total cost of ownership, microwave radio expertise and solutions for mission critical communications.

Aviat has a global presence.

NEC’s Wireless Transport Business

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

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.

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, for a purchase price of $ 20.4 million.

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

Operations Review

The market for mobile backhaul continued to be our primary addressable market segment globally in the first nine months of fiscal 2023.

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 some large LTE deployments, 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.

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.

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 above and in the “Risk Factors” section in Item 1A of our Annual Report on Form 10-K filed with the SEC on September 14, 2022, 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.

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

The market for mobile backhaul continued to be the Company’s primary addressable market segment globally in the first three months of fiscal 2024.

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

In international markets, the Company’s 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.

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

Aviat’s strength in turnkey and after-sale support services is a differentiating factor that wins business for the Company and enables it to expand its business with existing customers.

Additionally, Aviat operates an e-commerce platform that provides low-cost services, simple experience, and fast delivery to mobile operators and private network customers.

However, as disclosed above and in the “Risk Factors” section in Item 1A of its Annual Report on Form 10-K filed with the SEC on August 30, 2023, a number of factors could prevent the Company from achieving its objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that it serves.

The Company manages its 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 the three and nine months ended March 31, 2023 and April 1, 2022 and the related changes were as follows:

Three Months Ended Nine Months Ended

(In thousands, except percentages) March 31, 2023 April 1, 2022 $ Change % Change March 31, 2023 April 1, 2022 $ Change % Change

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

Three Months Ended

(In thousands, except percentages) September 29, 2023 September 30, 2022 $ Change % Change

North America $ 55,508 $ 48,848 $ 6,660 13.6 %

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Latin America and Asia Pacific 16,853 16,919 (66) (0.4) %

14,310 9,453 4,857 51.4 % 50,394 28,644 21,750 75.9 %

Total revenue $ 87,566 $ 81,251 $ 6,315 7.8 %

$ 83,480 $ 74,516 $ 8,964 12.0 % $ 255,414 $ 225,538 $ 29,876 13.2 %

Our revenue in North America decreased by $(3.0) million, or (6.1)%, during the third quarter of fiscal 2023 compared with the same period of fiscal 2022.

Revenue in North America decreased by $(4.1) million, or (2.7)%, during the nine months ended fiscal 2023 compared with the same period of fiscal 2022.

The decrease in North America revenue during the three and nine months ended fiscal 2023 were primarily driven by lower tier one product volumes and lower private network volumes partially offset by higher service volume.

Our revenue in Africa and the Middle East increased by $6.1 million or 46.6% during the third quarter of fiscal 2023 compared with the same period of fiscal 2022.

Revenue in Africa and the Middle East increased by $7.0 million, or 18.7%, during the nine months of fiscal 2023 compared with the same period of fiscal 2022.

This increase in revenue during the three and nine months ended fiscal 2023 was primarily driven by increased product sales to mobile and private network operators in the region.

Revenue in Europe increased by $1.0 million, or 33.6%, for the third quarter of fiscal 2023 compared with the same period of fiscal 2022.

Revenue in Europe increased by $5.2 million, or 61.1%, during the nine months of fiscal 2023 compared with the same period of fiscal 2022.

This increase during the three and nine months ended fiscal 2023 was primarily driven by increased sales to mobile operators.

Revenue in Latin America and Asia Pacific increased by $4.9 million, or 51.4%, during the third quarter of fiscal 2023 compared with the same period of fiscal 2022, and increased by $21.8 million, or 75.9%, during the first nine months ended fiscal 2023 compared with the same period of fiscal 2022.

This increase during the three and nine months ended fiscal 2023 was primarily driven by a key customer win in Asia Pacific and increased product sales to mobile operators in Latin America.

Three Months Ended Nine Months Ended

(In thousands, except percentages) March 31, 2023 April 1, 2022 $ Change % Change March 31, 2023 April 1, 2022 $ Change % Change

Revenue in North America increased by $6.7 million during the first quarter of fiscal 2024 compared with the same period of fiscal 2023, primarily due to strong private network and tier 1 demand.

Revenue in Africa and the Middle East decreased by $(1.0) million during the first quarter of fiscal 2024 compared with the same period of fiscal 2023, primarily due to cyclical softness in the capital expenditure plans of large mobile operators in the region.

Revenue in Europe increased by $0.8 million for the first quarter of fiscal 2024 compared with the same period of fiscal 2023, primarily due to increased sales to mobile operators in the region.

Revenue in Latin America and Asia Pacific decreased by $0.1 million during the first quarter of fiscal 2024 compared with the same period of fiscal 2023, primarily due to timing of projects with mobile operators.

Three Months Ended

(In thousands, except percentages) September 29, 2023 September 30, 2022 $ Change % Change

Product sales $ 59,545 $ 55,101 $ 4,444 8.1 %

1 unchanged sentence

Total revenue $ 87,566 $ 81,251 $ 6,315 7.8 %

$ 83,480 $ 74,516 $ 8,964 12.0 % $ 255,414 $ 225,538 $ 29,876 13.2 %

Our revenue from product sales increased by $2.8 million, or 5.3%, for the third quarter of fiscal 2023 compared with the same quarter of fiscal 2022.

Our services revenue increased by $6.2 million, or 27.6%, during the third quarter of fiscal 2023 compared with the same quarter of fiscal 2022.

Our revenue from product sales increased by $19.1 million, or 12.2%, for the nine months ended fiscal 2023 compared with the same period of fiscal 2022.

Our services revenue increased by $10.8 million, or 15.6%, during the nine months ended fiscal 2023 compared with the same period of fiscal 2022.

Three Months Ended Nine Months Ended

(In thousands, except percentages) March 31, 2023 April 1, 2022 $ Change % Change March 31, 2023 April 1, 2022 $ Change % Change

Revenue from product sales and services increased by 8.1% and 7.2%, respectively for the first quarter of fiscal 2024 compared with the same quarter of fiscal 2023.

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

Three Months Ended

(In thousands, except percentages) September 29, 2023 September 30, 2022 $ Change % Change

Revenue $ 87,566 $ 81,251 $ 6,315 7.8 %

1 unchanged sentence

Gross margin $ 31,852 $ 29,454 $ 2,398 8.1 %

35.7 % 37.0 % 35.8 % 36.3 %

% of revenue 36.4 % 36.3 %

Product margin % 39.0 % 36.0 %

34.8 % 38.8 % 36.4 % 37.5 %

Service margin % 30.8 % 36.7 %

37.6 % 32.7 % 34.5 % 33.5 %

Gross margin for the third quarter of fiscal 2023 increased by $2.3 million, or 8.3% compared with the same quarter of fiscal 2022.

Gross margin for the first nine months of fiscal 2023, increased by $9.7 million, or 11.9%.

The gross margin improvement was 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 product revenue decreased in the third quarter and in the first nine months of fiscal 2023 compared with the prior year periods primarily due to regional and customer mix partially offset by the accretive contribution of the Redline acquisition.

Service margin as a percentage of service revenue in the third quarter and in the first nine months of fiscal 2023, increased compared to the same periods in fiscal 2022 due to changes in the stand-alone prices for products and services and the resulting impact on the allocation of the overall transaction price to services.

Research and Development Expenses

Three Months Ended Nine Months Ended

(In thousands, except percentages) March 31, 2023 April 1, 2022 $ Change % Change March 31, 2023 April 1, 2022 $ Change % Change

Gross margin for the first quarter of fiscal 2024 increased by $2.4 million compared with the same quarter of fiscal 2023, primarily due to a higher proportion of sales to North American customers where the Company’s margins are historically strongest.

Research and Development

7.8 % 7.1 % 7.3 % 7.7 %

Our research and development expenses in the third quarter and first nine months of fiscal 2023 increased compared with the same periods of fiscal 2022.

The increase was primarily attributable to Redline’s research and development program partially offset by the strength of the US Dollar yielded savings compared to the prior year.

Selling and Administrative Expenses

Three Months Ended Nine Months Ended

(In thousands, except percentages) March 31, 2023 April 1, 2022 $ Change % Change March 31, 2023 April 1, 2022 $ Change % Change

Three Months Ended

(In thousands, except percentages) September 29, 2023 September 30, 2022 $ Change % Change

Research and development $ 6,424 $ 6,087 $ 337 5.5 %

% of revenue 7.3 % 7.5 %

Research and development expenses increased by $0.3 million in the first quarter of fiscal 2024 compared with the same period of fiscal 2023, primarily due to increased product development activities.

Selling and Administrative

19.0 % 20.0 % 19.5 % 18.3 %

The $1.0 million selling and administrative expense increase in the third quarter of fiscal 2023 was driven by the Redline acquisition and variable compensation expenses.

The $8.6 million selling and administrative expense increase for the first nine months of fiscal 2023 was also driven by the Redline acquisition and variable compensation, as well as merger and acquisition related expenses.

Three Months Ended

(In thousands, except percentages) September 29, 2023 September 30, 2022 $ Change % Change

Selling and administrative $ 19,237 $ 17,504 $ 1,733 9.9 %

% of revenue 22.0 % 21.5 %

Selling and administrative expenses increased by $1.7 million in the first quarter of fiscal 2024 compared with the same period in fiscal 2023, primarily due to variable compensation and merger and acquisition related expenses.

Restructuring

Three Months Ended

(In thousands, except percentages) September 29, 2023 September 30, 2022 $ Change % Change

Restructuring charges $ 644 $ 1,950 $ (1,306) (67.0) %

Three Months Ended Nine Months Ended

(In thousands, except percentages) March 31, 2023 April 1, 2022 $ Change % Change March 31, 2023 April 1, 2022 $ Change % Change

Restructuring (recovery) charges $ (23) $ (72) $ 49 * $ 2,855 $ (373) $ 3,228 *

• Percentage not meaningful

In the third quarter of fiscal 2023, we completed the Q4 2022 Plan.

For the nine months ended fiscal 2023 we recorded restructuring charges related to the Q1 2023 Plan and Q2 2023 Plan partially offset by the completion of the Q4 2022 Plan.

Other Expense/Income, net

Three Months Ended Nine Months Ended

(In thousands, except percentages) March 31, 2023 April 1, 2022 $ Change % Change March 31, 2023 April 1, 2022 $ Change % Change

Other (income)/expense, net $ 428 $ 175 $ 253 * $ 2,750 $ 387 $ 2,363 *

• Percentage not meaningful

Our other (income)/expense, net increased by $0.3 million and $2.4 million, in the three and nine months ended fiscal 2023, respectively, compared with the same periods of fiscal 2022 primarily due to loss on sale of Marketable securities and the movement in foreign exchange rates.

Three Months Ended Nine Months Ended

(In thousands, except percentages) March 31, 2023 April 1, 2022 $ Change % Change March 31, 2023 April 1, 2022 $ Change % Change

In the first quarter of fiscal 2024, restructuring charges were $0.6 million, a decrease of $(1.3) million compared to the same period in fiscal 2023.

The prior year includes non-recurring restructuring charges primarily associated with the Redline acquisition completed in the first quarter of fiscal 2023.

The Company’s successfully executed restructuring initiatives have enabled it to restructure specific groups to optimize skill sets and align its organizational structure to execute on strategic deliverables, in addition to aligning cost structure with the core of the business.

Other Expense, net

Three Months Ended

(In thousands, except percentages) September 29, 2023 September 30, 2022 $ Change % Change

Other expense, net $ 901 $ 2,782 $ (1,881) (67.6) %

Other expense, net decreased by $(1.9) million in the first quarter of fiscal 2024, compared with the same period of fiscal 2023, primarily due to non-recurring losses of $1.7 million recognized on the sale of marketable securities included in the prior year.

Three Months Ended

(In thousands, except percentages) September 29, 2023 September 30, 2022 $ Change % Change

Income before income taxes $ 4,646 $ 1,131 $ 3,515 310.8 %

Provision for income taxes $ 641 $ 3,877 $ (3,236) (83.5) %

We estimate our annual effective tax rate at the end of each quarterly period, and we record the tax effect of certain discrete items in the interim period in which they occur, including changes in judgment about uncertain tax positions and deferred tax valuation allowances.

The tax expense for the third quarter of fiscal 2023 was primarily due to the tax expense related to U.S.

and profitable foreign subsidiaries.

The tax expense for the first nine months of fiscal 2023 was primarily due to the 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 Company estimates its annual effective tax rate at the end of each quarterly period, and records the tax effect of certain discrete items in the interim period in which they occur, including changes in judgment about uncertain tax positions and deferred tax valuation allowances.

Tax expense for the first quarter of fiscal 2024 was primarily attributable to tax expense for the U.S.

entity and profitable foreign subsidiaries.

Tax expense for the first quarter of fiscal 2023 was primarily attributable to tax expense for the U.S.

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

Liquidity, Capital Resources, and Financial Strategies

Sources of Cash

As of March 31, 2023, our total cash and cash equivalents were $22.5 million.

Approximately $4.6 million, or 20.5%, was held in the United States.

The remaining balance of $17.9 million, or 79.5%, was held by entities outside the United States.

Of the amount of cash and cash equivalents held by our foreign subsidiaries on March 31, 2023, $16.6 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

As of September 29, 2023, the Company’s total cash and cash equivalents were $35.5 million.

Approximately $19.0 million was held in the United States.

The remaining balance of $16.5 million was held by entities outside the United States.

Of the amount of cash and cash equivalents held by the Company’s foreign subsidiaries on September 29, 2023, $15.6 million was held in jurisdictions where its undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Operating Activities

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

Net cash used in operating activities was $9.0 million for the first nine months of fiscal 2023, compared to $10.8 million cash used in operations for the first nine months of fiscal 2022;

this difference was primarily related to a net change in Other Assets and Liabilities, Accrued Expenses, Inventories, Advance Payments and Unearned Revenue, partially offset by the net change in Accounts Receivable.

Net cash provided by noncash items was $19.4 million for the first nine months of 2023.

The net changes in operating assets and liabilities resulted in a net use of cash of $36.6 million for the first nine months of fiscal 2023, compared to net use of cash of $40.0 million for the same period in fiscal 2022.

Changes in operating assets and liabilities resulted in a net use of cash for the first nine months of fiscal 2023 primarily related to Accounts Receivable that fluctuate from period to period, depending on the amount and timing of sales, billing activities and cash collections;

and an increase in Accounts Payable, by the timing of payments.

The use of cash from assets and liabilities was partially offset by customer Unbilled Receivables and Advance Payments and Unearned Revenue;

Accrued Expenses, Inventories and Other Assets and Liabilities.

Operating cash flows is presented as net income adjusted for certain non-cash items and changes in operating assets and liabilities.

Net cash provided by (used in) operating activities was $14.0 million for the first three months of fiscal 2024, compared with $(6.3) million in the prior year.

The $20.3 million increase is primarily attributable to improvements in working capital and increased net income prior to non-cash adjustments compared to the prior year.

Investing Activities

Net cash used in investing activities was $11.7 million and $1.2 million for the first nine months of fiscal 2023 and 2022, respectively, which consisted of the Redline acquisition and capital expenditures offset by proceeds from the sale of marketable securities.

Net cash used in investing activities was $0.7 million for the first three months of fiscal 2024, compared to $8.3 million in the prior year.

The $7.6 million decrease is primarily due to non-recurring activity included in the prior year associated with the Redline acquisition partially offset by proceeds received on the sale of marketable securities.

Financing Activities

Financing cash flows consist primarily of borrowings 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 provided by financing activities was $6.2 million for the first nine months of fiscal 2023, primarily from cash proceeds from Short-term Debt and the issuance of common stock under employee stock plans of $1.1 million partially offset by payments for taxes related to settlement of equity awards of $1.1 million.

Net cash used in financing activities was $4.0 million for the first nine months of fiscal 2022, primarily due to the repurchase of common stock of $(4.6) million partially offset by cash proceeds from the issuance of common stock under employee stock plans of $0.9.

As of March 31, 2023, our principal sources of liquidity consisted of $22.5 million in cash and cash equivalents;

$15.8 million of available credit under our $25.0 million SVB Credit Facility, which matures on June 28, 2024, 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 in order 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.

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

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

4 to Third Amended and Restated Loan and Security Agreement 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.

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.

Full access to our SVB Bridge Bank deposits and credit facility were restored by March 14, 2023.

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.

As of March 31, 2023 there was $6.2 million of borrowing outstanding.

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, we had commercial commitments of $62.8 million outstanding that were not recorded on our unaudited condensed consolidated balance sheets.

Restructuring Payments

We had liabilities for restructuring activities totaling $0.9 million as of March 31, 2023, which were classified as current liabilities and expected to be paid out in cash over the next 12 months.

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

Financing cash flows consist primarily of borrowings and repayments under the Company’s Credit Facility and proceeds from the exercise of employee stock options.

Net cash provided by (used in) financing activities was $0.2 million for the first three months of fiscal 2024, compared with $(0.3) million in the prior year.

The $0.5 million change is primarily due to less payments for taxes related to the net settlement of equity awards, partially offset by lower proceeds on the exercise of employee stock options.

As of September 29, 2023, the Company’s principal sources of liquidity consisted of $35.5 million in cash and cash equivalents, $38.8 million of available credit under its Credit Facility, and future collections of receivables from customers.

The Company regularly requires letters of credit from certain customers, and, from time to time, these letters of credit are discounted without recourse shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce its credit and sovereign risk.

Historically, the Company’s primary sources of liquidity have been cash flows from operations and credit facilities.

Additionally, the Company has an effective shelf registration statement on Form S-3 allowing it 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.

The Company believes that its existing cash and cash equivalents, the available borrowings under its Credit Facility, the availability under its effective shelf registration statement and future cash collections from customers will be sufficient to provide for its anticipated requirements and plans for cash for at least the next 12 months.

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

The Company borrowed and repaid $25.2 million against the Credit Facility during the first three months of fiscal 2024.

As of September 29, 2023, the Company had no borrowings outstanding and was in compliance with all financial covenants contained in the Credit Facility.

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.

Critical Accounting Estimates

For information about our critical accounting estimates, see the “Critical Accounting Estimates” section of “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2022 Annual Report on Form 10-K.

For information about the Company’s critical accounting estimates, see the “Critical Accounting Estimates” section of “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its fiscal 2023 Annual Report on Form 10-K.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis