What changed in this filing

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Item 1. Financial Statements

2024-02-06 compared with 2023-11-01 · 279 added, 134 removed, 408 unchanged (50% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

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

2023 September 30,

Three Months Ended Six Months Ended

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

2023 December 30,

2022 December 29,

2023 December 30,

Product sales $ 66,392 $ 65,561 $ 125,937 $ 120,662

12 unchanged sentences

Operating income 4,994 8,678 10,541 12,591

Other expense, net 901 2,782

Other (income) expense, net ( 243 ) ( 460 ) 658 2,322

Income before income taxes 5,237 9,138 9,883 10,269

Provision for income taxes 2,347 3,092 2,988 6,969

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

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

Net income $ 2,890 $ 6,046 $ 6,895 $ 3,300

Net income per share of common stock outstanding:

Basic $ 0.24 $ 0.53 $ 0.59 $ 0.29

5 unchanged sentences

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 )

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Six Months Ended

(In thousands) December 29,

2023 December 30,

2022 December 29,

2023 December 30,

Net income $ 2,890 $ 6,046 $ 6,895 $ 3,300

Other comprehensive income (loss):

Net change in cumulative translation adjustments

545 1,001 578 ( 112 )

Other comprehensive income (loss) 545 1,001 578 ( 112 )

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

Comprehensive income $ 3,435 $ 7,047 $ 7,473 $ 3,188

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

2023 June 30,

21 unchanged sentences

Restructuring liabilities 1,532 600

Other current liabilities

Current portion of long-term debt

Total current liabilities 183,714 130,061

Long-term debt

Unearned revenue 8,039 7,416

7 unchanged sentences

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;

Common stock, $ 0.01 par value, 300.0 million shares authorized, 12.5 million shares issued and outstanding at December 29, 2023;

11.5 million shares issued and outstanding at June 30, 2023

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

(In thousands) September 29,

2023 September 30,

Six Months Ended

(In thousands) December 29,

2023 December 30,

Operating Activities

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

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

Net income $ 6,895 $ 3,300

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

Depreciation of property, plant and equipment 2,073 2,765

20 unchanged sentences

Proceeds from sale of marketable securities — 9,151

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

Acquisition, net of cash acquired ( 32,162 ) ( 15,769 )

Net cash used in investing activities ( 33,531 ) ( 7,290 )

Financing Activities

Proceeds from borrowings 25,200 15,000

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

Proceeds from revolver 33,200 24,000

Repayments of revolver ( 33,200 ) ( 24,000 )

Proceeds from term loan 50,000 —

Payments of deferred financing costs ( 79 ) —

Payments for repurchase of common stock - treasury shares ( 332 ) —

Payments for taxes related to net settlement of equity awards ( 123 ) ( 689 )

Proceeds from issuance of common stock under employee stock plans 830 747

Net cash provided by (used in) financing activities 180 ( 310 )

Net cash provided by financing activities 50,296 58

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 3 ) 41

2 unchanged sentences

Cash, cash equivalents, and restricted cash, end of period $ 46,192 $ 21,554

Supplemental disclosures of cash flow information

Non-cash investing and financing activities:

Common stock issued in connection with acquisition $ 22,331 $ —

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended September 29, 2023

Three Months Ended December 29, 2023

Common Stock Treasury Stock Additional Paid-in Capital

1 unchanged sentence

(In thousands) Shares $

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

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

Net income — — — — 2,890 — 2,890

2 unchanged sentences

Shares withheld for taxes related to vesting of equity awards ( 1 ) — — ( 18 ) — — ( 18 )

Stock repurchase ( 11 ) — ( 332 ) — — — ( 332 )

Share-based compensation — — — 1,825 — — 1,825

Common stock issued in connection with acquisition 737 7 — 22,324 — — 22,331

Balance as of December 29, 2023 12,521 $ 125 $ ( 6,479 ) $ 856,735 $ ( 581,019 ) $ ( 15,426 ) $ 253,936

Three Months Ended December 30, 2022

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands) Shares $

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

Three Months Ended September 30, 2022

Net income — — — — 6,046 — 6,046

Other comprehensive income — — — — — 1,001 1,001

Issuance of common stock under employee stock plans 65 1 — 386 — — 387

Shares withheld for taxes related to vesting of equity awards — — — ( 19 ) — — ( 19 )

Share-based compensation — — — 1,659 — — 1,659

Balance as of December 30, 2022 11,378 $ 114 $ ( 6,147 ) $ 826,812 $ ( 596,142 ) $ ( 16,141 ) $ 208,496

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Six Months Ended December 29, 2023

Common Stock Treasury Stock Additional

1 unchanged sentence

(In thousands) Shares $

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

Net income — — — — 6,895 — 6,895

Other comprehensive income — — — — — 578 578

Issuance of common stock under employee stock plans 281 3 — 827 — — 830

Shares withheld for taxes related to vesting of equity awards ( 4 ) — — ( 123 ) — — ( 123 )

Stock repurchase ( 11 ) — ( 332 ) — — — ( 332 )

Share-based compensation — — — 3,659 — — 3,659

Common stock issued in connection with acquisition 737 7 — 22,324 — — 22,331

Balance as of December 29, 2023 12,521 $ 125 $ ( 6,479 ) $ 856,735 $ ( 581,019 ) $ ( 15,426 ) $ 253,936

Six Months Ended December 30, 2022

Common Stock Treasury Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity

(In thousands) Shares $

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

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

Net income — — — — 3,300 — 3,300

Other comprehensive loss — — — — — ( 112 ) ( 112 )

2 unchanged sentences

Share-based compensation — — — 3,497 — — 3,497

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

Balance as of December 30, 2022 11,378 $ 114 $ ( 6,147 ) $ 826,812 $ ( 596,142 ) $ ( 16,141 ) $ 208,496

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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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 results for the six months ended December 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.

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

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

Fiscal year 2024 contains 52 weeks and will end on June 28, 2024.

Fiscal year 2023 contained 52 weeks and ended on June 30, 2023.

Use of Estimates

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Summary of Significant Accounting Policies

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.

There have been no material changes in the Company’s significant accounting policies as of and for the six months ended December 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

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The ASU expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly presented to the chief operating decision maker.

The disclosures required under ASU 2023-07 are also required for public entities with a single reportable segment.

ASU 2023-07 is effective for the Company’s annual reporting beginning in fiscal 2025 and for interim periods beginning in fiscal 2026.

The Company is currently evaluating the impact of the ASU on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The ASU enhances the transparency and usefulness of income tax information through improvements to disclosures primarily related to the rate reconciliation and income taxes paid information.

ASU 2023-09 is effective for the Company’s annual reporting beginning in fiscal 2026.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements

The Company considers the applicability and impact of all ASUs issued by the FASB.

The Company determined at this time that all other 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 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 )

Three Months Ended Six Months Ended

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

2023 December 30,

2022 December 29,

2023 December 30,

Net income $ 2,890 $ 6,046 $ 6,895 $ 3,300

Weighted-average shares outstanding, basic

1 unchanged sentence

Effect of potentially dilutive equivalent shares

228 458 305 522

Weighted-average shares outstanding, diluted

12,229 11,805 12,093 11,795

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

Net income per share of common stock outstanding:

$ 0.24 $ 0.53 $ 0.59 $ 0.29

$ 0.24 $ 0.51 $ 0.57 $ 0.28

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,

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 Six Months Ended

(In thousands) December 29,

2023 December 30,

2022 December 29,

2023 December 30,

Stock options 348 220 304 190

4 unchanged sentences

(In thousands)

September 29, 2023 June 30, 2023

December 29, 2023 June 30, 2023

Contract assets

11 unchanged sentences

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.

As of December 29, 2023, the Company reported $ 63.0 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 30 % is expected to be recognized as revenue in the remainder of fiscal 2024 and the remainder thereafter.

Approximately $ 8.7 million and $ 16.1 million, respectively, of revenue was recognized during the three and six months ended December 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.

The aggregate amount of transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $ 152.6 million at December 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

The unsatisfied (or partially unsatisfied) performance obligations excludes the impact of the NEC Transaction (as defined below).

The Company is in the process of reviewing the acquired contracts.

However, due to the timing of the transaction, there was insufficient time to finalize the analysis for incorporation into this disclosure.

Three Months Ended Six Months Ended

2023 December 30, 2022 December 29,

2023 December 30, 2022

(In thousands)

3 unchanged sentences

Total lease costs

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

$ 1,016 $ 976 $ 1,978 $ 2,126

The weighted average lease term and discount rate as of December 29, 2023 were as follows:

Weighted average remaining lease term 6.3 years

Weighted average discount rate 5.4 %

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):

As of December 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 $ 558

6 unchanged sentences

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,

(In thousands) December 29,

2023 June 30,

2 unchanged sentences

Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows $ 46,192 $ 22,521

(In thousands) September 29,

(In thousands) December 29,

2023 June 30,

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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

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

Three Months Ended Six Months Ended

(In thousands)

September 29,

2023 September 30,

2023 December 30,

2022 December 29,

2023 December 30,

Excess and obsolete inventory $ 392 $ 411 $ 686 $ 581

2 unchanged sentences

Other Current Assets

(In thousands) September 29,

(In thousands) December 29,

2023 June 30,

Contract manufacturing assets $ 4,250 $ 6,487

Taxes 9,302 2,417

Prepaid and other current assets 13,616 13,260

1 unchanged sentence

Property, Plant and Equipment, net

(In thousands) September 29,

(In thousands) December 29,

2023 June 30,

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Total property, plant and equipment, net $ 9,441 $ 9,452

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.

Included in the total property, plant and equipment, gross were $ 0.7 million and $ 0.4 million of assets in progress which have not been placed in service as of December 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,

Three Months Ended Six Months Ended

(In thousands) December 29,

2023 December 30,

2022 December 29,

2023 December 30,

Depreciation $ 905 $ 1,421 $ 2,073 $ 2,765

Accrued Expenses

(In thousands) September 29,

(In thousands) December 29,

2023 June 30,

1 unchanged sentence

Taxes 6,808 4,616

Project costs 5,016 1,319

Professional fees 4,600 2,104

Warranties 2,746 2,100

Commissions 1,344 1,453

Professional fees 944 2,104

Other 4,486 2,482

2 unchanged sentences

Changes in the warranty liability were as follows:

Three Months Ended

(In thousands) September 29,

2023 September 30,

Three Months Ended Six Months Ended

(In thousands) December 29,

2023 December 30,

2022 December 29,

2023 December 30,

Balance as of the beginning of the period $ 2,100 $ 2,755 $ 2,100 $ 2,913

4 unchanged sentences

Advance Payments and Unearned Revenue

(In thousands) September 29,

(In thousands) December 29,

2023 June 30,

2 unchanged sentences

Total advance payments and unearned revenue $ 54,984 $ 44,268

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.

Excluded from the balances above are $ 8.0 million and $ 7.4 million in long-term unearned revenue as of December 29, 2023 and June 30, 2023, respectively.

Fair Value Measurements of Assets and Liabilities

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

The 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

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

December 29, 2023 June 30, 2023 Valuation Inputs

(In thousands) Fair Value Fair Value

4 unchanged sentences

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.

As of December 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.

1 unchanged sentence

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.

As of December 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.

During the first six 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

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 Company entered into a Secured Credit Facility Agreement (the “Credit Facility”), dated May 9, 2023, amended as of November 22, 2023, 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.

The $ 40.0 million Revolver can be borrowed with a $ 10.0 million sub-limit for letters of credit, and a $ 10.0 million swingline loan sub-limit.

In November 2023, the Company borrowed $ 50.0 million against the Term Loan to primarily settle the cash portion of the consideration associated with the NEC Transaction (as defined below).

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.

As of December 29, 2023, the available credit under the Revolver was $ 37.7 million, reflecting the available limit of $ 40.0 million less outstanding letters of credit of $ 2.3 million.

The Company borrowed $ 33.2 million and repaid $ 33.2 million against the Revolver during the six months ended December 29, 2023.

As of December 29, 2023, the Company had $ 50.0 million outstanding under its Term Loan and no borrowings under its Revolver.

The following summarizes the Company’s outstanding long-term debt as of December 29, 2023:

(In thousands)

Term loan $ 50,000

unamortized deferred financing costs ( 454 )

Total debt, net 49,546

current portion of long-term debt, net ( 2,395 )

Total long-term debt, net $ 47,151

Outstanding borrowings under the Credit Facility bear interest at either:

2 unchanged sentences

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.

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

The effective rate of interest on the outstanding Term Loan borrowings as of December 29, 2023 was 8.2 %.

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.

1 unchanged sentence

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.

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

As of December 29, 2023, scheduled maturities of outstanding long-term debt are as follows:

(In thousands)

Remainder of 2024 $ 1,250

Total $ 50,000

Restructuring

6 unchanged sentences

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.

Charges, net 2,000 — 2,000

Cash payments ( 580 ) — ( 580 )

Accrual balance, December 29, 2023 $ 1,532 $ — $ 1,532

As of December 29, 2023, the accrual balance of $ 1.5 million was classified as current.

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.

During fiscal 2024, the Company’s Board of Directors approved restructuring plans, primarily associated with the NEC Transaction (as defined below) and reductions in workforce in certain of the Company’s operations to optimize skill sets and align cost structure.

The fiscal 2024 plans are expected to be completed through the end of calendar 2024.

Prior Years’ Plans

4 unchanged sentences

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.

As of December 29, 2023, $ 6.9 million remains available and Aviat may choose to suspend or discontinue the repurchase program at any time.

Repurchased shares are recorded as treasury stock.

During the second quarter of fiscal 2024, the Company repurchased 11,208 shares of its common stock in the open market for an aggregate purchase price, including commissions, of $ 0.3 million.

Stock Incentive Programs

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”).

As of December 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.

5 unchanged sentences

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.

During the six months ended December 29, 2023, the Company granted 98,816 restricted stock units, 64,643 performance share awards and 151,094 stock options.

The Company recognizes compensation cost for share-based payment awards on a straight-line basis over the requisite service period.

For awards with a performance condition vesting feature, share-based compensation costs are recognized when achievement of the performance conditions is considered probable.

Forfeitures are recognized as they occur.

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,

Three Months Ended Six Months Ended

(In thousands) December 29,

2023 December 30,

2022 December 29,

2023 December 30,

By Expense Category:

5 unchanged sentences

Options $ 419 $ 306 $ 765 $ 816

Restricted and performance stock awards and units 1,488 1,328

Restricted stock and performance share awards and units

1,406 1,353 2,894 2,681

Total share-based compensation expense $ 1,825 $ 1,659 $ 3,659 $ 3,497

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.

As of December 29, 2023, there was approximately $ 3.1 million of total unrecognized compensation expense related to non-vested stock options granted which is expected to be recognized over a weighted-average period of 2.1 years.

As of December 29, 2023, there was $ 9.8 million of total unrecognized compensation expense related to non-vested stock awards which is expected to be recognized over a weighted-average period of 1.5 years.

Segment and Geographic Information

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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,

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

Three Months Ended Six Months Ended

(In thousands) December 29,

2023 December 30,

2022 December 29,

2023 December 30,

North America

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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.

federal statutory rate of 21% primarily due to global intangible low-taxed income inclusion (GILTI) in the U.S., state taxes and certain jurisdictions where the tax benefit on prior year losses were not 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.

The determination of income taxes for the six months ended December 29, 2023 and December 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 six months ended December 29, 2023 was primarily due to tax expense related to U.S.

and profitable foreign subsidiaries.

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

Tax expense for the six months ended December 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.

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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.

Such interest expense was not material for the six months ended December 29, 2023 and December 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.

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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.

On May 9, 2023, the Company entered into a Master Sale of Business Agreement (as amended on November 30, 2023, the “Purchase Agreement”) with NEC Corporation (“NEC”), to acquire NEC’s wireless transport business (the “NEC Transaction”).

The Company completed the NEC Transaction on November 30, 2023 (the “Closing Date”).

Prior to the Closing Date, NEC was a leader in wireless backhaul networks with an extensive installed base of their Pasolink series products.

The completion of the NEC Transaction increases the scale of Aviat, enhances the Company’s product portfolio with a greater capability to innovate, and creates a more diversified business.

The results of operations of the NEC Transaction have been included in the consolidated financial statements since the Closing Date.

The fair value of the consideration transferred at the closing of the NEC Transaction was comprised of (i) cash of $ 32.2 million, and (ii) the issuance of 736,750 shares or $ 22.3 million of common stock of the Company.

The fair value of the shares issued was determined based on the closing market price of the Company’s common stock on the Closing Date.

Aggregate consideration transferred at closing was approximately $ 54.5 million, which is subject to certain post-closing adjustments.

The Company estimates additional cash consideration of approximately $ 22.9 million will be transferred to NEC in the fourth quarter of fiscal 2024, primarily related to settlement of the post-closing working capital adjustment.

As of December 29, 2023, the accrual balance related to the estimated additional consideration was included in other current liabilities on the unaudited condensed consolidated balance sheets.

The Company funded the cash portion of the consideration with Term Loan borrowings under its Credit Facility.

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.

The NEC Transaction was accounted for as a business combination using the acquisition method of accounting.

The Company is in the process of identifying the amounts assigned to certain assets, including the acquired intangible assets and goodwill for the acquisition.

The Company is in the process of obtaining an independent third-party valuation of certain intangible and tangible assets acquired.

The fair values of the acquired intangible assets are based on estimates and assumptions that are considered reasonable by the Company.

As of the acquisition date, the Company has recorded the assets acquired and the liabilities assumed at their respective estimated fair values.

The recognized goodwill is attributable to the workforce of the acquired business and expected synergies.

The goodwill from this acquisition is expected to be fully deductible for tax purposes.

Transaction costs related to the acquisition were expensed as incurred and are included in selling and administrative expenses in the consolidated statements of operations.

For the three and six months ended December 29, 2023, the Company incurred transaction costs of $ 3.7 million and $ 6.4 million, respectively.

A summary of the preliminary purchase price allocation is as follows:

(In thousands)

Accounts receivable, net $ 51,892

Inventories 35,572

Property, plant and equipment, net 547

Identifiable finite-lived intangible assets:

Customer relationships 4,100

Technology 3,000

Other assets 237

Accounts payable ( 12,388 )

Advance payments and unearned revenue ( 3,419 )

Other liabilities ( 2,661 )

Net assets acquired $ 77,421

The preliminary purchase price allocation is subject to adjustment based on the Company obtaining final independent third-party valuations, determining fair value and allocations of purchase price to the identifiable assets acquired and liabilities assumed, and determining the final consideration, including adjustments related to settlement of the final post-closing working capital adjustment.

The amounts recorded as of November 30, 2023 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.

Therefore, the provisional measurements of fair value and the preliminary purchase price allocation are not final and subject to change.

The following unaudited consolidated pro forma information has been presented as if the NEC Transaction occurred on July 2, 2022 and is based on historical operating results and certain pro forma adjustments for additional interest, depreciation and amortization expense, net of income tax.

Three Months Ended Six Months Ended

2023 December 30, 2022 December 29,

2023 December 30, 2022

$ 131,156 $ 138,061 $ 267,515 $ 269,264

Net income (loss)

8,644 3,018 15,091 ( 5,813 )

The unaudited pro forma information presented above is for informational purposes only and is not necessarily indicative of the operating results that would have occurred if the NEC Transaction occurred at the beginning of fiscal 2023, nor is it necessarily indicative of future operating results.

Redline Communications Group Inc.

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Because these agreements do not specify fixed or minimum quantities, do not specify minimum or variable price provisions, and do not specify the approximate timing of the transaction, and 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.

As of December 29, 2023, the Company had outstanding purchase obligations with its suppliers or contract manufacturers of $ 36.7 million.

In addition, the Company had contractual obligations of approximately $ 5.2 million associated with software licenses.

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

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

As of December 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.

As of December 29, 2023, the Company had commercial commitments outstanding of $ 57.3 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.

1 unchanged sentence

(In thousands)

September 29,

Letters of credit $ 3,454

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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;

As of December 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;

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Because the outcome of infringement disputes is related to the specific facts of each case and given the lack of previous or current indemnification claims, 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.

As of December 29, 2023, the Company had not recorded any liabilities related to these indemnifications.

Legal Proceedings

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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.

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.

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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.

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

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

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Goodwill and Intangible Assets

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

September 29, 2023 June 30, 2023

The following presents details of goodwill and intangible assets:

(In thousands)

December 29, 2023 June 30, 2023

Goodwill $ 5,653 $ 5,112

The Company recognized goodwill of $ 0.5 million associated with the NEC Transaction in the second quarter of fiscal 2024, based on the preliminary estimated fair value of the assets acquired and liabilities assumed.

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

(In thousands except useful life)

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

Intangible assets:

Technology 5 $ 3,000 $ —

Patents 10 690 690

4 unchanged sentences

Total net intangible assets $ 15,735 $ 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):

Amortization of finite-lived intangibles for the three and six months ended December 29, 2023 was $ 0.2 million and $ 0.4 million, respectively, and is included in selling and administrative expenses.

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

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

Remainder of 2024 $ 882

1 unchanged sentence

Total $ 15,735

Related Party Transactions

NEC Corporation

On the November 30, 2023, the Company completed the NEC Transaction.

A portion of the total consideration in the NEC Transaction included the issuance of 736,750 shares in Company common stock to NEC.

On the Closing Date, the

Company and NEC entered into a Registration Rights and Lock-Up Agreement, restricting NEC’s ability to transfer shares (the “Lock-Up”), except for certain limited exceptions as provided in the Registration Rights and Lock-Up Agreement, until one day after the one-year anniversary of the Closing Date (the “Initial Lock-Up Expiration Date”).

Starting one day after the Initial Lock-Up Expiration Date, one-twelfth of the issued shares shall be released from the Lock-Up each month, such that all issued shares shall be released from Lock-Up by the two-year anniversary of the Closing Date.

Pursuant to the Purchase Agreement, NEC will have the right to nominate a director to the Company’s Board of Directors from the Closing Date and for a period of two years thereafter.

As of December 29, 2023, NEC holds approximately 5.9 % of the Company’s outstanding common stock.

In connection with the closing of the NEC Transaction and as of the Closing Date, the Company and NEC entered into agreements covering the performance of certain post-closing services and licensing arrangements.

The agreements include arrangements covering manufacturing services and product supply, transition services, distribution services, research and development services, and licensing of trademark and intellectual property (“IP”).

The Manufacturing and Supply Agreement includes arrangements for NEC to manufacture and supply Pasolink products on behalf of and to the Company and its customers.

The transition services agreements include arrangements for the Company and NEC to provide and receive certain transition services, primarily associated with administrative functions.

The distribution services agreements includes arrangements where NEC will provide distribution services on behalf of and to the Company and its customers in certain international markets and territories.

The Research and Development Cooperating Agreement for Existing Products includes arrangements for NEC to provide the Company certain services relating to development work to maintain existing products of the NEC business.

The licensing agreements include arrangements where the Company will grant NEC a non-exclusive license to certain Pasolink trademarks in Japan, and NEC will grant the Company a non-exclusive, worldwide (excluding Japan) license to certain NEC IP, including mobile backhaul-related patents.

The licensing agreements are royalty-free and perpetual.

For the three and six months ended December 29, 2023, the Company incurred expenses of $ 1.1 million for transition services and $ 1.1 million for research and development services, which is included in accrued expenses on the unaudited condensed consolidated balance sheets.

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