avnw-20211001

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 001-33278

______________________

AVIAT NETWORKS, INC.

(Exact name of registrant as specified in its charter)

______________________

Delaware

20-5961564

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

200 Parker Drive, Suite C100A,

Austin,

Texas

78728

(Address of principal executive offices)

(Zip Code)

(408) 941-7100

(Registrant’s telephone number, including area code)

__________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	AVNW	The Nasdaq Global Select Market

Indicate by checkmark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s Common Stock as of October 29, 2021 was 11,181,607.

AVIAT NETWORKS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended October 1, 2021

Table of Contents



			Page
Part I. Financial Information			4
Item 1. Financial Statements			5
Condensed Consolidated Balance Sheets (Unaudited)			5
Condensed Consolidated Statements of Operations (Unaudited)			6
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)			7
Condensed Consolidated Statements of Cash Flows (Unaudited)			8
Condensed Consolidated Statements of Equity (Unaudited)			9
Notes to Condensed Consolidated Financial Statements (Unaudited)			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			32
Part II. Other Information			33
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 3. Defaults upon Senior Securities			33
Item 4. Mine Safety Disclosures			33
Item 5. Other Information			33
Item 6. Exhibits			34
Signatures			35
Exhibit Index			35

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except share and par value amounts)	October 1, 2021		July 2, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	47,313	$	47,942
Accounts receivable, net	59,438		48,135
Unbilled receivables	39,667		37,521
Inventories	23,648		23,436
Customer service inventories	1,863		1,431
Assets held for sale	2,218		2,218
Other current assets	9,539		9,556
Total current assets	183,686		170,239
Property, plant and equipment, net	10,676		11,701
Deferred income taxes	102,324		103,467
Right of use assets	3,540		3,816
Other assets	8,693		8,430
TOTAL ASSETS	$	308,919	$	297,653
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	39,378	$	32,405
Accrued expenses	24,750		28,154
Short-term lease liabilities	621		769
Advance payments and unearned revenue	35,483		32,304

Restructuring liabilities	3,008		2,737
Total current liabilities	103,240		96,369
Unearned revenue	8,496		8,592
Long-term lease liabilities	3,071		3,223
Other long-term liabilities	346		356
Reserve for uncertain tax positions	5,267		5,164
Deferred income taxes	587		614
Total liabilities	121,007		114,318
Commitments and contingencies (Note 12)
Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued	—		—
Common stock, $0.01 par value, 300,000,000 shares authorized, 11,187,003 shares issued and outstanding at October 1, 2021; 11,153,445 shares issued and outstanding at July 2, 2021 (see Note 1 Stock Split)	112		112
Treasury stock	(1,500)		(787)
Additional paid-in-capital	819,711		818,939
Accumulated deficit	(615,920)		(620,602)
Accumulated other comprehensive loss	(14,491)		(14,327)
Total equity	187,912		183,335
TOTAL LIABILITIES AND EQUITY	$	308,919	$	297,653

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended
(In thousands, except per share amounts)	October 1, 2021		October 2, 2020
Revenues:
Revenue from product sales	$	50,847	$	44,464
Revenue from services	22,311		21,826
Total revenues	73,158		66,290
Cost of revenues:
Cost of product sales	31,925		27,909
Cost of services	15,152		14,132
Total cost of revenues	47,077		42,041
Gross margin	26,081		24,249
Operating expenses:
Research and development expenses	5,910		4,847
Selling and administrative expenses	12,698		12,837
Restructuring charges	659		—
Total operating expenses	19,267		17,684
Operating income	6,814		6,565
Interest income, net	28		35


Income before income taxes	6,842		6,600
Provision for income taxes	2,160		664
Net income	$	4,682	$	5,936

Net income per share of common stock outstanding:
Basic	$	0.42	$	0.55
Diluted	$	0.39	$	0.54
Weighted-average shares outstanding (see Note 1 Stock Split):
Basic	11,159		10,822
Diluted	11,954		11,092

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended
(In thousands)	October 1, 2021		October 2, 2020
Net income	$	4,682	$	5,936
Other comprehensive (loss) income:
Net change in cumulative translation adjustments, net of tax	(164)		414
Other comprehensive (loss) income	(164)		414
Comprehensive income	$	4,518	$	6,350

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
(In thousands)	October 1, 2021		October 2, 2020
Operating Activities
Net income	$	4,682	$	5,936
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment	1,264		1,254
Provision for uncollectible receivables	(2)		2
Share-based compensation	863		571
Deferred tax assets, net	1,116		216
Charges for inventory and customer service inventory write-downs	381		185
Loss on disposition of property, plant and equipment, net	—		6
Noncash lease expense	276		562
Changes in operating assets and liabilities:
Accounts receivable	(11,382)		(294)
Unbilled receivables	(2,251)		(3,185)
Inventories	(339)		(444)
Customer service inventories	(667)		(201)
Accounts payable	7,099		(135)
Accrued expenses	(3,852)		(2,406)
Advance payments and unearned revenue	3,114		3,350
Income taxes payable or receivable	753		101

Other assets and liabilities	(73)		(703)
Change in lease liabilities	(300)		(574)
Net cash provided by operating activities	682		4,241
Investing Activities
Payments for acquisition of property, plant and equipment	(349)		(1,018)


Net cash used in investing activities	(349)		(1,018)
Financing Activities

Repayments of borrowings	—		(9,000)

Payments for repurchase of common stock - treasury shares	(713)		—
Payments for taxes related to net settlement of equity awards	(358)		(128)
Proceeds from issuance of common stock under employee stock plans	267		423
Net cash used in financing activities	(804)		(8,705)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(187)		89
Net decrease in cash, cash equivalents, and restricted cash	(658)		(5,393)
Cash, cash equivalents, and restricted cash, beginning of period	48,198		41,872
Cash, cash equivalents, and restricted cash, end of period	$	47,540	$	36,479

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (1)

(Unaudited)


	Three Months Ended October 1, 2021
	Common Stock			Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands, except share amounts)	Shares	$ Amount
Balance as of July 2, 2021	11,153,445	$	112	$	(787)	$	818,939	$	(620,602)	$	(14,327)	$	183,335
Net income	—	—		—		—		4,682		—		4,682
Other comprehensive loss, net of tax	—	—		—		—		—		(164)		(164)
Issuance of common stock under employee stock plans	66,235	—		—		267		—		—		267
Shares withheld for taxes related to vesting of equity awards	(10,134)	—		—		(358)		—		—		(358)
Stock repurchase	(22,543)	—		(713)		—		—		—		(713)
Share-based compensation	—	—		—		863		—		—		863

Balance as of October 1, 2021	11,187,003	$	112	$	(1,500)	$	819,711	$	(615,920)	$	(14,491)	$	187,912


	Three Months Ended October 2, 2020
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands, except share amounts)	Shares	$ Amount
Balance as of July 3, 2020	10,800,974	$	108	$	814,283	$	(730,741)	$	(14,969)	$	68,681
Net income	—	—		—		5,936		—		5,936
Other comprehensive income, net of tax	—	—		—		—		414		414
Issuance of common stock under employee stock plans	96,982	1		422		—		—		423
Shares withheld for taxes related to vesting of equity awards	(11,232)	—		(128)		—		—		(128)

Share-based compensation	—	—		571		—		—		571
Balance as of October 2, 2020	10,886,724	$	109	$	815,148	$	(724,805)	$	(14,555)	$	75,897

(1) See Note 1 Stock Split.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. The Company and Basis of Presentation

The Company

Aviat Networks, Inc. (the “Company,” “we,” “us,” and “our”) designs, manufactures, and sells a range of wireless networking solutions and services to mobile and fixed telephone service providers, private network operators, government agencies, transportation and utility companies, public safety agencies, and broadcast system operators across the globe. Our products include broadband wireless access base stations and customer premises equipment for fixed and mobile, point-to-point digital microwave radio systems for access, backhaul, trunking, license-exempt applications, supporting new network deployments, network expansion, and capacity upgrades.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information, and we have made estimates, assumptions and judgments affecting the amounts reported in our unaudited condensed consolidated financial statements and the accompanying notes, as discussed in greater detail below. Accordingly, the statements do not include all information and footnotes required by U.S. GAAP for annual consolidated financial statements. In the opinion of our management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for such periods. The results for the three months ended October 1, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year or future operating periods. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 2, 2021.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated.

We operate on a 52-week or 53-week year ending on the Friday closest to June 30. The three months ended October 1, 2021 and the three months ended October 2, 2020 both consisted of 13 weeks. Fiscal year 2022 will be comprised of 52 weeks and will end on July 1, 2022. Fiscal 2021 was comprised of 52 weeks and ended on July 2, 2021.

Stock Split

On April 7, 2021 we effected a two-for-one split in the form of a stock dividend to shareholders of record as of April 1, 2021. Common stock, Additional paid-in-capital, per share and equity award amounts for all periods presented have been retrospectively reclassified to reflect the two-for-one stock split in the form of a stock dividend.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments affecting the amounts reported and related disclosures. Estimates are based upon historical factors, current circumstances and the experience and judgment of our management. We evaluate our estimates and assumptions on an ongoing basis and may employ outside experts to assist us in making these evaluations. Changes in such estimates, based on more accurate information, or different assumptions or conditions, may affect amounts reported in future periods. Such estimates affect significant items, including revenue recognition, provision for doubtful accounts, inventory valuation, valuation allowances for deferred tax assets, uncertainties in income taxes, contingencies and recoverability of long-lived assets. The actual results that we experience may differ materially from our estimates.

Summary of Significant Accounting Policies

There have been no material changes in our significant accounting policies as of October 1, 2021 and for the three months ended October 1, 2021, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 2, 2021.

Accounting Standards Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740). This guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of enactment of tax laws and rate changes. ASU 2019-12 became effective for us in our first quarter of fiscal 2022. The adoption had no material impact on our unaudited condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This guidance provides optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for our borrowing instruments, which use LIBOR as a reference rate, and is effective March 12, 2020 through December 31, 2022. We are evaluating the potential impact ASU 2020-04 will have on our unaudited condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 will be effective for us in our first quarter of fiscal 2024 and earlier adoption is permitted. We are evaluating the impact adopting Topic 326 will have on our unaudited condensed consolidated financial statements.

Note 2. Balance Sheet Components

Cash, Cash Equivalents, and Restricted Cash

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


(In thousands)	October 1, 2021		July 2, 2021
Cash and cash equivalents	$	47,313	$	47,942

Restricted cash included in other assets	227		256
Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows	$	47,540	$	48,198

Accounts Receivable, net

Our net accounts receivable are summarized below:


(In thousands)	October 1, 2021		July 2, 2021
Accounts receivable	$	61,184	$	50,276
Less: Allowances for doubtful accounts	(1,746)		(2,141)
Total accounts receivable, net	$	59,438	$

SEC Form 10-Q filed by Aviat Networks, Inc.