AVIAT NETWORKS INC

Previous wording

This Quarterly Report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including without limitation statements of, about, concerning or regarding: our plans, strategies and objectives for future operations, including with respect to growing our business and sustaining profitability; our restructuring efforts; our research and development efforts and new product releases and services; trends in revenue; drivers of our business and the markets in which we operate; future economic conditions, performance or outlook, and changes in our industry and the markets we serve; the outcome of contingencies; the value of our contract awards; beliefs or expectations; the sufficiency of our cash and our capital needs and expenditures; our intellectual property protection; our compliance with regulatory requirements and the associated expenses; expectations regarding litigation; our intention not to pay cash dividends; seasonality of our business; the impact of foreign exchange and inflation; taxes; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by the use of forward-looking terminology, such as “anticipates,” “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “strategy,” “projects,” “targets,” “goals,” “seeing,” “delivering,” “continues,” “forecasts,” “future,” “predict,” “might,” “could,” “potential,” or the negative of these terms, and similar words or expressions.

Current wording

This Quarterly Report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including without limitation statements of, about, concerning or regarding: our ability to maintain effective internal control over financial reporting and management systems and remediate material weaknesses; our plans, strategies and objectives for future operations, including with respect to growing our business and sustaining profitability; our restructuring efforts; our research and development efforts and new product releases and services; trends in revenue; drivers of our business and the markets in which we operate; future economic conditions, performance or outlook, and changes in our industry and the markets we serve; the outcome of contingencies; the value of our contract awards; beliefs or expectations; the sufficiency of our cash and our capital needs and expenditures; our intellectual property protection; our compliance with regulatory requirements and the associated expenses; expectations regarding litigation; our intention not to pay cash dividends; seasonality of our business; the impact of foreign exchange and inflation; taxes; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by the use of forward-looking terminology, such as “anticipates,” “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “strategy,” “projects,” “targets,” “goals,” “seeing,” “delivering,” “continues,” “forecasts,” “future,” “predict,” “might,” “could,” “potential,” or the negative of these terms, and similar words or expressions.

Previous wording

On November 30, 2023 (the “Closing Date”), the Company completed the NEC Transaction, acquiring NEC’s wireless transport business. 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. See Note 12. Acquisitions of the Notes to the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q for further information.

Current wording

On November 30, 2023, the Company completed the acquisition of NEC Corporation’s (“NEC”) wireless transport business (the “NEC Transaction”). 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. See Note 11. Acquisitions of the Notes for further information.

Previous wording

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 $22.4 million will be transferred to NEC in the first quarter 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. See Note 7. Credit Facility and Debt for further information.

Current wording

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 $19.6 million will be transferred to NEC in the second quarter 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. See Note 6. Credit Facility and Debt of the Notes for further information.

Previous wording

The market for mobile backhaul continued to be the Company’s primary addressable market segment globally in the first nine months of fiscal 2024. In North America, the Company supported 5G and long-term evolution (“LTE”) deployments of its mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers. In international markets, the Company’s business continued to rely on a combination of customers increasing their capacity to handle subscriber growth and the ongoing build-out of some large LTE and 5G deployments. Aviat’s position continues to be to support its customers for 5G and LTE readiness and ensure that its technology roadmap is well aligned with evolving market requirements. Aviat’s strength in turnkey and after-sale support services is a differentiating factor that wins business for the Company and enables it to expand its business with existing customers. Additionally, Aviat operates an e-commerce platform that provides low-cost services, simple experience, and fast delivery to mobile operators and private network customers. However, as disclosed above and in the “Risk Factors” section in Item 1A of its Annual Report on Form 10-K filed with the SEC on August 30, 2023, a number of factors could prevent the Company from achieving its objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that it serves.

Current wording

The market for mobile backhaul continued to be the Company’s primary addressable market segment globally in the first three months of fiscal 2025. In North America, the Company supported 5G and long-term evolution (“LTE”) deployments of its mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers. In international markets, the Company’s business continued to rely on a combination of customers increasing their capacity to handle subscriber growth and the ongoing build-out of some large LTE and 5G deployments. Aviat’s position continues to be to support its customers for 5G and LTE readiness and ensure that its technology roadmap is well aligned with evolving market requirements. Aviat’s strength in turnkey and after-sale support services is a differentiating factor that wins business for the Company and enables it to expand its business with existing customers. Additionally, Aviat operates an e-commerce platform that provides low-cost services, simple experience, and fast delivery to mobile operators and private network customers. However, as disclosed above and in the “Risk Factors” section in Item 1A of its Annual Report on Form 10-K filed with the SEC on October 4, 2024, 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.

Previous wording

The Company manages its sales activities primarily on a geographic basis in North America and three international geographic regions: (1) Africa and the Middle East, (2) Europe, and (3) Latin America and Asia Pacific. Revenue by region for the three and nine months ended March 29, 2024 and March 31, 2023 and the related changes were as follows:

Current wording

The Company manages its sales activities primarily on a geographic basis in North America and three international geographic regions: (1) Africa and the Middle East, (2) Europe, and (3) Latin America and Asia Pacific. Revenue by region for the three months ended September 27, 2024 and September 29, 2023 and the related changes were as follows:

Previous wording

Revenue in Europe increased by $2.7 million during the third quarter of fiscal 2024 compared with the same period of fiscal 2023. Revenue in Europe increased by $3.7 million during the first nine months of fiscal 2024 compared with the same period of fiscal 2023. The increases for the third quarter and the first nine months of fiscal 2024 were primarily due to increased sales to mobile operators in the region.

Current wording

Revenue in Europe increased by $0.3 million during the first quarter of fiscal 2025 compared with the same period of fiscal 2024 primarily due to increased sales to mobile operators in the region.

Previous wording

Revenue in Latin America and Asia Pacific increased by $34.9 million during the third quarter of fiscal 2024 compared with the same period of fiscal 2023. Revenue in Latin America and Asia Pacific increased by $39.3 million during the first nine months of fiscal 2024 compared with the same periods of fiscal 2023. The increases were primarily due to contributions resulting from the NEC Transaction and higher volumes of projects with mobile operators.

Current wording

Revenue in Latin America and Asia Pacific increased by $13.3 million during the first quarter of fiscal 2025 compared with the same period of fiscal 2024 primarily due to contributions resulting from the NEC Transaction.

Previous wording

Gross margin dollars as a percentage of revenue decreased in the third quarter and for the first nine months of fiscal 2024 compared with the prior year primarily due to expected near term dilution as a result of the NEC Transaction.

Current wording

Gross margin for the first quarter of fiscal 2025 decreased by $11.4 million compared with the same quarter of fiscal 2024 primarily due to changes in regions and customers and the expected near-term dilution as a result of the NEC Transaction.

Previous wording

Research and development expenses increased by $4.1 million and $6.8 million for the third quarter and the first nine months of fiscal 2024, respectively, compared with the corresponding periods of fiscal 2023. The increase in research and development expenses was primarily due to increased product development activities and additional costs resulting from the NEC Transaction.

Current wording

Research and development expenses increased by $4.0 million for the first quarter of fiscal 2025 primarily due to increased product development activities.

Previous wording

Selling and administrative expenses increased by $5.5 million and $12.1 million for the third quarter and the first nine months of fiscal 2024, respectively, compared with the corresponding periods of fiscal 2023. The increase in selling and administrative expenses was primarily due to merger and acquisition expenses and additional costs resulting from the NEC Transaction.

Current wording

Selling and administrative expenses increased by $5.7 million for the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024 primarily due to merger and acquisition expenses and additional costs resulting from the NEC Transaction.

Previous wording

Interest expense, net increased by $0.8 million and $1.2 million for the third quarter and the first nine months of fiscal 2024, respectively, compared with the corresponding periods of fiscal 2023. The increase in interest expense, net was primarily due to interest expense incurred on the Term Loan borrowings used to fund the NEC Transaction in the second quarter of fiscal 2024.

Current wording

Interest expense, net increased by $1.0 million for the first quarter of fiscal 2025 compared to the first quarter of 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.

Previous wording

Other expense, net decreased by $(0.2) million for the third quarter of fiscal 2024, primarily as a result of foreign exchange rate movement. Other expense, net decreased by $2.3 million for the first nine months of fiscal 2024, primarily due to non-recurring losses of $1.7 million recognized on the sale of marketable securities included in the prior year.

Current wording

Other expense, net decreased by $(0.1) million for the first quarter of fiscal 2025, primarily as a result of foreign exchange rate movement.

Previous wording

Tax expense for the first nine months of fiscal 2024 was primarily attributable to tax expense for the U.S. entity and profitable foreign subsidiaries. Tax expense for the first nine months of 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 in July 2022 and the subsequent multi-step restructuring, in which two Canadian Redline corporations converted to unlimited liability companies and then amalgamated by the end of September 2022.

Current wording

The tax benefit for the first three months of fiscal 2025 was primarily due to tax benefit resulting from year-to-date losses. The tax expense for the first three months of fiscal 2024 was primarily attributable to tax expense related to U.S. and profitable foreign subsidiaries.

Previous wording

As of March 29, 2024, the Company’s total cash and cash equivalents were $58.2 million. Approximately $20.6 million was held in the United States. The remaining balance of $37.6 million was held by entities outside the United States. Of the amount of cash and cash equivalents held by the Company’s foreign subsidiaries on March 29, 2024, $37.2 million was held in jurisdictions where its undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Current wording

As of September 27, 2024, the Company’s total cash and cash equivalents were $51.0 million. Approximately $12.5 million was held in the United States. The remaining balance of $38.6 million, or 76%, was held outside the United States.

Previous wording

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 $22.2 million for the first nine months of fiscal 2024, compared with $(9.0) million in the prior year. The $31.2 million increase is primarily attributable to improvements in working capital and increased net income prior to non-cash adjustments compared to the prior year.

Current wording

Operating cash flows is presented as net (loss) income adjusted for certain non-cash items and changes in operating assets and liabilities. Net cash (used in) provided by operating activities was $(27.2) million for the first three months of fiscal 2025, compared with $14.0 million in the prior year. The $(41.1) million decrease is primarily attributable to increases in working capital and decreased earnings compared to the prior year.

Previous wording

Net cash used in investing activities was $35.0 million for the first nine months of fiscal 2024, compared to $11.7 million in the prior year. The $23.3 million increase is primarily due to payments of the cash consideration associated with the NEC Transaction, partially offset by non-recurring activity included in the prior year related to proceeds received on the sale of marketable securities.

Current wording

Net cash used in investing activities was $21.2 million for the first three months of fiscal 2025, compared to $0.7 million in the prior year. The $20.5 million increase is primarily due to payments associated with the acquisition of 4RF.

Previous wording

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 financing activities was $49.3 million for the first nine months of fiscal 2024, compared with $6.2 million in the prior year. The $43.1 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.

Current wording

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 financing activities was $34.3 million for the first three months of fiscal 2025, compared with $0.2 million in the prior year. The $34.1 million increase is primarily due to the $35.0 million of borrowings on the Company’s Revolver.

Previous wording

As of March 29, 2024, the Company’s principal sources of liquidity consisted of $59.2 million in cash and cash equivalents and marketable securities, $35.2 million of available credit under its Credit Facility, and future collections of receivables from customers. The Company regularly requires letters of credit from certain customers, and, from time to time, these letters of credit are discounted without recourse shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce its credit and sovereign risk. Historically, the Company’s primary sources of liquidity have been cash flows from operations and credit facilities. Additionally, the Company has an effective shelf registration statement on Form S-3 allowing it to offer and sell, either individually or in combination, in one or more offerings, up to a total dollar amount of approximately $200.0 million of any combination of the securities described in the shelf registration statement or a related prospectus supplement.

Current wording

As of September 27, 2024, the Company’s principal sources of liquidity consisted of $51.0 million in cash and cash equivalents, $0.7 million of available credit under its Credit Facility, and future collections of receivables from customers. On October 18, 2024, the Company amended its Credit Facility which increased the borrowing capacity to $75.0 million for each of the Term Loan and Revolver facilities. 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.

Previous wording

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.

Current wording

The Company believes that its existing cash and cash equivalents, the available borrowings under its Credit Facility 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.

Previous wording

The Company borrowed and repaid $33.2 million against the Revolver during the first nine months of fiscal 2024. In the second quarter of fiscal 2024, 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 of March 29, 2024, the Company had $49.4 million outstanding under its Term Loan and no borrowings under its Revolver and was in compliance with all financial covenants contained in the Credit Facility.

Current wording

The Company borrowed $35.0 million against the Revolver during the first three months of fiscal 2025. As of September 27, 2024, the Company had $48.8 million outstanding under its Term Loan and $35.0 million outstanding under its Revolver and was in compliance with all financial covenants contained in the Credit Facility.