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Item 7. Management’s Discussion and Analysis

2024-10-04 compared with 2023-08-30 · 154 added, 143 removed, 152 unchanged (66% of the section changed)

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

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

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

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

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

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

Aviat Networks, Inc.

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

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

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

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

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

Our technology is underpinned by more than 500 patents.

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

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

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

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

We expect the potential for these challenges to continue.

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

We will monitor, assess and adapt to the situation and prepare for implications to our business, supply chain and customer demand.

We expect these challenges to continue.

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand Aviat Networks, Inc.’s (“Aviat”, the “Company”, “we”, “us”, or “our”) results of operations and financial condition during the two-year period ended June 28, 2024.

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

In the discussion herein, the fiscal years ended June 28, 2024, June 30, 2023, and July 1, 2022 are referred to as “fiscal 2024”, “fiscal 2023” and “fiscal 2022”, respectively.

Aviat’s fiscal year ends on the Friday nearest to June 30.

For a comparison of the results of operations for fiscal 2023 and 2022, refer to Aviat’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the SEC on August 30, 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.

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 300 patents.

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

NEC’s Wireless Transport Business

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

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

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

Aggregate consideration will be approximately $70.0 million.

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

Credit Facility and Debt for further information.

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

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

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

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

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.

Prior to the acquisition 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.

Refer to Note 12.

Acquisitions of the Notes to the consolidated financial statements in this Annual Report on Form 10-K (the “Notes”) for further information.

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 Company common stock.

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 $19.9 million will be transferred to NEC in the first half of fiscal 2025, primarily related to settlement of the post-closing working capital adjustment.

The Company funded the cash portion of the NEC Transaction with Term Loan borrowings under its Credit Facility (as defined below).

Refer to Note 7.

Credit Facility and Debt of the Notes for further information.

Redline Communications Group Inc.

On July 5, 2022, we acquired 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.

The acquisition of Redline allows Aviat to expand its Private Networks Offering with Private LTE/5G and Unlicensed Wireless Access Solutions, by creating an integrated end-to-end offering for wireless access and transport in the Private Networks segment, leveraging Aviat's sales

channel to address a large dollar Private LTE/5G addressable market and increasing Aviat’s reach in mission-critical industrial Private Networks.

Acquisitions of the Notes for further information.

Operations Review

The market for mobile backhaul continued to be our primary addressable market segment globally in 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 and the ongoing build-out of some large LTE and 5G deployments.

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

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

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

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

The market for mobile backhaul continued to be the Company’s primary addressable market segment globally in 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 on-line platform, Aviat Store, that provides low-cost services, a simple experience, and fast delivery to mobile operators and private network customers.

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

Revisions to Prior Period Consolidated Financial Statements

Subsequent to the issuance of the consolidated financial statements and related disclosures for the fiscal year ended June 30, 2023, the Company identified certain errors in its previously issued consolidated financial statements.

The Company evaluated the materiality of the errors and determined that the impacts were not material, individually or in the aggregate, to the Company’s previously issued consolidated financial statements for any of the prior reporting periods in which they occurred.

The Company has revised the prior period financial statements for fiscal 2024 and fiscal 2023 to correct the errors.

The revisions ensure comparability across all periods presented herein.

Refer to Note 16.

Revisions to Prior Period Consolidated Financial Statements of the Notes for further information.

Fiscal 2024 Compared to Fiscal 2023

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

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.

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Total Revenue $ 408,083 $ 344,433 $ 63,650 18.5 %

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

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

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

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

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

The Company achieved revenue growth of 18.5% in fiscal 2024 primarily driven by contributions from the NEC Transaction and increased private network and mobile 5G operator demand.

Contributions from the NEC Transaction totaled $54.9 million for the period from December 2023 to June 2024.

Key revenue growth areas include 44% growth in software sales, 359% growth in Access LTE/5G, 36% growth in Managed Services and an increase in sales through the Aviat Store of 21%.

Revenue in North America increased by $5.4 million in fiscal 2024 primarily due to private network and mobile 5G operator demand.

Services revenue in North America remained flat year-over-year as significant projects ended in fiscal 2024.

Revenue in Africa and the Middle East decreased by $(10.8) million in fiscal 2024 primarily due to cyclical softness in the capital expenditure plans of large mobile operators in the region and currency impacts from locally provided services.

The Middle East as a sub-region increased by $3.3 million primarily due to contributions from the NEC Transaction of $2.5 million.

Revenue in Europe increased by $5.8 million in fiscal 2024 primarily due to increased sales to mobile operators in the region.

The NEC Transaction contributed $5.6 million in sales in Europe.

Revenue in Latin America and Asia Pacific increased by $63.2 million in fiscal 2024 primarily due to contributions from the NEC Transaction totaling $44.6 million and higher volumes of projects with mobile operators, including organic volume growth of $17.6 million in Asia Pacific compared to the prior year.

(In thousands, except percentages) 2024 2023 $ Change % Change

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$ 408,083 $ 344,433 $ 63,650 18.5 %

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

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

Revenue from product sales and services increased by 14.9% and 26.5%, respectively in fiscal 2024 primarily due to the same overall factors of revenue growth discussed previously.

(In thousands, except percentages) 2024 2023 $ Change % Change

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Service margin % 31.6 % 32.5 %

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

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

Gross margin for fiscal 2024 increased by $22.4 million compared with fiscal 2023 primarily due to the revenue growth described previously.

Gross margin as a percentage of revenue was flat compared to the prior year as a result of the expected near term dilution effect of the NEC Transaction, offsetting margin expansion in the core Aviat business compared to the prior year driven by favorable customer mix and higher software sales compared to fiscal 2023.

Research and Development Expenses

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% of revenue 8.9 % 7.2 %

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

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

Research and development expenses increased by $11.5 million in fiscal 2024 primarily due to increased product development activities and additional costs resulting from the NEC Transaction.

The NEC Transaction contributed $7.2 million of the increase compared to the prior year.

Selling and Administrative Expenses

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% of revenue 20.8 % 20.3 %

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

Selling and administrative expenses increased by $15.2 million in fiscal 2024 primarily due to merger and acquisition expenses and additional costs resulting from the NEC Transaction.

Restructuring Charges

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% of revenue 0.9 % 0.9 %

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

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

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

Other (Expense) Income, Net

During fiscal 2024 restructuring charges were $3.9 million, an increase of $0.9 million compared to fiscal 2023, primarily related to restructuring activities associated with the NEC Transaction and reductions in workforce in certain of the Company’s operations.

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 success in restructuring initiatives has 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 business.

Interest Expense, Net

(In thousands, except percentages) 2024 2023 $ Change % Change

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

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

Interest expense, net $ 2,337 $ 532 $ 1,805 339.3 %

Interest expense, net increased by $1.8 million in fiscal 2024 primarily due to interest expense incurred on the Term Loan borrowings used to fund the NEC Transaction in the second quarter of fiscal 2024.

Other Expense, Net

(In thousands, except percentages) 2024 2023 $ Change % Change

Other expense, net $ 158 $ 2,774 $ (2,616) (94.3) %

Other expense, net decreased by $(2.6) million in fiscal 2024 primarily due to non-recurring losses of $1.7 million recognized on the sale of marketable securities included in the prior year.

(In thousands, except percentages) 2024 2023 $ Change % Change

Income before income taxes

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36.4 % 52.3 %

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

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

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

Acquisitions.

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

and profitable foreign subsidiaries.

The Company estimates its annual effective tax rate at the end of each reporting 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 was $6.1 million in fiscal 2024 and $11.1 million in fiscal 2023.

Tax expense in fiscal 2024 was primarily attributable to tax expense for the U.S.

entity and profitable foreign subsidiaries, partially offset by a Canada valuation allowance release.

Tax expense in fiscal 2023 was primarily attributable to tax expense related to U.S.

and profitable foreign subsidiaries, including deferred tax expense associated with the acquisition of Redline (as defined above) in July 2022 and the subsequent restructuring and integration impact.

Fiscal 2023 Compared to Fiscal 2022

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

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

For a comparison of the results of operations for fiscal 2023 and 2022, refer to “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Aviat’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the SEC on August 30, 2023.

Liquidity, Capital Resources and Financial Strategies

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

Sources of Cash

As of June 28, 2024, the Company’s total cash and cash equivalents were $64.6 million.

Approximately $34.0 million, or 53% was held in the United States.

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

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

The remaining balance of $30.6 million, or 47% was held outside the United States.

Of the amount of cash and cash equivalents held by the Company’s foreign subsidiaries on June 28, 2024, $30.2 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 used in or provided by operating activities is presented as net income adjusted for certain non-cash items and changes in operating assets and liabilities.

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

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

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

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

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 $30.5 million for fiscal 2024, compared with $(1.6) million in the prior year.

The $32.2 million increase is primarily attributable to increased net income prior to non-cash adjustments and improvements in the net changes in operating assets and liabilities compared to the prior year.

Net changes in operating assets and liabilities resulted in $(2.5) million of cash used in operating activities for fiscal 2024, compared to $(38.8) million in fiscal 2023.

The $36.3 million decrease compared to the prior year is primarily attributable to decreases in inventory on higher sales volume, increases in accounts payable and accrued expenses due to the timing of payments, and non-recurring increases in contract manufacturing and other prepaid assets included in the prior year comparison period.

These improvements were partially offset by net increases in accounts receivable and unbilled costs as a result of the timing of sales, billing activities and cash collections in the current year.

Investing Activities

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

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

Net cash used in investing activities was $35.2 million for fiscal 2024, compared to $11.9 million in the prior year.

The $23.3 million increase is primarily due to payments of the cash consideration associated with the NEC Transaction of $32.2 million, partially offset by non-recurring activity included in the prior year related to proceeds received on the sale of marketable securities of $9.2 million.

Financing Activities

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

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

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

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

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

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

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

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

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

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 $48.7 million for fiscal 2024, compared with $(0.7) million in the prior year.

The $49.4 million increase is primarily due to the $50.0 million of Term Loan borrowings primarily used to settle the cash portion of the consideration associated with the NEC Transaction.

As of June 28, 2024, the Company’s sources of liquidity consisted of $64.6 million in cash and cash equivalents, $35.1 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.

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.

Available Credit Facility, Borrowings and Repayment of Debt

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

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

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

Acquisitions for further information.

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

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

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

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.

Refer to Note 7.

Credit Facility and Debt of the Notes for further information.

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.

Refer to Note 12.

Acquisitions of the Notes for further information.

As of June 28, 2024, the available credit under the Revolver was $35.1 million, reflecting the available limit of $40.0 million less outstanding letters of credit of $4.9 million.

The Company borrowed and repaid $33.2 million against the Revolver in fiscal 2024.

As of June 28, 2024, the Company had $48.8 million outstanding under its Term Loan and no borrowings under its Revolver.

Outstanding borrowings under the Credit Facility bear interest at either:

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

As of June 28, 2024, the applicable margin on Adjusted Term SOFR and Base Rate borrowings was 2.5% and 1.5%, respectively.

The effective rate of interest on the outstanding Term Loan borrowings as of June 28, 2024 was 7.9%.

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.

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The Credit Facility contains customary affirmative and negative covenants, including, among others, covenants limiting the ability of the Company and its subsidiaries to dispose of assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments, and enter into transactions with affiliates, in each case subject to customary exceptions.

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

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

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

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

As of June 28, 2024, the Company was in compliance with all financial covenants contained in the Credit Facility.

Restructuring Payments

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

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

Restructuring Activities for further information.

The Company had liabilities for restructuring activities totaling $1.7 million as of June 28, 2024, which was classified as current and are expected to be paid in cash within the next 12 months.

The Company expects to fund the future payments with available cash and cash provided by operations.

Refer to Note 8.

Restructuring Activities of the Notes for further information.

Financial Risk Management

In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.

We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks.

In the normal course of doing business, the Company is exposed to the risks associated with foreign currency exchange rates and changes in interest rates.

The Company employs established policies and procedures governing the use of financial instruments to manage its exposure to such risks.

Exchange Rate Risk

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

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

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

We also enter into foreign exchange forward contracts to mitigate the change in fair value of specific non-functional currency assets and liabilities on the consolidated balance sheets.

The Company conducts business globally in numerous currencies and is therefore exposed to foreign currency risks.

From time to time, the Company uses derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates.

The Company does not hold or issue derivatives for trading purposes or make speculative investments in foreign currencies.

The Company enters into foreign exchange forward contracts to mitigate the change in fair value of specific non-functional currency assets and liabilities on the balance sheet.

All balance sheet hedges are marked to market through earnings every period.

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

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

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

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

dollar currency.

As discussed above, we utilize foreign currency hedging instruments to minimize the currency risk of international transactions.

The impact of translating the assets and liabilities of foreign operations to U.S.

dollars is included as a component of stockholders’ equity.

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

The Company did not have any foreign exchange forward contracts outstanding as of June 28, 2024 or June 30, 2023.

Net foreign exchange (gains) losses recorded in the consolidated statements of operations during fiscal 2024, 2023 and 2022 were $(0.3) million, $1.0 million and $1.1 million, respectively.

Certain of the Company’s international business are transacted in non-U.S.

dollar (“USD”) currencies.

From time to time, the Company utilizes foreign currency hedging instruments to minimize the currency risk of non-USD transactions.

The impact of translating the assets and liabilities of foreign operations to USD is included as a component of stockholders’ equity.

As of June 28, 2024 and June 30, 2023, the cumulative translation adjustment decreased stockholders’ equity by $19.3 million and $16.0 million, respectively.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents, short-term investments and borrowings under our credit facility.

Exposure on Cash Equivalents and Short-term Investments

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

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

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

We do not use derivative financial instruments in our short-term investment portfolio.

We invest in high-credit quality issues and, by policy, limit the amount of credit exposure to any one issuer and country.

The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity.

The portfolio is also diversified by maturity to ensure that funds are readily available as needed to meet our liquidity needs.

This policy reduces the potential need to sell securities to meet liquidity needs and therefore the potential effect of changing market rates on the value of securities sold.

The primary objective of our short-term investment activities is to preserve principal while maximizing yields, without significantly increasing risk.

Our cash equivalents and short-term investments earn interest at fixed rates;

The Company’s exposure to market risk for changes in interest rates relates primarily to its cash equivalents and borrowings under its Credit Facility.

Exposure on Cash Equivalents

The Company had $64.6 million in total cash and cash equivalents as of June 28, 2024.

Cash equivalents totaled $10.3 million as of June 28, 2024 and were comprised of money market funds and bank certificates of deposit.

Cash equivalents have been recorded at fair value.

Fair value is measured using inputs that fall into a three-level hierarchy that prioritizes the inputs used to measure fair value based on observability of such inputs.

Refer to Note 6.

Fair Value Measurements of Assets and Liabilities of the Notes for further information.

The Company’s cash equivalents earn interest at fixed rates;

therefore, changes in interest rates will not generate a gain or loss on these investments unless they are sold prior to maturity.

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

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

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

The weighted-average days to maturity for cash equivalents held as of June 28, 2024 was approximately 30 days, and these investments had an average yield of approximately 5.0% per annum.

A 10% change in interest rates on the Company’s cash equivalents is not expected to have a material impact on its financial position, results of operations, or cash flows.

Exposure on Borrowings

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

As of June 28, 2024, the Company had $48.8 million outstanding under its Term Loan and no borrowings under its Revolver.

Refer to Note 7 Credit Facility and Debt of the Notes for further information.

The Company’s borrowings under the current Credit Facility bear interest at either:

(a) Adjusted Term SOFR plus the applicable margin;

1 unchanged sentence

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

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

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

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

As of June 28, 2024, the applicable margin on Adjusted Term SOFR and Base Rate borrowings was 2.5% and 1.5%, respectively.

The effective rate of interest on the Company’s outstanding Term Loan borrowings as of June 28, 2024 was 7.9%.

A 10% change in interest rates is estimated to have a $0.4 million impact on annual interest expense on the Company’s outstanding long-term debt as of June 28, 2024.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S.

The Company’s consolidated financial statements are prepared in accordance with U.S.

These accounting principles require us to make certain estimates, judgments and assumptions.

13 unchanged sentences

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

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

The Company and Summary of Significant Accounting Policies of the Notes.

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

38 unchanged sentences

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

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

Factors influencing these adjustments include product life cycles, end of

service life plans and volume of enhanced or extended warranty service contracts.

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

17 unchanged sentences

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

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

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

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

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

Under the acquisition method of accounting, the assets and liabilities of acquired businesses are recorded at their estimated fair values at the date of acquisition.

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

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and involves the use of significant estimates and assumptions to properly allocate purchase price consideration between the fair value of the assets acquired and liabilities assumed.

The Company leverages independent third-party valuations in determining the estimated fair values of acquired tangible assets, identifiable intangible assets, and assumed liabilities.

If assumptions or estimates used in determining fair values change based on information that becomes available during the one-year period from the acquisition date, we record measurement period adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill.

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

Impact of Recently Issued Accounting Pronouncements

The Company and Summary of Significant Accounting Policies” in the notes to consolidated financial statements for a full description of recently issued accounting pronouncements, including the respective expected dates of adoption and effects on our consolidated financial position and results of operations.

Refer to Note 1.

The Company and Summary of Significant Accounting Policies of the Notes for a full description of recently issued accounting pronouncements, including the respective expected dates of adoption and effects on the consolidated financial position and results of operations.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis