UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended June 30, 2017 2023 or |
¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-33278
AVIAT NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 20-5961564 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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860 N. McCarthy Blvd.,200 Parker Drive, Suite 200, Milpitas, CaliforniaC100A, | Austin, | 95035Texas | | 78728 |
| (Address of principal executive offices) | | (Zip Code) |
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Registrant’s telephone number, including area code: (408) 941-7100
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 per share Preferred Shares Purchase Rights
| AVNW | NASDAQ Stock Market LLC (
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| Preferred Share Purchase Rights | | NASDAQ Global Select Market)Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o☐ No x☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐ No x☒
Indicate by check mark whether the registrant (1) 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 o☒ No x☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x☒ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | o☐ | | Accelerated filer | o☒ |
| Non-accelerated filer | x (Do not check if a smaller reporting company)
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| Emerging growth company | o☐ | | | |
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. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
As of December 30, 2016,2022, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $46.0$340.4 million. For purposes of this calculation, the registrant has assumed that its directors, executive officers and holders of 5%10% or more of the outstanding common stock are affiliates.
As of August 17, 2017,23, 2023, there was 5,317,957were 11,528,714 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its fiscal 2023 Annual Meeting of Stockholders (“Proxy Statement”), which will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended June 30, 2017,2023, are incorporated by reference into Part III of this Annual Report on Form 10-K.
AVIAT NETWORKS, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended June 30, 20172023
Table of Contents
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including “Item 7. 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 forward-looking statements, including 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.
These forward-looking statements are based on estimates reflecting the current beliefs of the senior management of Aviat Networks.Networks, Inc. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth in this Annual Report on Form 10-K. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to, the following:
continued price and margin erosion as a result of increased competition in the microwave transmission industry;
the impact of the volume, timing and customer, product and geographic mix of our product orders;
our ability to meet financial covenant requirements which could impact, among other things, our liquidity;
the timing of our receipt of payment for products or services from our customers;
our ability to meet projected new product development dates or anticipated cost reductions of new products;
our suppliers’ inability to perform and deliver on time as a result of their financial condition, component shortages or other supply chain constraints;
customer acceptance of new products;
the ability of our subcontractors to timely perform;
continued weakness in the global economy affecting customer spending;
retention of our key personnel;
our ability to manage and maintain key customer relationships;
uncertain economic conditions in the telecommunications sector combined with operator and supplier consolidation;
our failure to protect our intellectual property rights or defend against intellectual property infringement claims by others;
the results of our restructuring efforts;
the ability to preserve and use our net operating loss carryforwards;
the effects of currency and interest rate risks;
the conduct of unethical business practices in developing countries; and
the impact of political turmoil in countries where we have significant business.
Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for more information regarding factors that may cause our results to differ materially from those expressed or implied by the forward-looking statements contained in this Annual Report on Form 10-K.
You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of the filing of this Annual Report on Form 10-K. Forward-looking statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, along with provisions of the Private Securities Litigation Reform Act of 1995, and we
undertake no expressly disclaim any obligation, other than as imposedrequired by law, to update any forward-looking statements to reflect further developments or information obtained after the date of filing of this Annual Report on Form 10-K or, in the case of any document incorporated by reference, the date of that document.
PART I
Item 1. Business
Aviat Networks, Inc., together with its subsidiaries, is a global supplier of microwave networking and wireless access networking solutions, backed by an extensive suite of professional services and support. Aviat Networks, Inc. may be referred to as “the Company,” “AVNW,” “Aviat Networks,” “Aviat,” “we,” “us” and “our” in this Annual Report on Form 10-K.
We wereAviat was incorporated in Delaware in 2006 to combine the businesses of Harris Corporation’s Microwave Communications Division (“MCD”) and Stratex Networks, Inc. (“Stratex”). On January 28, 2010, we changed our corporate name from Harris Stratex Networks, Inc. to Aviat Networks, Inc.
Our principal executive offices are located at 860 North McCarthy Boulevard,200 Parker Dr., Suite 200, Milpitas, California 95035,C100A, Austin, Texas 78728, and our telephone number is (408) 941-7100. Our common stock is listed on the NASDAQ Global Select Market under the symbol AVNW. As of June 30, 2017,2023, we employed approximately 710 people, compared with approximately 720 people as of July 1, 2016.had 704 employees.
Overview and Description of the Business
We design, manufacture and sell a range of wireless transport and access networking products, solutions and services to two principal customer types.
1.Communications Service Providers (“CSPs”): These include mobile and fixed publictelecommunications network operators, privatebroadband and internet service providers and network operators Federal, Statewhich generate revenues from the communications services that they provide.
2.Private network operators: These are customers which do not resell communications services but build networks for reasons of economics, autonomy, and/or security to support a wide variety of mission critical performance applications. Examples include federal, state and Locallocal government agencies, transportation agencies, energy and utility companies, public safety agencies and broadcast network operators around the world.
We sell products and services directly to our customers, and, also, to a lesser extent, use agents and resellers.
Our products utilize microwave and millimeter wave technologies to create point to point and point to multi-point wireless links for short, medium and long distancelong-distance interconnections. OurIn addition to our wireless products, incorporate Ethernet switchingwe also provide routers and IP routing capabilitiesa range of premise and hosted private cloud-based software tools and applications to form complete networking solutions.enable deployment, monitoring, network management, and optimization and operational assurance of our systems as well as to automate network design and procurement. We also provide network management software tools to enable our customers to deploy, monitorsource, qualify, supply, integrate, test and manage our systems;support third party equipment such as antennas, routers, optical transmission equipment and other equipment necessary to build and deploy a complete telecommunications transmission network. We provide a full suite of professional services for planning, deployment, operations, optimization and maintenance of our customers’ networks.
Our wireless systems deliver urban, suburban, regional and country-wide communications links as the primary alternative to fiber optic, low earth orbit satellite and copper connections. Fiber optic connections are the primary connectivity alternative to wireless systems. In dense urban and suburban areas, short range wireless solutions arecan be faster to deploy and lower cost per mile than new fiber deployments. In developing nations, fiber infrastructure is often scarce and as a result wireless systems are used for both long and short distance connections. Wireless systems also have advantages over optical fiber in areas with rugged terrain, and to provide connections over bodies of water such as between islands or evento offshore oil and gas production platforms. Through the air wireless transmission is also inherently lower in latency than transmission through optical cables and can be leveraged in time sensitive networking applications, such as high frequency trading.
Revenue from our North America and international regions represented approximately 55%58% and 45%, respectively,42% of our revenue in fiscal 2017, 47%2023, 66% and 53%, respectively,34% of our revenue in fiscal 2016,2022, and 46%67% and 54%, respectively,33% of our revenue in fiscal 2015.2021, respectively. Information about our revenue attributable to our geographic regions is set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Note 9.10. Segment and Geographic Information” of the accompanying consolidated financial statements in this Annual Report on Form 10-K.
Market Overview
We believe that future demand for microwave and millimeter wave transmission systems will be influenced by a number of factors across several market segments.
MobileMobile/5G Networks
As mobile networks evolve and expand, add subscribers, and increase the number of wirelessly connected devices, sensors and machines, they require investment in backhaul infrastructure.infrastructure is required. Whether mobile network operators choose to self-build this backhaul infrastructure, or lease backhaul services from other network providers, we expect that the evolution of the network drivesmobile networks will continue to drive demand for transmission technologies such as microwave and millimeter wave wireless backhaul.backhaul transmission technologies. Within this overall scope, there are multiple individual drivers for investment in backhaul infrastructure.
New RAN Technologies.•5G Deployments. Mobile Radio Access Network (“RAN”) technologies are continually evolving. With the evolution from 2G to 3G (HSPA), 4G (HSPA+ and LTE), and next to 5G, standards, technology is
rapidly advancing and providing subscribers with higher speed access to the Internet, social media, and video streaming services. The rapid increasesdramatic increase in data to be transported through the RAN and across the backhaul infrastructure drives requirements for higher data transport links necessitating upgrades to or replacement of the existing backhaul infrastructure.
•Subscriber Growth. Traffic on the backhaul infrastructure increases as the number of unique subscribers grows.
•Connected Devices. The number of devices such as smart phones and tablets connected to the mobile network is far greater than the number of unique subscribers and is continuing to grow as consumers adopt multiple mobile device types. There is also rapid growth in the number and type of wireless enabled sensors and machines being connected to the mobile network creating new revenue streams for network operators in healthcare, agriculture, transportation and education. As a result, the data traffic crossing the backhaul infrastructure continues to grow rapidly.
grow.•IoT. The Internet of Things (“IoT”) brings the potential of massive deployment of wireless end points for sensing and reporting data and remotely controlling machines and devices. The increase of data volume drives investment in network infrastructure.
RAN Capacity.•Network Densification. RAN frequency spectrum is a limited resource and shared between all of the devices and users within the coverage area of each base station. Meeting the combined demand of increasing subscribers and devices will require the deployment of much higher densities of base stations with smaller and smaller range (small cells) each requiring backhaul.
interconnection and proportionally driving increased demand for wireless backhaul and or fronthaul solutions as the primary alternative to optical fiber connectivity.•Geographic Coverage. Expanding the geographic area covered by a mobile network requires the deployment of additional Cellular Base Stationcellular base station sites. Each additional base station site also needs to be connected to the core of the mobile network through expansion of the backhaul system.
•License Mandates. Mobile Operators are licensed telecommunications service providers. Licenses will typically mandate a minimum geographic footprint within a specific period of time and/or a minimum proportion of a national or regional population served. This can pace backhaul infrastructure investment and cause periodic spikes in demand.
Rural Broadband
Evolution•Middle Mile. Aviat transport equipment is used to IP. Network Infrastructure capacity, efficiencydeliver broadband connectivity to rural and flexibility is greatly enhanced by transitioning from legacy SDH (synchronous digital hierarchy) / SONET (synchronous optical network) / TDM (time division multiplexing)suburban communities as an alternative to IP (internet protocol) infrastructure. Our products offer integrated IP transportcostly fiber. There are significant investments being made to improve rural household and routing functionality increasing the value they bring in the backhaul network.
enterprise connectivity and many of these investments target middle mile infrastructure builds.•Expansion of Offered Services. Mobile network operators Internet service providers, especially those in emerging markets, now own and operate the most modern communications networks within their respective regions. These network assets can be further leveraged to provide high speed broadband services to fixed locations such as small, medium and large business enterprises, airports, hotels, hospitals, and educational institutions. Microwave and millimeter wave backhaul is ideally suited to providing high speed broadband connections to these end points due to the lack of fiber infrastructure.
Other Vertical MarketsPrivate Networks
In addition to mobile backhaul, we see demand for microwave technology in other vertical markets, including utility, public safety, energy and mining, government, financial institutions and broadcast.
•Many utility companies around the world are actively investing in Smart Grid“Smart Grid” solutions and energy demand management, which drive the need for network modernization and increased capacity of networks.
•The investments in network modernization in the public safety market can significantly enhance the capabilities of security agencies. Improving border patrol effectiveness, enabling inter-operable emergency communications services for local or state police, providing access to timely information from centralized databases, or utilizing video and imaging devices at the scene of an incident requires a high bandwidth and reliable network. The mission critical nature of Public Safetypublic safety and Nationalnational security networks can require that these networks are built, operated and maintained independently of other public network infrastructure and microwaveinfrastructure. Microwave is very well suited to this environment because it is a cost-effective alternative to fiber.
•Microwave technology can be used to engineer long distance and more direct connections than Optical Cable.optical cable. Microwave signals also travel through the air much faster than light through glass and the combined effect of shorter distance and higher speed reduces latency, which is valued for trading applications in the financial industry. Our products have already been used to create low latency connections between major centers in the United States (“U.S.”), Europe and Asia and we see long-term interest in the creation of further low latency routes in various geographies around the world.
•Evolution to IP (internet protocol). Network Infrastructure capacity, efficiency and flexibility is greatly enhanced by transitioning from legacy SDH (synchronous digital hierarchy) / SONET (synchronous optical network) / TDM (time division multiplexing) to IP infrastructure. Our products offer integrated IP transport and routing functionality increasing the value they bring in the backhaul network.
•The enhancement of Border Securityborder security and Surveillancesurveillance networks to counter terrorism and insurgency is aided by the use of wireless technologies including microwave backhaul.
•The expected growth of remote and industrial access applications to support the evolution of smart networks for cities, oilfields, mines and remote rural broadband connectivity using fixed, nomadic and mobile wireless technologies, particularly where a high degree of environmental resilience and ruggedness is required.
These factors are combining to create a range of opportunities for continued investment in backhaul, transport and transportaccess networks favoringthat favor microwave and millimeter wave technologies. As we focus on our execution of theexecuting future generations of our technology, our goal is to make wireless technology a viable choice for an ever-broadening range of network types.
Strategy
OverWe are engaging with customers on the past year, weevolution of use cases and applications as 5G mobile and broadband networks edge closer to implementation and begin to factor more strongly in the vendor selection process. We are confident in our ability to address current and future 5G market needs.
We are focused on building a sustainablysustainable and profitable business with future growth potential. We have invested in our people and processes to create a platform for operational excellence across sales, services, product development and supply chain areas while continuing to make investments in strengthening our product and services portfolio and expanding our reach into targeted market areas.
Our technology strategy has three main elements aligned to deliver a compelling Total Cost of Ownership (“TCO”) value proposition. The first is the integrationour portfolio of network routing functions into our wireless transport solutionproducts allowing our customers increased capacity and flexibility with a much better Total Cost. Second, wetotal cost solution. We are expanding the data carryingdata-carrying capacity of our wireless products to address the increasing data demand in networks of all types. Third, in ordertypes, while reducing overall energy consumption. Our research and development is focused on innovations that increase capacity, reduce energy consumption and lower overall TCO.
Second, to address the operational complexity of planning, deploying, owning and operating microwave networks, we are investing in a combination of software applications, tools and services where simplification, process automation, optimization and performance assurance, combined with our unique expertise in wireless technology can make a significant difference for our customers and partners.
Finally, Aviat is investing in e-commerce through our online platform, the “Aviat Store” and supporting supply chain capabilities. Aviat can better service customers buying through the Aviat Store with lower costs, faster lead times and a simpler purchasing experience. The Aviat Store, together with our supply chain, enables customers (including ISP, Tier 2 and mobile 5G operators) to purchase products as needed, thus avoiding lengthy and variable lead times that come with other vendor solutions and allowing those customers to lower warehousing costs, reduce obsolete equipment, and lower the cost of capital by paying only when equipment is needed.
We continuedcontinue to develop our professional services portfolio as a key to our long-term strategy and differentiation. During the year, we continued to expand the numberWe offer a portfolio of customer networks managed from our North America Network Operations Center. We began offering cloud based network management to our customershosted expert services and we continue to offer training and accreditation programs for microwave and IP network design, deployment and maintenance.
Our strategy includes partnering with companies with technical expertise in areas outside
We expect to continue to serve and expand upon our existing customer base and develop business with new customers. We intend to leverage our customer base, our longstanding presence in many countries, our distribution channels, our comprehensive product line, our superior customer service and our turnkey solution capability to continue to sell existing and new products and services to current and future customers.
Products and Solutions
Our strong product and solutions portfolio is key to building and maintaining our marquee base of customers. We offer a comprehensive product and solutions portfolio that meets the needs of service providers and network operators in every region of the world and that addresses a broad range of applications, frequencies, capacities and network topologies.
•Broad product and solution portfolio.portfolio. We offer a comprehensive suite of wireless transmission networkingtransport and access systems for microwave and millimeter wave networking applications. Our solution consists of tailored offerings of our own wireless products and our own integrated ancillary equipment or that of other manufacturers and providers of element and network management systems and professional services. These solutions addressutilize a wide range of transmission frequencies, ranging from 2.4 GHz450 MHz to 90 GHz, and can deliver a wide range of transmission capacities, ranging up to over 10 Gbps.20 Gigabits per second (Gbps). The major product families included in these solutions are CTR 8000, WTM 4000, RDL 3000, FDL 6000, IRU 600 UHP and AviatCloud. Our CTR 8000 platform merges the functionalityis a range of an indoor microwave modem unitrouters purpose-built for transport applications, especially those that require high level of reliability and a cell site router into a single integrated solution, simplifying IP/MPLS deployments and creating a better performing network. The newest addition to our product portfolio is thesecurity. WTM 4000, the highest capacity microwave radio ever produced to date, and purpose built for SDN.software-defined networks (“SDN”). SDN technology is an approach to networking management that enables dynamic, programmatically efficient networking configuration to improve networking performance and monitoring, making it more like cloud computing than traditional networking management. We introduced multiple important variants to the WTM 4000 platform; WTM4100 & 4200 providing single and dual frequency microwave links with advanced XPIC and MIMO capabilities; WTM4500 for multi-channel aggregation of microwave channels in long distance applications; WTM4800 is the latest addition to address 5G network requirements and is capable of operating in the 80GHz E Band at up to 20Gbps capacity, with a unique Multi-Band capability which simultaneously uses microwave and E Band frequencies for maximum capacity, distance and reliability. WTM 4800 is the only single box multi-band solution for lowest total cost of ownership deployments. Our RDL 3000 platform is designed to support ruggedized fixed and nomadic wireless access in remote and industrial applications. RDL 6000 is a highly differentiated Private-LTE solution that provides the equivalent coverage of a macro-base station, but in a compact and cost-effective all-outdoor design. Our IRU 600 UHP is an ultra-high power indoor microwave radio that enables relocation of mission critical links from the 6 GHz band to the 11 GHz band to minimize potential interference and deliver longer links and more capacity. To address the issues of operational complexity in our customers’ networks, AviatCloud is an app-baseda platform with secure hosted software and services to automate and virtualize networks and their operations.
•Low total cost of ownership. Our wireless-based solutions are focusedfocus on achieving a low total cost of ownership, including savings on the combined costs of initial acquisition, installation and ongoing operation and maintenance. Our latest generation system designs reduce rack space requirements, require less power, are software-configurable to reduce spare parts requirements, and are simple to install, operate, upgrade and maintain. Our advanced wireless features can also enable operators to save on related costs, including spectrum fees and tower rental fees.
•Futureproof network.network. Our solutions are designed to protect the network operator’s investment by incorporating software-configurable capacity upgrades and plug-in modules that provide a smooth migration path to Carrier Ethernet and IP/MPLS (multiprotocol label switching)-based and segment routing based networking, without the need for costly equipment substitutions and additions. Our products include key technologies we believe will be needed by operators for their network evolution to support new broadband services.
•Flexible, easily configurable products. We use flexible architectures with a high level of software configurable features. This design approach produces high-performance products with reusable components while at the same time allowing for a manufacturing strategy with a high degree of flexibility, improved cost and reduced time-to-market. The software features of our products offer our customers a greater degree of flexibility in installing, operating and maintaining their networks.
•Comprehensive network management. We offer a range of flexible network management solutions, from element management to enterprise-wide network management and service assurance that we can optimize to work with our wireless systems.
•Complete professional services. In addition to our product offerings, we provide network planning and design, site surveys and builds, systems integration, installation, maintenance, network monitoring, training, customer service and many other professional services. Our services cover the entire evaluation, purchase, deployment and operational cycle and enable us to be one of the few complete, turnkey solution providers in the industry.
Business Operations
Sales and Service
Our primary route to market is through our own direct sales, service and support organization. This provides us with the best opportunity to leverage our role as a technology specialist and differentiate ourselves from competitors. Our focus on key customers and geographies allows us to consistently achieve high customer satisfaction ratings leading to a high level of customer retention and repeat business. Our highest concentrations of Salessales and Serviceservice resources are in the United States, Western and Southern Africa, the Philippines, and the European Union. We maintain a presence in a number of other countries, some of which are based onin customer locations and include, but not limited to, Canada, Mexico, Kenya, India, Saudi Arabia, Australia, New Zealand, and Singapore.
In addition to our direct channel to market, we also have informal, and in some cases formal, relationships with original equipment manufacturers (“OEMs”) and system integrators especially focused towards large and complex projects in National Securitynational security and Government relatedgovernment-related applications. Our role in these relationships ranges from equipment supply only to being a sub-contractor for a portion of the project scope where we will supply equipment and a variety of design, deployment and maintenance services.
We also use indirect sales channels, including dealers, resellers and sales representatives, in the marketing and sale of some lines of products and equipment on a global basis. These independent representatives may buy for resale or, in some cases, solicit orders from commercial or governmental customers for direct sales by us. Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or below our list prices. These independent representatives generally receive a discount from our list prices and are free to set the final sales prices paid by the customer.
We have a direct online sales option through our online “Aviat Store”. The Aviat Store targets customers with a traditional high cost to serve via traditional channels. We provide online design tools for radio link planning and online ordering tools, which we fulfill directly from our Aviat Store with multiple options of product available for next day shipment. Shipments from Aviat Store commenced in late 2018.
We have repair and service centers in India, Nigeria, Ghana, Mexico, the Philippines the United Kingdom and the United States. We have customer service and support personnel who provide customers with training, installation, technical support, maintenance and other services on systems under contract. We install and maintain customer equipment directly, in some cases, and contract with third-party service providers in other cases, depending on the equipment being installed and customer requirements.
cases.
The specific terms and conditions of our product warranties vary depending upon the product sold and country in which we do business. On direct sales, warranty periods generally start on the delivery date and continue for one to three years.
Manufacturing
Our global manufacturing strategy follows an outsourced manufacturing model using contract manufacturing partners in bothAsia and the United States and Asia.States. Our strategy is based on balancing cost and supplier performance as well as taking into account qualification for localization requirements of certain market segments, such as the Buy America statute.American Act.
In accordance with our global logistics requirements and customer geographic distribution, we are engaged with contract manufacturing partners in Asia and the United States. All manufacturing operations have been certified to International Standards Organization 9001, a recognized international quality standard. We have also been certified to the TL 9000 standard, a telecommunication industry-specific quality system standard.
Backlog
Our backlog by geographic region is as follows:
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| (In thousands) | June 30, 2017 | | July 1, 2016 |
| North America | $ | 102,971 |
| | $ | 97,360 |
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| International | 56,775 |
| | 56,271 |
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| Total backlog | $ | 159,746 |
| | $ | 153,631 |
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Our backlog consistswas approximately $289 million at June 30, 2023 and $245 million at July 1, 2022, consisting primarily of contracts or purchase orders for both product and service deliveries and extended service warranties. Services include management’s initial estimate of the value of a customer’s commitment under a services contract. The calculation used by management involves estimates and judgments to gauge the extent of a customer’s commitment, including the type and duration of the agreement, and the presence of termination charges or wind down costs. Contract extensions and increases in scope are treated as backlog only to the extent of the new incremental new value. We regularly review our backlog to ensure that our customers continue to honor their purchase commitments and have the financial means to purchase and deploy our products and services in accordance with the terms of their purchase contracts. Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations,revalidation, adjustments for revenue not materialized and adjustments for currency.
We expect to substantially filldeliver against the backlog as of June 30, 20172023 during fiscal 2018,2024, but we cannot be assured that this will occur. Product orders in our current backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty.penalty as well as long-term projects that could take more than a year to complete. Accordingly, although useful for scheduling production, backlog as of any particular date may not be a reliable measure of sales for any future period because of the timing of orders, delivery intervals, customer and product mix and the possibility of changes in delivery schedules and additions or cancellations of orders. The backlog figures exclude advance payments and unearned income amounts.
Customers
Although we have a large customer base, during any given fiscal year or quarter, a small number of customers may account for a significant portion of our revenue.
During fiscal 2017, Mobile Telephone Networks Group (“MTN Group”) in Africa2023 and 2021, no customers accounted for 14%more than 10% of our total revenue compared with 18% inrevenue. During fiscal 2016 and 14% in fiscal 2015. We have entered into separate and distinct contracts with MTN Group as well as separate arrangements with MTN Group subsidiaries. The loss2022 one customer accounted for 13% of all or a substantial portion of MTN Group’s business could adversely affect our results of operations, cash flows and financial position.total revenue.
Competition
The microwave and millimeter wave wireless networking business is a competitive and specialized segment of the telecommunications industry that is sensitive to technological advancements and is extremely competitive.advancements. Our principal competitors include business units of large mobile and IP network infrastructure manufacturers such as Ericsson, Huawei NEC and Nokia Corporation, as well as a number of smaller microwave specialist companies such as Ceragon Networks Ltd., SIAE Microelectronica S.p.A., Cambium Networks Corporation and SIAE Microelectronica.
Airspan Networks. We also compete with fiber optic cable and low earth orbit satellites for networking connections.
Some of our larger competitors may have greater name recognition, broader product lines (some including non-wireless telecommunications equipment and managed services), a larger installed base of products and longer-standing customer relationships. They may from time to time leverage their extensive overall portfolios into completely outsourced and managed network offerings restricting opportunities for specialist suppliers. In addition, some competitors may offer seller financing, which can be a competitive advantage under certain economic climates.
Some of our larger competitors may also act as systems integrators through which we sometimes distribute and sell products and services to end users.
The smaller independent private and public specialist competitors typically leverage new technologies and low productsproduct costs but are generally less capable of offering a complete solution including professional services, especially in the North America and Africa regions which form the majority of our addressed market.
We concentrate on market opportunities that we believe are compatible with our resources, overall technological capabilities and objectives. Principal competitive factors are cost-effectiveness,unique differentiators, Total Cost of Ownership (“TCO”), product quality and reliability, technological capabilities, service, ability to meet delivery schedules and the effectiveness of dealers in international areas. We believe that the combination of our network and systems engineering support and service, global reach, technological innovation, agility and close collaborative relationships with our customers are the key competitive strengths for us. However, customers may still make decisions based primarily on factors such as price, financing terms and/or past or existing relationships, where it may be difficult for us to compete effectively or profitably.
Research and Development
We believe that our ability to enhance our current products, develop and introduce new products on a timely basis, maintain technological competitiveness and meet customer requirements is essential to our success. Accordingly, we allocate, and intend to continue to allocate, a significant portion of our resources to research and development efforts in key technology areas and innovation to differentiate our overall portfolio from our competition. The majority of such research and development resources will be focused on technologies in microwave and millimeter wave RF, digital singlesignal processing, networking protocols and software applications.
Our research and development expenditures totaled $18.7$24.9 million, or 7.7%7.2% of revenue, in fiscal 2017, $20.82023, $22.6 million, or 7.7%7.5% of revenue, in fiscal 2016,2022, and $25.4$21.8 million, or 7.6%7.9% of revenue, in fiscal 2015.2021.
Research and development are primarily directed to the development of new products and to buildingbuild technological capability. We are an industry innovator and intend to continue to focus significant resources on product development in an effort to maintain our competitiveness and support our entry into new markets.
Our product development teams numbered 142totaled 173 employees as of June 30, 2017,2023, and were located primarily in the United States, New Zealand, Slovenia and Canada.
Raw Materials and Supplies
Because of theour range of our products and services, as well as the wide geographic dispersion of our facilities, we use numerous sources of raw materials needed for our operations and for our products, such as electronic components, printed circuit boards, metals and plastics. We are dependent upon suppliers and subcontractors for a large number of components and subsystems and upon the ability of our suppliers and subcontractors to adhere to customercustomers’ requirements or regulatory materials restrictions and to meet performance and quality specifications and delivery schedules.
Our strategy for procuring raw material and supplies includes dual sourcing (where possible) on strategic assemblies and components. In general, we believe this reduces our risk with regard to the potential financial difficulties in our supply base. In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. Examples of sole or limited source categories include metal fabrications and castings, for which we own the tooling and therefore limit our supplier relationships, and ASIC’s and MMICs (types of integrated circuit used in manufacturing microwave radios), which we procure at volume discount from a single source. Our supply chain plan includes mitigation plans for alternative manufacturing sourcessites which would also mitigate COVID-19 and identified alternate suppliers.other disruption risks.
Although we have been affected by performance issues of some of our suppliers and subcontractors, we have not been materially adversely affected by the inability to obtain raw materials or products. In general, any performance issues causing short-term material shortages are within the normal frequency and impact range currently experienced by high-tech manufacturing companies. Theycompanies and are due primarily to the highly technical nature of many of our purchased components.
Looking ahead, we anticipate standard lead times for our raw materials and supplies.
Patents and Other Intellectual Property
We consider our patents, trademarks and other intellectual property rights, in the aggregate, to constitute an important asset. We own a portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other intellectual property. As of June 30, 2023, we (collectively with our subsidiaries) own approximately 339 U.S. patents and 237 international patents and had 14 U.S. patent applications pending and 28 international patent applications pending. The United States Patent and Trademark Office (“USPTO”) and international equivalent bodies have not yet concluded substantive examination of our pending patent applications. Therefore, it is unclear what scope of additional patent coverage, if any, will eventually be provided as a result of those pending applications. Failure to obtain comprehensive patent coverage could impair our ability to prevent competitors from replicating some portions or all of our products. We also license intellectual property to and from third parties. As of June 30, 2017,The costs we held 173 U.S. patentspay or revenue we receive from such licenses may be dependent on certain factors, such as the market for such licenses and 82 international patents and had 20 U.S. patent applications pending and 44 international patent applications pending. Wewhether such licenses can be negotiated on commercially acceptable terms. However, we do not consider our business to be materially dependent upon any single patent, license or other intellectual property right,right.
Further, changes in either the patent laws or any groupin the interpretations of relatedpatent laws in the United States and other countries may diminish the value of our intellectual property and may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. We cannot predict the breadth of claims that may be allowed or enforced in our patents licensesor in third-party patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to us. For example, the United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the United States Congress, the United States federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and the patents we might obtain or license in the future.
Our registered or unregistered trademarks or trade names may be challenged, circumvented, declared generic or determined to be infringing on other marks. There can be no assurance that competitors will not infringe our trademarks, that we will have adequate resources to enforce our trademarks or that any of our current or future trademark applications will be approved. During trademark registration proceedings, we may receive rejections and, although we are given an opportunity to respond, we may be unable to overcome such rejections. In addition, in proceedings before the USPTO
and in proceedings before comparable agencies in many foreign jurisdictions, trademarks are examined for registrability against prior pending and registered third-party trademarks, and third parties are given an opportunity to oppose registration of pending trademark applications and/or to seek cancellation of registered trademarks. Applications to register our trademarks may be finally rejected, and opposition or cancellation proceedings may be filed against our trademarks, which may necessitate a change in branding strategy if such rejections and proceedings cannot be overcome or resolved.
Additionally, competitors may try to develop products that are similar to ours and that may infringe, misappropriate or otherwise violate our intellectual property rights. FromAs a result, from time to time, we might engage in litigation to enforce our patents andor other intellectual property rights or defend against claims of alleged infringement.infringement asserted by third parties. Any of our patents, trade secrets, trademarks, copyrights and other proprietaryintellectual property rights could be challenged, invalidated or circumvented, or may not provide competitive advantages. Numerous trademarks usedDespite our efforts to protect our intellectual property rights, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, or the reverse engineering of our technology and other intellectual property, including by third parties who may use our technology or other proprietary information to develop products and services that compete with ours. Additionally, policing unauthorized use of our intellectual property and proprietary rights can be difficult, costly and time consuming. The enforcement of our intellectual property and proprietary rights also depends on any legal actions we may bring against any such parties being successful, but these actions are costly, time-consuming, and may not be successful, even when our rights have been infringed, misappropriated, or in connection withotherwise violated. Furthermore, our competitors or other third parties may assert that our products are also consideredinfringe, misappropriate or otherwise violate their intellectual property rights. Successful claims of infringement, misappropriation or other violations by a third party could prevent us from offering certain products or features, require us to develop alternate, non-infringing technology, which could require significant time and expense, and at which time we could be valuable assets.unable to continue to offer our affected products or solutions, or require us to obtain a license, which may not be available on reasonable terms or at all, or force us to pay substantial damages, royalties or other fees.
In addition, to protect our confidential information, including our trade secrets, we require our employees and contractors to sign confidentiality and invention assignment agreements. We also enter into non-disclosure agreements with our suppliers and appropriate customers to limit their access to and disclosure of our proprietary information.
Although our ability to compete may be affected by our ability to protect our intellectual property rights and proprietary information, we believe that, because of the rapid pace of technological change in the wireless telecommunications industry, our innovative skills, technical expertise and ability to introduce new products on a timely basis will be moreis just as important in maintaining our competitive position than protection ofas protecting our intellectual property. Trade secret, trademark, copyright and patent protections are important but must be supported by other factors such as the expanding knowledge, ability and experience of our personnel, new product introductions and product enhancements. Although we have and will continue to implement protective measures and intend to vigorously defend our intellectual property rights, there can be no assurance that these measures will be successful.
Environmental and Other Regulations
Our facilities and operations, in common with those of our industry in general, are subject to numerous domestic and international laws and regulations designed to protect the environment, particularly with regard to wastes and emissions. We believe that we have complied with these requirements and that such compliance has not had a material adverse effect on our results of operations, financial condition or cash flows. Based upon currently available information, we do not expect expenditures to protect the environment and to comply with current environmental laws and regulations over the next several years to have a material impact on our competitive or financial position but can give no assurance that such expenditures will not exceed current expectations. From time to time, we receive notices from the U.S. Environmental Protection Agency or equivalent state or international environmental agencies that we are a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, which is commonly known as the Superfund Act, and equivalent laws. Such notices may assert potential liability for cleanup costs at various sites, which include sites owned by us, sites we previously owned and treatment or disposal sites not owned by us, allegedly containing hazardous substances attributable to us from past operations. We are not presently aware of any such liability that could be material to our business, financial condition or operating results, but due to the nature of our business and environmental risks, we cannot provide assurance that any such material liability will not arise in the future.
Electronic products are subject to environmental regulation in a number of jurisdictions. Equipment produced by us is subject to domestic and international requirements requiring end-of-life management and/or restricting materials in
products delivered to customers. We believe that we have complied with such rules and regulations, where applicable, with respect to our existing products sold into such jurisdictions.
Radio communications are also subject to governmental regulation. Equipment produced by us is subject to domestic and international requirements to avoid interference among users of radio frequencies and to permit interconnection of telecommunications equipment. We believe that we have complied with such rules and regulations with respect to our existing products, and we intend to comply with such rules and regulations with respect to our future products. Reallocation of the frequency spectrum also could impact our business, financial condition and results of operations.
We have a comprehensive policy and procedures in effect concerning conflict minerals compliance.
EmployeesHuman Capital Management
As of June 30, 2017,2023, we employed approximately 710 people, compared with approximately 720 ashad 704 employees, of the end of fiscal 2016whom 685 were full-time employees and approximately 780 as of the end of fiscal 2015. Approximately 270 of our employees arewere located in the U.S. We also utilized approximately 59 and 70 independent contractors as of June 30, 2017 and July 1, 2016, respectively. None of our employees in the U.S. are represented by a labor union. In certain international subsidiaries, our employees are represented by workers’ councils or statutory labor unions. In general, we believe that our employee relations are good.
We believe we offer a competitive compensation package, tailored to the job function and location of each employee. We have a global team, and we offer competitive compensation and benefits programs that meet the needs of our employees, while also reflecting local market practices. Our U.S. benefits plan includes health benefits, life and disability insurance, various voluntary insurances, flexible time off and leave programs, and a retirement plan with employer match. Our international benefits plans are competitive locally and generally provide similar benefits. We grant equity-based compensation to many of our employees. In addition, we offer benefits to support our employees’ physical and mental health by providing tools and resources to help them improve or maintain their health and encourage healthy behaviors.
Information about our Executive Officers of the Registrant
The name, age, position held with us, and principal occupation and employment during at least the past 5 years for each of our executive officers as of September 6, 2017,August 30, 2023, are as follows:
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| Name and Age | | Position Currently Held and Past Business Experience |
MichaelPeter A. Pangia, 56Smith, 57 | | Mr. Pangia has been ourSmith was appointed President and Chief Executive Officer and a member of our board of directors (the “Board”) since July 18, 2011. From March 2009 to July 2011, he served as our Chief Sales Officer responsible for company-wide operations of the global sales and services organization.in January 2020. Prior to joining Aviat Networks, from 2008 to 2009, Mr. PangiaSmith served as Senior Vice President, global sales operationsUS Windows and strategyCanada for Jeld-Wen from March 2017 to December 2019. Prior to Jeld-Wen, he served as President of Polypore International’s Transportation and Industrial segment from October 2013 to March 2017. Previously, he served as Chief Executive Officer and a director of Voltaix Inc. from September 2011 to October 2013. Earlier in his career, Mr. Smith held various executive leadership positions at Nortel, where he wasFortune 100 and Fortune 500 companies, including Cooper Industries, Dover Knowles Electronics and Honeywell Specialty Materials. Mr. Smith also served on the board of Soleras Advanced Coatings from August 2015 to October 2018 and Adaptive 3D Technologies from December 2020 through its sale in May 2021. He has both a Bachelor of Science degree in Material (Ceramics) Engineering and PhD in Material Science and Engineering from Rutgers University, and holds a Master of Business Administration degree from Arizona State University. |
| David M. Gray, 54 | | As Chief Financial Officer (CFO), Mr. Gray is responsible for all operational aspects of the global sales function. From 2006worldwide finance, treasury, accounting, reporting, compliance and taxation. Prior to 2008, hejoining Aviat, Mr. Gray was President of Nortel’s Asia region where his key responsibilities included sales and overall business management for all countries where Nortel did business in the region. |
Ralph Marimon, 60 | | Mr. Marimon joined Aviat Networks in May 2015 as our Senior Vice President, Finance and Chief Financial Officer and Treasurer of Superior Essex, a $2.6 billion global manufacturer and distributor of communications and electrical equipment, and before that he served at Cooper Industries where he was CFO of an $800M revenue business focused on electrical, electronic and power management solutions. He also held a variety of executive finance and accounting positions at Newell Brands, Philips Electronics, and Autoliv. Mr. Gray holds a BS in Accounting from Penn State University, is a Certified Public Accountant (CPA) and Certified Management Accountant (CMA), and brings to Aviat significant CFO experience in complex multi-national businesses as well as a deep background in P&L leadership, cash flow management, and mergers and acquisitions. |
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| Bryan C. Tucker, 55 | | As Senior Vice President Americas, Mr. Tucker is responsible for sales and services in the financeAmericas. Mr. Tucker joined the Company in 2005, and IT organizations. Before joining Aviat, Mr. Marimonsince, has served as Vice President, Finance and Chief Financial Officer of QuickLogic, a provider of ultra-low power, customizable semiconductor solutions for smartphone, tablet, wearable, and mobile enterprise OEMs, since 2008. Prior to QuickLogic, Mr. Marimon served as Chief Financial Officer within a variety of organizations including Anchor Bay Technologies, Inc., Tymphany Corporation, and Scientific Technologies Incorporated. From 1999 to 2003, he served at Com21 Corporation as Chief Financial Officer. Prior to Com21, Mr. Marimon was at KLA-Tencor Corporation for 11 years in a varietynumber of senior executive financial management positions. |
Meena Elliott, 54 | | Ms. Elliott was appointed Senior Vice President, Chief Legal and Administrative Officer, Corporate Secretary in February 2015 and is responsible for the global legal and human resources organizations. From September 2011 to February 2015, she served as Senior Vice President, General Counsel, Secretary and had responsibilities for the global legal organization and took on responsibilities for global human resources organizations in 2014. From July 2009 to August 2011, she served as Vice President, General Counsel and Secretary. She joined our company as Associate General Counsel and Assistant Secretary in January 2007 when Harris Corporation’s MCD and Stratex Networks merged. Ms. Elliott joined MCD as Division Counsel in March 2006. Prior to joining MCD, she was Chief Counsel at the Department of Commerce from 2002 to 2006. |
Heinz H. Stumpe, 62 | | Mr. Stumpe was appointed Chief Sales Officer on June 25, 2012. Before his appointment as Chief Sales Officer, Mr. Stumpe was our Senior Vice President and Chief Operation Officer since June 30, 2008. Previously, he was Vice President, Global Operationsroles for Aviat Networks and Stratex Networks. He joinedits predecessor companies Harris Stratex Networks and Harris Microwave Communications Division (“MCD”). For example, as Directorsenior director for North America Operations, Mr. Tucker spearheaded major transitions in ERP systems, product lines and operational locations. He also led the company’s post-merger systems unification with Harris MCD in 2007. Before joining Aviat Networks, Mr. Tucker worked for Sony Corp. as director of Manufacturing Engineering and Maintenance for two production facilities. Overall, Mr. Tucker has more than 25 years of experience in engineering and manufacturing operations with high-tech companies. He has a bachelor’s degree in electrical engineering from the University of Florida, is Six Sigma Certified and has pursued postgraduate studies/research in semiconductor physics at Georgia Tech. |
| Erin R. Boase, 44 | | As General Counsel, Ms. Boase is responsible for all aspects of the Legal function. Ms. Boase brings a depth of experience to the team in privacy, employment, compliance, real estate, M&A, as well as, copyright, trademark and other product, software, service and cloud-related legal matters. Ms. Boase was previously at Lifesize, Inc. where she served as Head of Legal and Corporate Secretary. Prior to that she was the Senior Corporate Counsel at Cisco (formerly Duo Security, Inc.) where she managed the adoption of GDPR privacy compliance, development of company policies, copyright and trademark, technical compliance as well as other legal matters. Earlier in her career she held legal positions of progressive responsibility with Dell’s Computer and Security business and Thomson Reuters. Erin holds a Juris Doctorate, Technology and Communications and graduated Cum Laude from Thomas Jefferson School of Law and a Bachelor of Arts from Midwestern State University. |
| Gary G. Croke, 51 | | As Vice President of Marketing, Mr. Croke is responsible for Aviat’s global marketing which includes corporate and strategic marketing functions and product line management. Mr. Croke charts Aviat’s global product and marketing strategy and ensures successful company-wide implementation. His team's primary focus is on achieving business growth through the definition and launch of new solutions that drive customer economic value. Mr. Croke has over 25 years of leadership experience in 1996. He was promoted to Vice President, Global Accountsthe data and mobile communications sectors and he is highly skilled at delivering creative and compelling value propositions with demand generation programs that produce business results. Gary has a bachelor’s degree in 1999, Vice President, Strategic Accountselectrical engineering from Memorial University of Newfoundland and has pursued postgraduate studies/research in 2002 and Vice President, Global Operations in April 2006. |
Shaun McFall, 57 | | Mr. McFall was appointed Chief Strategy Officer in 2015. He was our Chief Marketing Officer since July 2008. Previously, from 2000 to 2008, he served as Vice President, Marketing for Aviat Networks and Stratex Networks. He has been with us since 1989.business administration at the University of Ottawa. |
There is no family relationship between any of our executive officers or directors, and there are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was appointed or elected as an officer or director, other than arrangements or understandings with our directors.
Web siteWebsite Access to Aviat Networks’ Reports; Available Information
We maintain an Internet Web sitea website at http://www.aviatnetworks.com. Our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge on our Web sitewebsite as soon as reasonably practicable after these reports aresuch material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Our website and the information posted thereon are not incorporated into this Annual Report on Form 10-KIn addition to our reports filed or any current or other periodic report that we file or furnish to the SEC.
We will also provide the reports in electronic or paper form, free of charge upon request. All reports we file with or furnish to the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov. The public may read and copy any materials filed by usfurnished with the SEC, we publicly disclose material information in press releases, at the SEC’s Public Reference Room, 100 F. Street, N.E., Washington, D.C. 20549. The public may obtain information on the operationannual meetings of the Public Reference Roomshareholders, in publicly accessible conferences and investor presentations, and through our website. References to our website in this Form 10-K are provided as a convenience and should not be deemed an incorporation by calling the SEC at 1-800-SEC-0330.reference or a part of this Form 10-K.
Additional information relating to our business and operations is set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Item 1A.Risk Factors
In additionThe nature of the business activities conducted by the Company subjects us to certain hazards and risks. The following is a summary of some of the material risks relating to the Company’s business activities. Other risks are described elsewhere in this Annual Report on Form 10-K“Item 1. Business,” “Item 7. Management’s Discussion and in certainAnalysis of our other filings with the SEC, the following risksFinancial Condition and uncertainties, among others, could cause our actual results to differ materially from those contemplated by us or by any forward-looking statement contained herein.Results of Operations” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.” Prospective and existing
investors are strongly urged to carefully consider the various cautionary statements and risks set forth in this Annual Report on Form 10-K and in our other public filings.
We haveface many business risks, including those related to our financial performance, investments in our common stock, operating our business and legal matters. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties may also impair our business operations. If any of these risks actually occur, our financial condition and results of operations could be materially and adversely affected. In that case, the market price of the Company’s common stock could decline.
We have not been profitable
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations and must increase our revenues and/or reduce costs if we hope to achieve profitability.financial results.
As measured under U.S. generally accepted accounting principles (“U.S. GAAP”), we incurred net losses attributable to our stockholders of $0.8 million in fiscal 2017, $29.9 million in fiscal 2016
Business and $24.6 million in fiscal 2015 and have been unprofitable since we became a public company in January 2007. We also have incurred losses from operations in all fiscal years since we became a public company, although we generated cash from operations in fiscal 2017, 2016, 2013, 2012, 2010 and 2009.Operational Risk Factors
Throughout fiscal 2017, we experienced strong price competition for new business in all regions while major customer consolidations from prior years also put pressure on revenue and gross margin. In addition, we saw pricing pressures in all markets, particularly in international markets. Customer consolidation may have an increasing negative impact on our revenue if Aviat is not selected as a vendor for the products and/or services we provide. In order to counter pricing pressures, we invested heavily in product improvements to reduce unit costs and enhance product features, decreased overall company expenses, and worked with our vendors to attain more favorable pricing. If we are unable to reduce product unit costs associated with enhanced product features, including payments to contract manufacturers and other suppliers, or achieve the projected cost reductions, we may not achieve profitability.
We cannot be certain that these actions or others that we may take in the future will result in operating profitability or net income as determined under U.S. GAAP.
Our•Our sales cycle may be lengthy, and the timing of sales, along with additional services such as warehousing, inventory management,network design, installation and implementation of our products within our customers’ networks, may extend over more than one period, which can make our operating results volatile and difficult to predict.
•We face risks related to pandemics, threatened health epidemics and other outbreaks, which could significantly disrupt our manufacturing, sales and other operations.
•Our success will depend on new products introduced to the marketplace in a timely manner, successfully completing product transitioning and achieving customer acceptance.
•We rely on various third-party service partners to help complement our global operations, and failure to adequately manage these relationships could adversely impact our financial results and relationships with customers.
•We must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful.
•Our average sales prices may decline in the future.
•Credit and commercial risks and exposures could increase if the financial condition of our customers declines.
•Our restructuring actions could harm our relationships with our employees and impact our ability to recruit new employees.
•Our business could be adversely affected if we are unable to attract and retain key personnel.
•We face strong competition for maintaining and improving our position in the market, which can adversely affect our revenue growth and operating results.
•Our ability to sell our products and compete successfully is highly dependent on the quality of our customer service and support, and our failure to offer high quality service and support could have a material adverse effect on our sales and results of operations.
•Product performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business and reputation.
•If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, which would adversely affect our business and results of operations.
•If we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations and, in the event of an inability to fulfill commitments, would harm our customer relationships.
•We depend on sole or limited sources and geographies for some key components and failure to receive timely delivery of any of these components could result in deferred or lost sales.
•Because a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business.
•We continually evaluate strategic transaction opportunities which could involve merger, divestiture, sale and/or acquisition activities that could disrupt our operations and harm our operating results.
•The NEC Transaction may not be consummated on a timely basis or at all. Failure to complete the acquisition within the expected timeframe or at all could adversely affect our stock price and our future business and financial results.
•The NEC Transaction will require management to devote significant attention and resources to integrating the acquired NEC businesses with our business.
Financial and Macroeconomic Risk Factors
•Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations.
•Due to the volume of our international sales, we may be susceptible to a number of political, economic and geographic risks that could harm our business.
•There are inherent limitations on the effectiveness of our controls.
•We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.
•The effects of global financial and economic conditions in certain markets have had, and may continue to have, significant effects on our customers and suppliers, and has in the past, and may in the future have, a material adverse effect on our business, operating results, financial condition and stock price.
•Changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation in any country in which we operate; the loss of a major tax dispute; a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries; or other factors could cause volatility in our effective tax rate and could adversely affect our operating results.
•Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes and other tax benefits may be limited.
Legal and Regulatory Risk Factors
•Continued tension in U.S.-China trade relations may adversely impact our supply chain operations and business.
•If we are unable to adequately protect our intellectual property rights, we may be deprived of legal recourse against those who misappropriate our intellectual property.
•If sufficient radio frequency spectrum is not allocated for use by our products, or we fail to obtain regulatory approval for our products, our ability to market our products may be restricted.
•Our business is subject to changing regulation of corporate governance, public disclosure and anti-bribery measures which have resulted in increased costs and may continue to result in additional costs or potential liabilities in the future.
•Our products are used in critical communications networks which may subject us to significant liability claims.
•We may be subject to litigation regarding our intellectual property. This litigation could be costly to defend and resolve and could prevent us from using or selling the challenged technology.
•We are subject to laws, rules, regulations and policies regarding data privacy and security. Many of these laws and regulations are subject to change and reinterpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or other harm to our business.
•We are subject to complex federal, state, local and international laws and regulations related to protection of the environment that could materially and adversely affect the cost, manner or feasibility of conducting our operations, as well as those of our suppliers and contract manufacturers.
•Increased attention to environmental, social, and governance (“ESG”) matters, conservation measures and climate change issues has contributed to an evolving state of environmental regulation, which could impact our results of operations, financial or competitive position and may adversely impact our business.
•Anti-takeover provisions of Delaware law, Tax Benefit Preservation Plan (the “Plan”), and provisions in our Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws could make a third-party acquisition of us difficult.
General Risk Factors
•Natural disasters or other catastrophic events such as terrorism and war could have an adverse effect on our business.
•System security risks, data protection breaches, and cyberattacks could compromise our proprietary information, disrupt our internal operations and harm public perception of our products, which could cause our business and reputation to suffer and adversely affect our stock price.
For a more complete discussion of the material risks facing our business, see below.
Business and Operational Risk Factors
Our sales cycle may be lengthy, and the timing of sales, along with additional services such as network design, installation and implementation of our products within our customers’ networks, may extend over more than one period, which can make our operating results volatile and difficult to predict.
We anticipateexperience difficulty in accurately predicting the timing of the sale of products and amounts of revenue generated from sales of our products, primarily in developing countries. The establishment of a business relationship with a potential customer is a lengthy process, generallyusually taking several months and sometimes longer.or more. Following the establishment of the relationship, the negotiation of purchase terms can be time-consuming, and a potential customer may require an extended evaluation and testing period. We expect that our product sales cycle, which results in our products being designed into our customers’ networks, could take 12 to 24 months. A number of factors can contribute to the length of the sales cycle, including technical evaluations of our products, the design process required to integrate our products into our customers’ networks and warehousing and/or inventory management services that may be requested by certain large customers. In anticipation of product orders, we may incur substantial costs before the sales cycle is complete and before we receive any customer payments. Specifically, should a customer require warehousing and/or inventory management services, such services may impact our operating results in any period due to the costs associated with providing such services and the fact that the timing of the revenue recognition may be delayed. As a result, in the event that a sale is not completed or is canceled or delayed, we may have incurred substantial expenses, making it more difficult for us to become profitable or otherwise negatively impacting our financial results. Furthermore, because of our lengthy sales cycle, our recognition of revenue from our selling efforts may be substantially delayed, our ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.
Once a purchase agreement has been executed, the timing and amount of revenue, if applicable, may remain difficult to predict. Our typical product sales cycle, which results in our products being designed into our customers’ networks, can take 12 to 24 months. A number of factors contribute to the length of the sales cycle, including technical evaluations of our products and the design process required to integrate our products into our customers’ networks. The completion of services such as warehousing and inventory management, installation and testing of the customer’s networks and the completion of all other suppliers’ network elements are subject to the customer’s timing and efforts and other factors outside our control, each of which may prevent us from making predictions of revenue with any certainty and could cause us to experience substantial period-to-period fluctuations in our operating results.
Due to the challenges from our lengthy sales cycle, our recognition of revenue from our selling efforts may be substantially delayed, our ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.
Our operating results are expected to be difficult to predict and delays in product delivery or closing a sale can cause revenue, margins and net income or loss to fluctuate significantly from anticipated levels. A substantial portion of our contracts are completed in the latter part of a quarter and a significant percentage of these are large orders. Because a significant portion of our cost structure is largely fixed in the short term, revenue shortfalls tend to have a disproportionately negative impact on our profitability and can increase our inventory. The number of large new transactions also increases the risk of fluctuations in our quarterly results because a delay in even a small number of these transactions could cause our quarterly revenues and profitability to fall significantly short of our predictions. In addition, we may increase spending in response to competitive actions, in pursuit of new market opportunities, or to mitigate supply chain disruptions. Accordingly, we cannot provide assurances that we will be able to achieve profitability in the future or that if profitability is attained, that we will be able to sustain profitability, particularly on a quarter-to-quarter basis.
We face risks related to pandemics, threatened health epidemics and other outbreaks, which could significantly disrupt our manufacturing, sales and other operations.
Our business could be adversely impacted by the effects of a widespread outbreak of contagious disease, such as COVID-19. A pandemic such as COVID-19 or other such health crisis could impact our supply operations; for example, if any of our suppliers cease operating, causing us to move production to an alternate supplier. In addition, constraints on supply operations as a result of a pandemic has in the past and could in the future result in component part shortages due to global capacity constraints. Such a constraint could and has caused lead times for our products to increase. In an effort to halt the outbreak of a pandemic such as COVID-19, governments have in the past and may in the future place significant restrictions on travel, leading to extended business closures, including closures at our third-party manufacturers. Our suppliers and third-party manufacturers have and could be disrupted by worker absenteeism, quarantines, office and factory closures, disruptions to ports and other shipping infrastructure, or other travel or health-related restrictions and such restrictions could spread to other locations where we outsource the manufacturing or distribution of our products if the virus and its variants continues to spread or resurge. If our supply chain operations are affected or are curtailed by the outbreak of diseases such as COVID-19, our supply chain, manufacturing and product shipments will be delayed, which could adversely affect our business, operations and customer relationships. We may need to seek alternate sources of supply which may be more expensive, unavailable or may result in delays in shipments to us from our supply chain and subsequently to our customers. Further, if our distributors’ or end user customers’
businesses are similarly affected, they might delay or reduce purchases from us, which could adversely affect our results of operations.
In addition, freight and logistics constraints caused in part by restrictions imposed by governments to combat the COVID-19 pandemic and additionally due to container and carriage shortages, have resulted in increased costs and constrained available transport, for us and our channel partners, all at a time when global demand has increased. We have sought and may continue to seek alternate sources of supply which may be more expensive, unavailable or may result in delays in shipments to us and from our supply chain and subsequently to our customers.
We are conducting business with certain modifications to employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications. Our business is dependent on travel of our sales, operations, quality and technical support, and other managers and employees. Limitations placed on travel globally could limit our ability to manage post-contract support and maintenance activities. We may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interest of our employees, customers, partners, suppliers and shareholders. Any such alterations or modifications may adversely impact our business, our customers and prospects, or our financial results.
The extent to which the COVID-19 pandemic or any other pandemic will impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of COVID-19 or other pandemics and its variants in the future, future government actions in response to the crisis, the acceptance and effectiveness of the COVID-19 vaccines and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. We cannot at this time quantify or forecast the business impact of COVID-19, and there can be no assurance that the COVID-19 pandemic or other health crisis will not have a material and adverse effect on our business, financial results and financial condition.
Our success will depend on new products introduced to the marketplace in a timely manner, successfully completing product transitioning and achieving customer acceptance.
The market for our products and services is characterized by rapid technological change, evolving industry standards and frequent new product introductions. Our future success will depend, in part, on continuous timely development and introduction of new products and enhancements that address evolving market requirements and are attractive to customers. If we fail to develop or introduce, on a timely basis, new products or product enhancements or features that achieve market acceptance, our business may suffer. Additionally, we work closely with a variety of third-party partners to develop new product features and new platforms. Should our partners face delays in the development process, then the timing of the rollout of our new products may be significantly impacted which may negatively impact our revenue and gross margin. Another factor impacting our future success is the growth in the customer demand of our new products. Rapidly changing technology, frequent new product introductions and enhancements, short product life cycles and changes in customer requirements characterize the markets for our products. We believe that successful new product introductions provide a significant competitive advantage because of the significant resources committed by customers in adopting new products and their reluctance to change products after these resources have been expended. We have spent, and expect to continue to spend, significant resources on internal research and development to support our effort to develop and introduce new products and enhancements.
As we transition to new product platforms, we face significant risk that the development of our new products may not be accepted by our current customers or by new customers. To the extent that we fail to introduce new and innovative products that are adopted by customers, we could fail to obtain an adequate return on these investments and could lose market share to our competitors, which could be difficult or impossible to regain. Similarly, we may face decreased revenue, gross margins and profitability due to a rapid decline in sales of current products as customers hold spending to focus purchases on new product platforms. We could incur significant costs in completing the transition, including costs of inventory write-downs of the current product as customers transition to new product platforms. In addition, products or technologies developed by others may render our products non-competitive or obsolete and result in significant reduction in orders from our customers and the loss of existing and prospective customers.
We rely on various third-party service partners to help complement our global operations, and failure toadequately manage these relationships could adversely impact our financial results and relationships with customers.
We rely on a number of third-party service partners, to complement our global operations. We rely upon these partners for certain installation, maintenance, logistics and support functions. In addition, as our customers increasingly
seek to rely on vendors to perform additional services relating to the design, construction and operation of their networks, the scope of work performed by our service partners is likely to increase and may include areas where we have less experience providing or managing such services. We must successfully identify, assess, train and certify qualified service partners to ensure the proper installation, deployment and maintenance of our products. The vetting and certification of these partners can be costly and time-consuming, and certain partners may not have the same operational history, financial resources and scale as we have. Moreover, certain service partners may provide similar services for other companies, including our competitors. We may not be able to manage our relationships with our service partners effectively, and we cannot be certain that they will be able to deliver services in the manner or time required, that we will be able to maintain the continuity of their services, or that they will adhere to our approach to ethical business practices.
If we do not effectively manage our relationships with third-party service partners, or if they fail to perform these services in the manner or time required, our financial results and relationships with our customers could be adversely affected.
We must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful.
The optical transport networking equipment market is characterized by rapid technological change, changes in customer requirements and evolving industry standards. We continually invest in research and development to sustain or enhance our existing products, but the introduction of new communications technologies and the emergence of new industry standards or requirements could render our products obsolete. Further, in developing our products, we have made, and will continue to make, assumptions with respect to which standards or requirements will be adopted by our customers and competitors. If the standards or requirements adopted by our prospective customers are different from those on which we have focused our efforts, market acceptance of our products would be reduced or delayed, and our business would be harmed.
We are continuing to invest a significant portion of our research and development efforts in the development of our next-generation products. We expect our competitors will continue to improve the performance of their existing products and introduce new products and technologies and to influence customers’ buying criteria so as to emphasize product capabilities that we do not, or may not, possess. To be competitive, we must anticipate future customer requirements and continue to invest significant resources in research and development, sales and marketing, and customer support. If we do not anticipate these future customer requirements and invest in the technologies necessary to enable us to have and to sell the appropriate solutions, it may limit our competitive position and future sales, which would have an adverse effect on our business and financial condition. We may not have sufficient resources to make these investments and we may not be able to make the technological advances necessary to be competitive.
Our average sales prices may decline in the future.
We are experiencing,have experienced, and are likely tocould continue to experience, declining sales prices. This price pressure is likely to result in downward pricing pressure on our products and services. As a result, we are likely to experience declining average sales prices for our products. Our future profitability will depend upon our ability to improve manufacturing efficiencies, to reduce the costs of materials used in our products and to continue to introduce new lower-cost products and product enhancements and if we are unable to do so, we may not be able to respond to pricing pressures. If we are unable to respond to increased price competition, our business, financial condition and results of operations will be harmed. Because customers frequently negotiate supply arrangements far in advance of delivery dates, we may be required to commit to price reductions for our products before we are aware of how, or if, cost reductions can be obtained. As a result, current or future price reduction commitments and any inability on our part to respond to increased price competition could harm our business, financial condition and results of operations.
Credit and commercial risks and exposures could increase if the financial condition of our customers declines.
A substantial portion of our sales are to customers in the telecommunications industry. These customers may require their suppliers, including the Company, to provide extended payment terms, direct loans or other forms of financial support as a condition to obtaining commercial contracts. In addition, if local currencies cannot be hedged, we have an inherent exposure in our ability to convert monies at favorable rates from or to U.S. dollars. More generally, we expect to routinely enter into long-term contracts involving significant amounts to be paid by our customers over time. Pursuant to these contracts, we may deliver products and services representing an important portion of the contract price before receiving any significant payment from the customer. As a result of the financing that may be provided to customers and our commercial risk exposure under long-term contracts, our business could be adversely affected if the
financial condition of our customers erodes. Over the past few years, certain of our customers have filed with the courts seeking protection under the bankruptcy or reorganization laws of the applicable jurisdiction or have experienced financial difficulties. TheOur customers’ financial healthiness may be exacerbatedconditions face additional challenges in many emerging markets, where our customers are being affected not only by recession, but by deteriorating local currencies and a lack of credit. Uponcredit and, more broadly, by the financial failure of a customer, we may experience losses on credit extended to such customer, losses relating to our commercial risk exposureCOVID-19 pandemic and the loss of the customer’s ongoing business.related economic effects. If customers fail to meet their obligations to us, we may experience reduced cash flows and losses in excess of reserves, which could materially adversely impact our results of operations and financial position.
Our business requires extensive credit risk management that may not be adequate to protect against customer nonpayment. A risk of non-payment by customers is a significant focus of our business. We expect a significant amount of future revenue to come from international customers in developing countries. We do not generally expect to obtain collateral for sales, although we require letters of credit or credit insurance as appropriate for international customers. Because a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business. Our historical accounts receivable balances have been concentrated in a small number of significant customers. Unexpected adverse events impacting the financial condition of our customers, bank failures or other unfavorable regulatory, economic or political events in the countries in which we do business may impact collections and adversely impact our business, require increased bad debt expense or receivable write-offs and adversely impact our cash flows, financial condition and operating results, which could also result in a breach of our bank covenants.
Our business could be adversely affected if we are unable to attract and retain key personnel.
Our success and ability to invest and grow depend largely on our ability to attract and retain highly skilled technical, professional, managerial, sales and marketing personnel. Historically, competition for these key personnel has been intense. The loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the future, delays in hiring required personnel, particularly engineering and sales personnel, or the loss of key personnel to competitors could make it difficult for us to meet key objectives, such as timely and effective product introductions and financial goals.
We face strong competition for maintaining and improving our position in the market, which can adversely affect our revenue growth and operating results.
The wireless access, interconnection and backhaul business is a specialized segment of the wireless telecommunications industry and is extremely competitive. Competition in this segment is intense, and we expect it to increase. Some of our competitors have more extensive engineering, manufacturing and marketing capabilities and significantly greater financial, technical and personnel resources than we have. In addition, some of our competitors have greater name recognition, broader product lines, a larger installed base of products and longer-standing customer relationships. Our competitors include established companies, such as Ericsson, Huawei and Nokia, as well as a number of other public and private companies, such as Ceragon and SIAE. Some of our competitors are OEMs or systems integrators through whom we market and sell our products, which means our business success may depend on these competitors to some extent. One or more of our largest customers could internally develop the capability to manufacture products similar to those manufactured or outsourced by us and, as a result, the demand for our products and services may decrease.
In addition, we compete for acquisition and expansion opportunities with many entities that have substantially greater resources than we have. Our competitors may enter business combinations to accelerate product development or to compete more aggressively and we may lack the resources to meet such enhanced competition.
Our ability to compete successfully will depend on a number of factors, including price, quality, availability, customer service and support, breadth of product lines, product performance and features, rapid time-to-market delivery capabilities, reliability, timing of new product introductions by us, our customers and competitors, the ability of our customers to obtain financing and the stability of regional sociopolitical and geopolitical circumstances, and the ability of large competitors to obtain business by providing more seller financing especially for large transactions. We can give no assurances that we will have the financial resources, technical expertise, or marketing, sales, distribution, customer service and support capabilities to compete successfully, or that regional sociopolitical and geographic circumstances will be favorable for our successful operation.
Our ability to sell our products and compete successfully is highly dependent on the quality of our customer service and support, and our failure to offer high quality service and support could have a material adverse effect on our sales and results of operations.
Once our products are delivered, our customers depend on our service and support to resolve any issues relating to our products. Our support personnel includes employees in various geographic locations, who provide general technical support to our customers. A high level of support is important for the successful marketing and sale of our products. If we do not effectively help our customers quickly resolve issues or provide effective ongoing support, it could adversely affect our ability to sell our products to existing customers as well as demand for maintenance and renewal contracts and could harm our reputation with existing and potential customers.
Product performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business and reputation.
The development and production of products with high technology content is complicated and often involves problems with hardware, software, components and manufacturing methods. Complex hardware and software systems, such as our products, can often contain undetected errors or bugs when first introduced or as new versions are released. In addition, errors associated with components we purchase from third parties, including customized components, may be difficult to resolve. We have experienced issues in the past in connection with our products, including failures due to the receipt of faulty components from our suppliers and performance issues related to software updates. From time to time we have had to replace certain components or provide software remedies or other remediation in response to errors or bugs, and we may have to do so again in the future. In addition, performance issues can be heightened during periods where we are developing and introducing multiple new products to the market, as any performance issues we encounter in one technology or product could impact the performance or timing of delivery of other products. Our products may also suffer degradation of performance and reliability over time.
If reliability, quality, security or network monitoring problems develop, a number of negative effects on our business could result, including:
•reduced orders from existing customers;
•declining interest from potential customers;
•delays in our ability to recognize revenue or in collecting accounts receivables;
•costs associated with fixing hardware or software defects or replacing products;
•high service and warranty expenses;
•delays in shipments;
•high inventory excess and obsolescence expense;
•high levels of product returns;
•diversion of our engineering personnel from our product development efforts; and
•payment of liquidated damages, performance guarantees or similar penalties.
Because we outsource the manufacturing of certain components of our products, we may also be subject to product performance problems as a result of the acts or omissions of third parties, and we may not have adequate compensating remedies against such third parties.
From time to time, we encounter interruptions or delays in the activation of our products at a customer’s site. These interruptions or delays may result from product performance problems or from issues with installation and activation, some of which are outside our control. If we experience significant interruptions or delays that we cannot promptly resolve, the associated revenue for these installations may be delayed or confidence in our products could be undermined, which could cause us to lose customers, fail to add new customers, and consequently harm our financial results.
If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, which would adversely affect our business and results of operations.
If we fail to accurately predict our manufacturing requirements or forecast customer demand, we may incur additional costs of manufacturing and our gross margins and financial results could be adversely affected. If we overestimate our requirements, our contract manufacturers may experience an oversupply of components and assess us
charges for excess or obsolete components that could adversely affect our gross margins. If we underestimate our requirements, our contract manufacturers may have inadequate inventory or components, which could interrupt manufacturing and result in higher manufacturing costs, shipment delays, damage to customer relationships and/or our payment of penalties to our customers. Our contract manufacturers also have other customers and may not have sufficient capacity to meet all of their customers’ needs, including ours, during periods of excess demand.
If we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations and, in the event of an inability to fulfill commitments, would harm our customer relationships.
We outsource all of our manufacturing and a substantial portion of our repair service operations to independent contract manufacturers and other third parties. Our contract manufacturers typically manufacture our products based on rolling forecasts of our product needs that we provide to them on a regular basis. The contract manufacturers are responsible for procuring components necessary to build our products based on our rolling forecasts, building and assembling the products, testing the products in accordance with our specifications and then shipping the products to us. We configure the products to our customer requirements, conduct final testing and then ship the products to our customers. There can be no assurance that we will not encounter problems with our contract manufacturer related to these manufacturing services or that we will be able to replace a contract manufacturer that is not able to meet our demand.
In addition, if we fail to effectively manage our relationships with our contract manufacturers or other service providers, or if they do not fully comply with their contractual obligations or should experience delays, disruptions, component procurement problems or quality control problems, then our ability to ship products to our customers or otherwise fulfill our contractual obligations to our customers could be delayed or impaired which would adversely affect our business, financial results and customer relationships.
We depend on sole or limited sources and geographies for some key components and failure to receive timely delivery of any of these components could result in deferred or lost sales.
In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. Examples of sole or limited sourcing categories include metal fabrications and castings, for which we own the tooling and therefore limit our supplier relationships, and MMICs (a type of integrated circuit used in manufacturing microwave radios), which we procure at a volume discount from a single source. Additionally, certain semiconductor supply is concentrated in Taiwan, with little to no availability in other geographies. As such, any military conflict between Taiwan and China could interrupt supply.
Our supply chain strategy includes mitigation plans for alternative manufacturing sources and identified alternate suppliers. However, if these alternatives cannot address our requirements when our existing sources of these components fail to deliver them on time, we could suffer delayed shipments, canceled orders and lost or deferred revenues, as well as material damage to our customer relationships. Should this occur, our operating results, cash flows and financial condition could be materially adversely affected.
Because a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business.
Although we have a large customer base, during any given quarter or fiscal year a small number of customers may account for a significant portion of our revenue. Principal customers for our products and services include domestic and international wireless/mobile service providers, OEMs, as well as private network users such as public safety agencies; government institutions; and utility, pipeline, railroad and other industrial enterprises that operate broadband wireless networks.
In addition, the telecommunications industry has experienced significant consolidation among its participants, and we expect this trend to continue. Some operators in this industry have experienced financial difficulty and have filed, or may file, for bankruptcy protection. Other operators may merge and one or more of our competitors may supply products to the customers of the combined company following those mergers. This consolidation could result in purchasing decision delays and decreased opportunities for us to supply products to companies following any consolidation. This consolidation may also result in lost opportunities for cost reduction and economies of scale, and could generally reduce our opportunities to win new customers to the extent that the number of potential customers decreases. Furthermore, as
our customers become larger, they may have more leverage to negotiate better pricing which could adversely affect our revenues and gross margins.
It is possible that a significant portion of our future product sales could become even more concentrated in a limited number of customers due to the factors described above. Product sales to major customers have varied widely from period to period. The loss of any existing customer, a significant reduction in the level of sales to any existing customer, the consolidation of existing customers, or our inability to gain additional customers could result in declines in our revenue or an inability to grow revenue.
We continually evaluate strategic transaction opportunities which could involve merger, divestiture, sale and/or acquisition activities that could disrupt our operations and harm our operating results.
Our growth depends upon market growth, our ability to enhance our existing products and our ability to introduce new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing products through acquisitions, or “tuck-ins,” product lines, technologies, and personnel. Strategic transactions involve numerous risks, including the following:
•difficulties in integrating the operations, systems, technologies, products, and personnel of the combined companies, particularly companies with large and widespread operations and/or complex products;
•diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from business combinations, sales, divestitures and/or restructurings;
•potential difficulties in completing projects associated with in-process research and development intangibles;
•difficulties in entering markets in which we have no or limited direct prior experience and where competitors in each market have stronger market positions;
•initial dependence on unfamiliar supply chains or relatively small supply partners;
•insufficient revenue to offset increased expenses associated with acquisitions; and
•the potential loss of key employees, customers, resellers, vendors and other business partners of our Company or the companies with which we engage in strategic transactions following and continuing after announcement of an anticipated strategic transaction.
Strategic transactions may also cause us to:
•issue common stock that would dilute our current stockholders or cause a change in control of the combined company;
•use a substantial portion of our cash resources, or incur debt;
•significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition;
•assume material liabilities;
•record goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges;
•incur amortization expenses related to certain intangible assets;
•incur tax expenses related to the effect of acquisitions on our intercompany R&D cost sharing arrangement and legal structure;
•incur large and immediate write-offs and restructuring and other related expenses; and
•become subject to intellectual property or other litigation.
Mergers, restructurings, sales and acquisitions of high-technology companies are inherently risky and subject to many factors outside of our control. No assurance can be given that any future strategic transactions will be successful and will not materially adversely affect our business, operating results or financial condition. Failure to manage and successfully complete a strategic transaction could materially harm our business and operating results. Even when an acquired or acquiring company has already developed and marketed products, there can be no assurance that product
enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.
The pending transaction with NEC Corporation may not be consummated on a timely basis or at all. Failure to complete the acquisition within the expected timeframe or at all could adversely affect our stock price and our future business and financial results.
On May 9, 2023, we entered into a Master Sale of Business Agreement with NEC Corporation and certain other parties thereto in connection with the NEC Transaction (the “Purchase Agreement”). We expect the NEC Transaction to close in the fourth quarter of calendar 2023. The NEC Transaction is subject to closing conditions. If these conditions are not satisfied or waived, the NEC Transaction will not be consummated. If the closing of the NEC Transaction is substantially delayed or does not occur at all, or if the terms of the NEC Transaction are required to be modified substantially, we may not realize the anticipated benefits of the transactions fully or at all or they may take longer to realize than expected. The closing conditions include (i) the counterparties’ representations and warranties being true (subject to certain materiality qualifiers) as of the closing, (ii) the counterparties’ performance, in all material respects, of all obligations and agreements required to be performed prior to closing, (iii) the receipt of all documents, instruments, certificates or other items required to be delivered at or as of the closing by the other parties to the Purchase Agreement, (iv) the absence of legal matters prohibiting the NEC Transaction, and (v) the absence or expiration of any required regulatory periods. We have incurred and will continue to incur substantial transaction costs whether or not the NEC Transaction is completed. Any failure to complete the NEC Transaction could have a material adverse effect on our stock price, our competitiveness and reputation in the marketplace, and our future business and financial results, including our ability to execute on our strategy to return capital to our stockholders.
The NEC Transaction will require management to devote significant attention and resources to integrating the acquired NEC businesses with our business. Potential difficulties that may be encountered in the integration process include, among others:
•the inability to successfully integrate the acquired NEC business into the Aviat business in a manner that permits us to achieve the revenue we anticipated from the NEC Transaction;
•complexities associated with managing the larger, integrated business;
•potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the NEC Transaction;
•integrating personnel from the NEC companies while maintaining focus on providing consistent, high-quality products and services;
•integrating relationships with customers, vendors and business partners;
•performance shortfalls as a result of the diversion of management’s attention caused by completing the NEC Transaction and integrating acquired NEC operations into Aviat; or
•the disruption of, or loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.
Delays or difficulties in the integration process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect or have communicated from this integration or that these benefits will be achieved within the anticipated time frame.
Financial and Macroeconomic Risk Factors
Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future adversely affect our liquidity. In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and
liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us, or at all. Any decline in available funding or access to our cash and liquidity resources could, among other things, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity, business, financial condition or results of operations.
In addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our customers or suppliers, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition. Any customer or supplier bankruptcy or insolvency, or the failure of any customer to make payments when due, or any breach or default by a customer or supplier, or the loss of any significant supplier relationships, could result in material losses to the Company and may have a material adverse impact on our business.
Due to the volume of our international sales, we may be susceptible to a number of political, economic, financial and geographic risks that could harm our business.
We are highly dependent on sales to customers outside the U.S. In each of fiscal 2017, 2016 and 2015,2023, our sales to international customers accounted for 47%, 55% and 55%, respectively,43% of total revenue. Significant portions of our international sales are in less developed countries. Our international sales are likely to continue to account for a large percentage of our products and services revenue for the foreseeable future. As a result, the occurrence of any international, political, economic or geographic event could result in a significant decline in revenue. In addition, compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions. These numerous and sometimes conflicting laws and regulations include internal control and disclosure rules, data privacy and filtering requirements, anti-corruption laws, such as the Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials, and anti-competition regulations, among others. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our brand, our international expansion efforts, our ability to attract and retain employees, our business, and our operating results. Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies.
Some of the risks and challenges of doing business internationally include:
•unexpected changes in regulatory requirements;
•fluctuations in international currency exchange rates including its impact on unhedgeable currencies and our forecast variations for hedgeable currencies;
•imposition of tariffs and other barriers and restrictions;
•management and operation of an enterprise spread over various countries;
•the burden of complying with a variety of laws and regulations in various countries;
•application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity and uncertainty;
•the conduct of unethical business practices in developing countries;
•general economic and geopolitical conditions, including inflation and trade relationships;
•restrictions on travel to locations where we conduct business, including those imposed due to COVID-19;
•war and acts of terrorism;
•kidnapping and high crime rate;
•natural disasters;
•availability of U.S. dollars especially in countries with economies highly dependent on resource exports, particularly oil; and
•changes in export regulations.
While these factors and the impacts of these factors are difficult to predict, any one or more of them could adversely affect our business, financial condition and results of operations in the future.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.
We believe that our existing cash and cash equivalents, the available line of credit under our credit facility and future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for the next 12 months and the foreseeable future. However, it is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our longer-term capital needs. If this occurs, we may need to sell assets, reduce capital expenditures, or obtain additional equity or debt financing. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms if and when needed, our business, financial condition and results of operations could be harmed.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownershipA portion of our stockholders could be significantly diluted,sales and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders.
We may undertake further restructuring activities, which may adversely impact our operations, and we may not realize allexpenses stem from countries outside of the anticipated benefits of these activities or any potential future restructurings. Any restructuring activities may harm our business.
We continueUnited States, and are in currencies other than U.S. dollars, and therefore subject to evaluate our business to determine the potential need to realign our resources as we continue to transform our businessforeign currency fluctuation. Accordingly, fluctuations in order to achieve desired cost savings in an increasingly competitive market. In prior years, we have undertaken a series of steps to restructure our operations involving, among other things and depending on the year, reductions of our workforce, the relocation of our corporate headquarters and the reduction and outsourcing of manufacturing activities. We incurred restructuring charges of $0.6 million, $2.5 million and $4.9 million in fiscal 2017, 2016 and 2015, respectively.
We have based our restructuring efforts on assumptions and plans regarding the appropriate cost structure of our business based on our product mix and projected sales, among other factors. Some of our assumptions include the elimination of jobs and the outsourcing of certain functions to reduce our operating expenses. These assumptions may not be accurate and we may not be able to operate in accordance with our plans. Should this occur we may determine that we must incur additional restructuring charges in the future. Moreover, we cannot assure you that we will realize all of the anticipated benefits of our restructuring actions or that we will not further reduce or otherwise adjust our workforce or exit, or dispose of, certain businesses and product lines. Any decision to further limit investment, exit, or disposal of businesses or product lines may result in the recording of additional restructuring charges. Consequently, the costs actually incurred in connection with the restructuring efforts may be higher than originally planned and may not lead to the anticipated cost savings and/or improved results. For example, if we consolidate additional facilities in the future, we may incur additional restructuring and related expenses, whichforeign currency rates could have a material adverse effect on our business, financial condition or results of operations.
Our restructuring actions could harm our relationships with our employees and impact our ability to recruit new employees.
Employees, whether or not directly affected by any restructuring actions that we undertake, may seek employment with our business partners, customers or competitors. We cannot assure you that the confidential nature of our proprietary information will not be compromised by any such employees who terminate their employment with us. Further, we believe that our future success will depend in large part upon our ability to attract, motivate and retain highly skilled personnel. We may have difficulty attracting and retaining such personnel as a result of a perceived risk of future workforce reductions, and we may terminate the employment of employees as part of a restructuring and later determine that such employees were important to the success of the ongoing business.
Our business could be adversely affected if we are unable to attract and retain key personnel.
Our success and ability to invest and grow depend largely on our ability to attract and retain highly skilled technical, professional, managerial, sales and marketing personnel. Historically, competition for these key personnel has been intense. The loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the future, delays in hiring required personnel, particularly engineering and sales personnel, or the loss of key personnel to competitors could make it difficult for us to meet key objectives, such as timely and effective product introductions and financial goals.
Our success will depend on new products introduced to the marketplace in a timely manner, successfully completing product transitioning and achieving customer acceptance.
The market for our products and services is characterized by rapid technological change, evolving industry standards and frequent new product introductions. Our future success will depend, in part, on continuous, timely development and introduction of new products and enhancements that address evolving market requirements and are attractive to customers. If we fail to develop or introduce on a timely basis new products or product enhancements or features that achieve market acceptance, our business may suffer. Additionally, we work closely with a variety of third party partners to develop new product features and new platforms. Should our partners face delays in the development process, then the timing of the rollout of our new products may be significantly impacted which may negatively impact our revenue and gross margin. Another factor impacting our future success is the growth in the customer demand of our new products. Rapidly changing technology, frequent new products introductions and enhancements, short product life cycles and changes in customer requirements characterize the markets for our products. We believe that successful new product introductions provide a significant competitive advantage because of the significant resources committed by customers in adopting new products and their reluctance to change products after these resources have been expended. We have spent, and expect to continue to spend, significant resources on internal research and development to support our effort to develop and introduce new products and enhancements.
As we transition to new product platforms, we face significant risk that the development of our new products may not be accepted by our current customers or by new customers. To the extent that we fail to introduce new and innovative products that are adopted by customers, we could fail to obtain an adequate return on these investments and could lose market share to our competitors, which could be difficult or impossible to regain. Similarly, we may face decreased revenue, gross margins and profitability due to a rapid decline in sales of current products as customers hold spending to focus purchases on new product platforms. We could incur significant costs in completing the transition, including costs of inventory write-downs of the current product as customers transition to new product platforms. In addition, products or technologies developed by others may render our products noncompetitive or obsolete and result in significant reduction in orders from our customers and the loss of existing and prospective customers.
Our quarterly results may be volatile, which can adversely affect the trading price of our common stock.
Our quarterly operating results may vary significantly for a variety of reasons, many of which are outside our control. These factors could harm our business and include, among others:
seasonality in the purchasing habits of our customers;
the volume and timing of product orders and the timing of completion of our product deliveries and installations;
our ability and the ability of our key suppliers to respond to changes on demand as needed;
margin variability based on geographic and product mix;
our suppliers’ inability to perform and deliver on time as a result of their financial condition, component shortages or other supply chain constraints;
retention of key personnel;
the length of our sales cycle;
litigation costs and expenses;
continued timely rollout of new product functionality and features;
increased competition resulting in downward pressure on the price of our products and services;
unexpected delays in the schedule for shipments of existing products and new generations of the existing platforms;
failure to realize expected cost improvement throughout our supply chain;
order cancellations or postponements in product deliveries resulting in delayed revenue recognition;
restructuring and streamlining of our operations;
war and acts of terrorism;
natural disasters;
the ability of our customers to obtain financing to enable their purchase of our products;
fluctuations in international currency exchange rates;
regulatory developments including denial of export and import licenses;
general economic conditions worldwide that affect demand and financing for microwave and millimeter wave telecommunications networks; and
the timing and size of future restructuring plans and write-offs.
Our quarterly results are expected to be difficult to predict and delays in product delivery or closing a sale can cause revenue, margins and net income or loss to fluctuate significantly from anticipated levels. A substantial portion of our contracts are completed in the latter part of a quarter and a significant percentage of these are large orders. Because a significant portion of our cost structure is largely fixed in the short term, revenue shortfalls tend to have a disproportionately negative impact on our profitabilityfinancial results in future periods. From time to time, we enter into foreign currency exchange forward contracts to reduce the volatility of cash flows primarily related to forecasted foreign currency expenses. These forward contracts reduce the impact of currency exchange rate movements on certain transactions, but do not cover all foreign-denominated transactions and can increase our inventory. The number of large new transactions also increasestherefore do not entirely eliminate the riskimpact of fluctuations in our quarterly results because a delay in even a small number of these transactions could cause our quarterly revenues and profitability to fall significantly short of our predictions. In addition, we may increase spending in response to competitive actions or in pursuit of new market opportunities. Accordingly, we cannot provide assurances that we will be able to achieve profitability in the future or that if profitability is attained, that we will be able to sustain profitability, particularlyexchange rates on a quarter-to-quarter basis.
We face strong competition for maintaining and improving our position in the market, which can adversely affect our revenue growth and operating results.
The wireless access, interconnection and backhaul business is a specialized segment of the wireless telecommunications industry and is extremely competitive. Competition in this segment is intense, and we expect it to increase. Some of our competitors have more extensive engineering, manufacturing and marketing capabilities and significantly greater financial, technical and personnel resources than we have. In addition, some of our competitors have greater name recognition, broader product lines, a larger installed base of products and longer-standing customer relationships. Our competitors include established companies, such as Ericsson, Huawei, NEC and Nokia, as well as a number of other public and private companies, such as Ceragon, DragonWave and SIAE. Some of our competitors are OEMs or systems integrators through whom we market and sell our products, which means our business success may depend on these competitors to some extent. One or more of our largest customers could internally develop the capability to manufacture products similar to those manufactured or outsourced by us and, as a result, the demand for our products and services may decrease.
In addition, we compete for acquisition and expansion opportunities with many entities that have substantially greater resources than we have. Our competitors may enter into business combinations in order to accelerate product development or to compete more aggressively and we may lack the resources to meet such enhanced competition.
Our ability to compete successfully will depend on a number of factors, including price, quality, availability, customer service and support, breadth of product lines, product performance and features, rapid time-to-market delivery capabilities, reliability, timing of new product introductions by us, our customers and competitors, the ability of our customers to obtain financing and the stability of regional sociopolitical and geopolitical circumstances, and the ability of large competitors to obtain business by providing more seller financing especially for large transactions. We can give no assurances that we will have the financial resources, technical expertise, or marketing, sales, distribution, customer service and support capabilities to compete successfully, or that regional sociopolitical and geographic circumstances will be favorable for our successful operation.
If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, which would adversely affect our business and results of operations.
If we fail to accurately predict our manufacturing requirements or forecast customer demand, we may incur additional costs of manufacturing and our gross margins and financial results could be adversely affected. If we overestimate our requirements, our contract manufacturers may experience an oversupply of components and assess us charges for excess or obsolete components that could adversely affect our gross margins. If we underestimate our requirements, our contract manufacturers may have inadequate inventory or components, which could interrupt manufacturing and result in higher manufacturing costs, shipment delays, damage to customer relationships and/or our payment of penalties to our customers. Our contract manufacturers also have other customers and may not have sufficient capacity to meet all of their customer’s needs, including ours, during periods of excess demand.
Part of our inventory may be written off, which would increase our cost of revenues. In addition, we may be exposed to inventory-related losses on inventories purchased by our contract manufacturers.
During fiscal 2017, 2016 and 2015, we recorded charges to reduce the carrying value of our inventory which totaled $1.1 million, $9.9 million and $8.0 million, respectively. Such charges equaled 0.5%, 3.7% and 2.4% of our revenue in fiscal 2017, 2016 and 2015, respectively. These charges were primarily due to excess and obsolete inventory resulting from lower forecast, product transitioning or discontinuance.
Inventory of raw materials, work in-process or finished products may accumulate in the future, and we may encounter losses due to a variety of factors, including:
rapid technological change in the wireless telecommunications industry resulting in frequent product changes;
the need of our contract manufacturers to order raw materials that have long lead times and our inability to estimate exact amounts and types of items thus needed, especially with regard to the frequencies in which the final products ordered will operate; and
cost reduction initiatives resulting in component changes within the products.
Further, our inventory of finished products may accumulate as the result of inaccuracies in the forecasting process, cancellation of customer orders or our customers’ refusal to confirm the acceptance of our products. Our forecasting process is based on information discussed with customers concerning future orders. If a customer chooses to revise or
hold on placing the order, we may see an unfavorable impact on our inventory given the customization that is involved in our products. Our contract manufacturers are required to purchase inventory based on manufacturing projections we provide to them. If actual orders from our customers are lower than these manufacturing projections, our contract manufacturers will have excess inventory of raw materials or finished products which we would be required to purchase. In addition, we require our contract manufacturers from time to time to purchase more inventory than is immediately required, and to partially assemble components, in order to shorten our delivery time in case of an increase in demand for our products. In the absence of such increase in demand, we may need to compensate our contract manufacturers. If we are required to purchase excess inventory from our contract manufacturers or otherwise compensate our contract manufacturers for purchasing excess inventory, our business, financial condition and results of operations could be materially adversely affected. We also may purchase components or raw materials from time to time for use by our contract manufacturers in the manufacturing of our products. These purchases are based on our own manufacturing projections. If our actual orders are lower than these manufacturing projections, we may accumulate excess inventory, which we may be required to write down. If we are forced to write down inventory other than in the normal course of business, our business, financial condition and results of operations could be materially adversely affected.
The effects of the poor global financial and economic conditions in certain markets has had, and may continue to have, significant effects on our customers and suppliers, and has in the past, and may in the future have, a material adverse effect on our business, operating results, financial condition and stock price.
The effects of poor global financial and economic conditions in certain markets include, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide.
Poor economic conditions in certain markets have adversely affected and may continue to adversely affect our customers’ access to capital and/or willingness to spend capital on our products, and/or their levels of cash liquidity and/or their ability and/or willingness to pay for products that they will order or have already ordered from us, or result in their ceasing operations. Further, we have experienced an increasing number of our customers, principally in emerging markets, requesting longer payment terms, lease or vendor financing arrangements, longer terms for the letters of credit securing purchases of our products and services, which could potentially negatively impact our orders, revenue conversion cycle, and cash flows.
In seeking to reduce their expenses, we have also seen significant pressure from our customers to lower prices for our products as they try to improve their operating performance and procure additional capital equipment within their reduced budget levels. To the extent that we lower prices on our products and services, our orders, revenues, and gross margins may be negatively impacted. Additionally, certain emerging markets are particularly sensitive to pricing as a key differentiator. Where price is a primary decision driver, we may not be able to effectively compete or we may choose not to compete due to unacceptable margins.
In addition, poor economic conditions in certain markets could materially adversely affect our suppliers’ access to capital and liquidity with which to maintain their inventories, production levels, and/or product quality, could cause them to raise prices or lower production levels, or result in their ceasing operations. Further, with respect to our credit facility discussed under “Liquidity, Capital Resources and Financial Strategies” in Item 7 of this Annual Report on Form 10-K, if continued uncertain economic conditions adversely affect Silicon Valley Bank, our ability to access the funds available under our credit facility could be materially adversely affected.
The potential effects of these economic factors are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict and prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations and financial condition and could adversely affect our stock price.condition.
If we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations and, in the event of an inability to fulfill commitments, would harm our customer relationships.
We outsource all of our manufacturing and a substantial portion of our repair service operations to independent contract manufacturers and other third parties. Our contract manufacturers typically manufacture our products based on rolling forecasts of our product needs that we provide to them on a regular basis. The contract manufacturers are responsible for procuring components necessary to build our products based on our rolling forecasts, building and assembling the products, testing the products in accordance with our specifications and then shipping the products to us. We configure the products to our customer requirements, conduct final testing and then ship the products to our customers. Although we currently partner with multiple major contract manufacturers, there can be no assurance that we will not encounter problems as we are dependent on contract manufacturers to provide these manufacturing services or that we will be able to replace a contract manufacturer that is not able to meet our demand.
In addition, if we fail to effectively manage our relationships with our contract manufacturers or other service providers, or if one or more of them should not fully comply with their contractual obligations or should experience delays, disruptions, component procurement problems or quality control problems, then our ability to ship products to our customers or otherwise fulfill our contractual obligations to our customers could be delayed or impaired which would adversely affect our business, financial results and customer relationships.
We depend on sole or limited sources for some key components and failure to receive timely delivery of any of these components could result in deferred or lost sales.
In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. Examples of sole or limited sourcing categories include metal fabrications and castings, for which we own the tooling and therefore limit our supplier relationships, and MMICs (a type of integrated circuit used in manufacturing microwave radios), which we procure at a volume discount from a single source. Our supply chain plan includes mitigation plans for alternative manufacturing sources and identified alternate suppliers. However, if these alternatives cannot address our requirements when our existing sources of these components fail to deliver them on time, we could suffer delayed shipments, canceled orders and lost or deferred revenues, as well as material damage to our customer relationships. Should this occur, our operating results, cash flows and financial condition could be materially adversely affected.
As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of any country in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective tax rate could be highly volatile and could adversely affect our operating results.
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our future effective tax rate may be adversely affected by a number of factors, many of which are outside of our control, including:
the jurisdictions in which profits are determined to be earned and taxed;
adjustments to estimated taxes upon finalization of various tax returns;
increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with acquisitions;
ability to utilize net operating loss;
changes in available tax credits;
changes in share-based compensation expense;
changes in the valuation of our deferred tax assets and liabilities;
changes in domestic or international tax laws or the interpretation of such tax laws;
the resolution of issues arising from tax audits with various tax authorities;
the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods; and
taxes that may be incurred upon a repatriation of cash from foreign operations.
Any significant increase in our future effective tax rates could impact our results of operations for future periods adversely.
Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes and other tax benefits may be limited.
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) imposes an annual limitation on the amount of taxable income that may be offset if a corporation experiences an “ownership change” as defined in Section 382 of the Code. An ownership change occurs when a company’s “five-percent shareholders” (as defined in Section 382 of the Code) collectively increase their ownership in the company by more than 50 percentage points (by value) over a rolling three-year period. Additionally, various states have similar limitations on the use of state net operating losses (“NOL”) following an ownership change.
If we experience an ownership change, our ability to use our NOLs, any loss or deducting attributable to a “net unrealized built-in loss” and other tax attributes (collectively, the “Tax Benefits”) could be substantially limited, and the timing of the usage of the Tax Benefits could be substantially delayed, which could significantly impair the value of the Tax Benefits. There is no assurance that we will be able to fully utilize the Tax Benefits and we could be required to record an additional valuation allowance related to the amount of the Tax Benefits that may not be realized, which could adversely impact our result of operations.
We believe that these Tax Benefits are a valuable asset for us. On September 6, 2016, the Board approved a Tax Benefit Preservation Plan (the “Plan”) in an effort to protect our Tax Benefits during the effective period of the Plan. Further, on September 6, 2016, the Board adopted certain amendments to our Amended and Restated Certificate of Incorporation, as amended (the “Charter Amendments”), which are intended to preserve the Tax Benefits by restricting certain transfers of our common stock. The Plan and the Charter Amendments were approved by our stockholders at our 2016 annual meeting of stockholders on November 16, 2016. Although the Plan and the Charter Amendments are intended to reduce the likelihood of an “ownership change” that could adversely affect us, there is no assurance that the restrictions on transferability in the Plan and the Charter Amendments will prevent all transfers that could result in such an “ownership change.” There also can be no assurance that the transfer restrictions in the Charter Amendments will be enforceable against all of our stockholders absent a court determination confirming such enforceability. The transfer restrictions may be subject to challenge on legal or equitable grounds.
The Plan and the Charter Amendments could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, us or a large block of our common stock. A third party that acquires 4.9% or more of our common stock could suffer substantial dilution of its ownership interest under the terms of the Plan through the issuance of common stock or common stock equivalents to all stockholders other than the acquiring person. The acquisition may also be void under the Charter Amendments.
The foregoing provisions may adversely affect the marketability of our common stock by discouraging potential investors from acquiring our stock. In addition, these provisions could delay or frustrate the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, or impede an attempt to acquire a significant or controlling interest in us, even if such events might be beneficial to us and our stockholders.
Our customers may not pay for products and services in a timely manner, or at all, which would decrease our cash flows and adversely affect our working capital.
Our business requires extensive credit risk management that may not be adequate to protect against customer nonpayment. A risk of non-payment by customers is a significant focus of our business. We expect a significant amount of future revenue to come from international customers in developing countries. We do not generally expect to obtain collateral for sales, although we require letters of credit or credit insurance as appropriate for international customers. For information regarding the percentage of revenue attributable to certain key customers, see the risks discussed in the following risk factor. Our historical accounts receivable balances have been concentrated in a small number of significant customers. Unexpected adverse events impacting the financial condition of our customers, bank failures or other unfavorable regulatory, economic or political events in the countries in which we do business may impact collections and adversely impact our business, require increased bad debt expense or receivable write-offs and adversely impact our cash flows, financial condition and operating results, which could also result in a breach of our bank covenants.
Because a significant amount of our revenue may come from a limited number of customers, the termination of any of these customer relationships may adversely affect our business.
Sales of our products and services historically have been concentrated in a small number of customers. Principal customers for our products and services include domestic and international wireless/mobile service providers, OEMs, as well as private network users such as public safety agencies; government institutions; and utility, pipeline, railroad and other industrial enterprises that operate broadband wireless networks. During fiscal 2017, 2016 and 2015, we had one customer in Africa, MTN Group that accounted for 14%, 18% and 14%, respectively, of our total revenue. Although we have a large customer base, during any given quarter a small number of customers may account for a significant portion of our revenue.
It is possible that a significant portion of our future product sales also could become even more concentrated in a limited number of customers. In addition, product sales to major customers have varied widely from period to period. The loss of any existing customer, a significant reduction in the level of sales to any existing customer, or our inability to gain additional customers could result in declines in our revenue or an inability to grow revenue. In addition, further consolidation of our potential customer base could result in purchasing decision delays as consolidating customers integrate their operations and could generally reduce our opportunities to win new customers to the extent that the number of potential customers decreases. Furthermore, as our customers become larger, they may have more leverage to negotiate better pricing which could adversely affect our revenues and gross margins.
Consolidation within the telecommunications industry could result in a decrease in our revenue.
The telecommunications industry has experienced significant consolidation among its participants, and we expect this trend to continue. Some operators in this industry have experienced financial difficulty and have filed, or may file, for bankruptcy protection. Other operators may merge and one or more of our competitors may supply products to the customers of the combined company following those mergers. This consolidation could result in purchasing decision delays and decreased opportunities for us to supply products to companies following any consolidation. This consolidation may also result in lost opportunities for cost reduction and economies of scale.
We continually evaluate strategic transaction opportunities which could involve merger, restructuring, divestiture, sale and/or acquisition activities that could disrupt our operations and harm our operating results.
Our growth depends upon market growth, our ability to enhance our existing products and our ability to introduce new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing products through acquisitions, or “tuck-ins,” product lines, technologies, and personnel. Strategic transactions involve numerous risks, including the following:
difficulties in integrating the operations, systems, technologies, products, and personnel of the combined companies, particularly companies with large and widespread operations and/or complex products;
diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from business combinations, sales, divestitures and /or restructurings;
potential difficulties in completing projects associated with in-process research and development intangibles;
difficulties in entering markets in which we have no or limited direct prior experience and where competitors in each market have stronger market positions;
initial dependence on unfamiliar supply chains or relatively small supply partners;
insufficient revenue to offset increased expenses associated with acquisitions; and
the potential loss of key employees, customers, resellers, vendors and other business partners of our company or the companies with which we engage in strategic transactions following and continuing after announcement of an anticipated strategic transaction.
Strategic transactions may also cause us to:
issue common stock that would dilute our current stockholders or cause a change in control of the combined company;
use a substantial portion of our cash resources, or incur debt;
significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition;
assume material liabilities;
record goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur tax expenses related to the effect of acquisitions on our intercompany R&D cost sharing arrangement and legal structure;
incur large and immediate write-offs and restructuring and other related expenses; and
become subject to intellectual property or other litigation.
Mergers, restructurings, sales and acquisitions of high-technology companies are inherently risky and subject to many factors outside of our control. No assurance can be given that any future strategic transactions will be successful and will not materially adversely affect our business, operating results or financial condition. Failure to manage and successfully complete a strategic transaction could materially harm our business and operating results. Even when an acquired or acquiring company has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.
If we are unable to adequately protect our intellectual property rights, we may be deprived of legal recourse against those who misappropriate our intellectual property.
Our ability to compete will depend, in part, on our ability to obtain and enforce intellectual property protection for our technology in the U.S. and internationally. We rely upon a combination of trade secrets, trademarks, copyrights, patents and contractual rights to protect our intellectual property. In addition, we enter into confidentiality and invention assignment agreements with our employees, and enter into non-disclosure agreements with our suppliers and appropriate customers so as to limit access to and disclosure of our proprietary information. We cannot give assurances that any steps taken by us will be adequate to deter misappropriation or impede independent third-party development of similar technologies. In the event that such intellectual property arrangements are insufficient, our business, financial condition and results of operations could be harmed. We cannot provide assurances that the protection provided to our intellectual property by the laws and courts of particular nations will be substantially similar to the protection and remedies available under U.S. law. Furthermore, we cannot provide assurances that third parties will not assert infringement claims against us based on intellectual property rights and laws in other nations that are different from those established in the U.S.
If we fail to develop and maintain distribution and licensing relationships, our revenue may decrease.
Although a majority of our sales are made through our direct sales force, we also market our products through indirect sales channels such as independent agents, resellers, OEMs and systems integrators. These relationships enhance our ability to pursue major contract awards and, in some cases, are intended to provide our customers with easier access to financing and a greater variety of equipment and service capabilities, which an integrated system provider should be able to offer. We may not be able to maintain our current relationships or develop new ones. If additional relationships are developed, they may not be successful. Furthermore, as we consider increasing licensing revenue based on upgraded technology, we may not be successful in transitioning customers to the planned software upgrades. Our inability to establish or maintain these distribution and licensing relationships could restrict our ability to market our products and thereby result in significant reductions in revenue. If these revenue reductions occur, our business, financial condition and results of operations would be harmed.
If sufficient radio frequency spectrum is not allocated for use by our products, or we fail to obtain regulatory approval for our products, our ability to market our products may be restricted.
We will be affected by the allocation and auction of the radio frequency spectrum by governmental authorities both in the U.S. and internationally. These governmental authorities may not allocate sufficient radio frequency spectrum for use by our products or we may not be successful in obtaining regulatory approval for our products from these authorities. Historically, in many developed countries, the unavailability of frequency spectrum has inhibited the growth of wireless telecommunications networks. In addition, to operate in a jurisdiction, we must obtain regulatory approval for our products. Each jurisdiction in which we market our products has its own regulations governing radio communications. Products that support emerging wireless telecommunications services can be marketed in a jurisdiction only if permitted by suitable frequency allocations, auctions and regulations. The process of establishing new regulations is complex and lengthy. If we are unable to obtain sufficient allocation of radio frequency spectrum by the appropriate governmental authority or obtain the proper regulatory approval for our products, our business, financial condition and results of operations may be harmed.
Radio communications are subject to regulation by U.S. and foreign laws and international treaties. Generally, our products need to conform to a variety of United States and international requirements established to avoid interference among users of transmission frequencies and to permit interconnection of telecommunications equipment. Any delays in compliance with respect to our future products could delay the introduction of such products.
Our business is subject to changing regulation of corporate governance, public disclosure and anti-bribery measures which have resulted in increased costs and may continue to result in additional costs in the future and/or potential liabilities.
We are subject to rules and regulations of federal and state regulatory authorities, The NASDAQ Stock Market LLC (“NASDAQ”) and financial market entities charged with the protection of investors and the oversight of companies whose securities are publicly traded, and foreign and domestic legislative bodies. During the past few years, these entities, including the Public Company Accounting Oversight Board, the SEC, NASDAQ and several foreign governments such as the governments of the United Kingdom and Brazil, have issued requirements, laws and regulations and continue to develop additional requirements, laws and regulations, most notably the Sarbanes-Oxley Act of 2002 (“SOX”), and recent laws and regulations regarding bribery and unfair competition. Our efforts to comply with these requirements and regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of substantial management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs potentially necessitated by ongoing revisions to our disclosure and governance practices. Finally, if we are unable to ensure compliance with such requirements, laws, or regulations, we may be subject to costly prosecution and liability, and resulting reputational harm, from such noncompliance.
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could adversely affect our financial condition and results of operations, and could require a significant expenditure of time, attention and resources, especially by senior management.
Our accounting and financial reporting policies conform to U.S. GAAP, which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the SEC and our independent registered public accounting firm. The FASB has recently proposed new financial accounting standards that may result in significant changes that could adversely affect our financial condition and results of operations.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing U.S. GAAP regarding revenue recognition. In February 2016, the FASB issued ASU 2016-02, Leases, which requires all operating leases with lease terms longer than twelve months be recorded as lease assets and lease liabilities on our consolidated balance sheets. Implementing changes required by new standards, requirements or laws likely will require a significant expenditure of time, attention and resources. It is impossible to completely predict the impact, if any, on us of future changes to accounting standards and financial reporting and corporate governance requirements.
Refer to Note 1 - The Company and Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further discussion of these new accounting standards, including the implementation status and potential impact to our consolidated financial statements.
There are inherent limitations on the effectiveness of our controls.
We do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that resource constraints exist, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of some persons, by collusion of two or more people, or by management’s override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate due to changes in conditions or deterioration in the degree of compliance with policies or procedures. If our controls become inadequate, we could fail to meet our financial reporting obligations, our reputation may be adversely affected, our business and operating results could be harmed, and the market price of our stock could decline.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.
We believe that our existing cash and cash equivalents, the available line of credit under our credit facility and future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for the next 12 months and the foreseeable future. However, it is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our longer-term capital needs. If this occurs, we may need to sell assets, reduce capital expenditures, or obtain additional equity or debt financing. We have no assurance that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms if and when needed, our business, financial condition and results of operations could be harmed.
If we raise additional funds through the issuance of equity or convertible debt securities, the ownership of our existing stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders.
The effects of global or market specific financial and economic conditions have, and may continue to have, significant effects on our customers and suppliers, and have in the past, and may in the future have, a material adverse effect on our business, operating results, financial condition and stock price.
The effects of global financial and economic conditions in certain markets include, among other things, significant reductions in available capital and liquidity from credit markets, supply or demand driven inflationary pressures, and substantial fluctuations in currency values worldwide.
Economic conditions in certain markets have adversely affected and may continue to adversely affect our customers’ access to capital and/or willingness to spend capital on our products, and/or their levels of cash liquidity and/or their ability and/or willingness to pay for products that they will order or have already ordered from us, or result in their ceasing operations. Further, we have experienced an increasing number of our customers, principally in emerging markets, requesting longer payment terms, lease or vendor financing arrangements, longer terms for the letters of credit securing purchases of our products and services, which could potentially negatively impact our orders, revenue conversion cycle, and cash flows.
In seeking to reduce their expenses, we have also seen significant pressure from our customers to lower prices for our products as they try to improve their operating performance and procure additional capital equipment within their reduced budget levels. To the extent that we lower prices on our products and services, our orders, revenues, and gross margins may be negatively impacted. Additionally, certain emerging markets are particularly sensitive to pricing as a key differentiator. Where price is a primary decision driver, we may not be able to effectively compete, or we may choose not to compete due to unacceptable margins.
In addition, economic conditions in certain markets could materially adversely affect our suppliers’ access to capital and liquidity with which to maintain their inventories, production levels, or product quality, could cause them to raise prices or lower production levels, or result in their ceasing operations. Supply or demand driven scarcity can lead to significant inflationary pressures on the cost of our products from our suppliers. Our ability to substantially offset inflationary impacts by raising prices may be limited by the competitive factors discussed above.
Further, with respect to our credit facility discussed under “Liquidity, Capital Resources and Financial Strategies” in Item 7 of this Annual Report on Form 10-K, our ability to access the funds available under our credit facility could be materially adversely affected.
The potential effects of these economic factors are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict and prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect our stock price.
Changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation in any country in which we operate; the loss of a major tax dispute; a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries; or other factors could cause volatility in our effective tax rate and could adversely affect our operating results.
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our future effective tax rate may be adversely affected by a number of factors, many of which are outside of our control, including:
•the jurisdictions in which profits are determined to be earned and taxed;
•adjustments to estimated taxes upon finalization of various tax returns;
•increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with acquisitions;
•our ability to utilize net operating losses;
•changes in available tax credits;
•changes in share-based compensation expense;
•changes in the valuation of our deferred tax assets and liabilities;
•changes in domestic or international tax laws, treaties, rulings, regulations or agreements or the interpretation of such tax laws, treaties, rulings, regulations or agreements, including the impact of the Tax Cuts and Jobs Act of 2017 and any new administrations;
•the resolution of issues arising from tax audits with various tax authorities, including the loss of a major tax dispute;
•local tax authority challenging our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries;
•the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods; and
•taxes that may be incurred upon a repatriation of cash from foreign operations.
Any significant increase in our future effective tax rates could impact our results of operations for future periods adversely.
Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes and other tax benefits may be limited.
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) imposes an annual limitation on the amount of taxable income that may be offset if a corporation experiences an “ownership change” as defined in Section 382 of the Code. An ownership change occurs when a company’s “five-percent shareholders” (as defined in Section 382 of the Code) collectively increase their ownership in the company by more than 50 percentage points (by value) over a rolling three-year period. Additionally, various states have similar limitations on the use of state net operating losses (“NOL”) following an ownership change.
If we experience an ownership change, our ability to use our NOLs, any loss or deduction attributable to a “net unrealized built-in loss” and other tax attributes (collectively, the “Tax Benefits”) could be substantially limited, and the timing of the usage of the Tax Benefits could be substantially delayed, which could significantly impair the value of the Tax Benefits. There is no assurance that we will be able to fully utilize the Tax Benefits and we could be required to record an additional valuation allowance related to the amount of the Tax Benefits that may not be realized, which could adversely impact our results of operations.
We believe that these Tax Benefits are a valuable asset for us. On March 3, 2020, the Board approved The Plan (as amended and restated on August 27, 2020), in an effort to protect our Tax Benefits during the effective period of the Plan. We submitted the Plan to a stockholder vote and our stockholders approved the plan at the 2020 Annual Meeting of Stockholders. Although the Plan is intended to reduce the likelihood of an “ownership change” that could adversely affect us, there is no assurance that the restrictions on transferability in the Plan will prevent all transfers that could result in such an “ownership change.” An amendment to the Plan, approved by the Board of Directors on February 28, 2023, will be submitted to the Company’s stockholders for ratification at the Company’s 2023 annual meeting (the “Annual Meeting”), which extends the final expiration date of the Plan until March 3, 2026.
The Plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, us or a large block of our common stock. A third party that acquires 4.9% or more of our common stock could suffer substantial dilution of its ownership interest under the terms of the Plan through the issuance of common stock or common stock equivalents to all stockholders other than the acquiring person.
The foregoing provisions may adversely affect the marketability of our common stock by discouraging potential investors from acquiring our stock. In addition, these provisions could delay or frustrate the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, or impede an attempt to acquire a significant or controlling interest in us, even if such events might be beneficial to us and our stockholders.
Legal and Regulatory Risk Factors
Continued tension in U.S.-China trade relations may adversely impact our supply chain operations and business.
The U.S. government has taken certain actions that change U.S. trade policies, including tariffs that affect certain products manufactured in China. Some components manufactured by our Chinese suppliers are subject to tariffs if imported into the United States. The Chinese government has taken certain reciprocal actions, including recently imposed tariffs affecting certain products manufactured in the United States. Certain of our products manufactured in our U.S. operations have been included in the tariffs imposed on imports into China from the United States. Although some of the products and components we import are affected by the tariffs, at this time, we do not expect these tariffs to have a material impact on our business, financial condition or results of operations.
It is unknown whether and to what extent additional new tariffs (or other new laws or regulations) will be adopted that increase the cost or feasibility of importing and/or exporting products and components from China to the United States and vice versa. Further, the effect of any such new tariffs or retaliatory actions on our industry and customers is unknown and difficult to predict. As additional new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or if China or other affected countries take retaliatory trade actions, such changes could have a material adverse effect on our business, financial condition, results of operations or cash flows.
If we are unable to adequately protect our intellectual property rights, we may be deprived of legal recourse against those who misappropriate our intellectual property.
Our ability to compete will depend, in part, on our ability to obtain and enforce intellectual property protection for our technology in the U.S. and internationally. We rely upon a combination of trade secrets, trademarks, copyrights, patents, contractual rights and technological measures to protect our intellectual property rights from infringement, misappropriation or other violations to maintain our brand and competitive position. We also make business decisions about when to seek patent protection for a particular technology and when to rely upon trade secret protection, and the
approach we select may ultimately prove to be inadequate. With respect to patents, we cannot be certain that patents will be issued as a result of any currently pending patent application or future patent applications, or that any of our patents, once issued, will provide us with adequate protection from competing products or intellectual property owned by others. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable or narrowed in scope. Furthermore, we may not be able to prevent infringement, misappropriation and unauthorized, use of our owned and exclusively-licensed intellectual property. We also cannot provide assurances that the protection provided to our intellectual property by the laws and courts of particular nations will be substantially similar to the protection and remedies available under U.S. law. Furthermore, we cannot provide assurances that third parties will not assert infringement claims against us in the U.S. or based on intellectual property rights and laws in other nations that are different from those established in the U.S.
In addition, we enter into confidentiality and invention assignment agreements with our employees and contractors and enter into non-disclosure agreements with our suppliers and appropriate customers so as to limit access to and disclosure of our proprietary information. We cannot guarantee that we have entered into such agreements with each party who has developed intellectual property on our behalf and each party that has or may have had access to our confidential information, know-how and trade secrets. These agreements may be insufficient or breached, or may not effectively prevent unauthorized access to or unauthorized use, disclosure, misappropriation or reverse engineering of our confidential information, intellectual property, or technology. Moreover, these agreements may not provide an adequate remedy for breaches or in the event of unauthorized use or disclosure of our confidential information or technology, or infringement of our intellectual property. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or know-how, or misappropriated or violated intellectual property is difficult, expensive, and time-consuming, and the outcome is unpredictable.
We cannot give assurances that any steps taken by us will be adequate to deter infringement, misappropriation, violation, dilution or otherwise impede independent third-party development of similar technologies. Any of our intellectual property rights may be successfully challenged, opposed, diluted, misappropriated, violated or circumvented by others or invalidated, narrowed in scope or held unenforceable through administrative process or litigation in the United States or in non-U.S. jurisdictions. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain and any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secrets and other intellectual property rights. In the event that such intellectual property arrangements are insufficient, our business, financial condition and results of operations could be materially harmed.
If sufficient radio frequency spectrum is not allocated for use by our products, or we fail to obtain regulatory approval for our products, our ability to market our products may be restricted.
We may be affected by the allocation and auction of the radio frequency spectrum by governmental authorities both in the U.S. and internationally. The unavailability of sufficient radio frequency spectrum may inhibit the future growth of wireless communications networks. In addition, to operate in a jurisdiction, we must obtain regulatory approval for our products and each jurisdiction in which we market our products has its own regulations governing radio communications. If we are unable to obtain sufficient allocation of radio frequency spectrum by the appropriate governmental authority or obtain the proper regulatory approval for our products, our business, financial condition and results of operations may be harmed.
Our business is subject to changing regulation of corporate governance, public disclosure and anti-bribery measures which have resulted in increased costs and may continue to result in additional costs or potential liabilities in the future.
We are subject to rules and regulations of federal and state regulatory authorities, The NASDAQ Stock Market LLC (“NASDAQ”) and financial market entities charged with the protection of investors and the oversight of companies whose securities are publicly traded, and foreign and domestic legislative bodies. During the past few years, these entities, including the Public Company Accounting Oversight Board, the SEC, NASDAQ and several foreign governments, have issued requirements, laws and regulations and continue to develop additional requirements, laws and regulations, most notably the Sarbanes-Oxley Act of 2002 (“SOX”), and recent laws and regulations regarding bribery and unfair competition, including the SEC’s recently-proposed rules relating to the disclosure of a range of climate-related risks. Our efforts to comply with these requirements and regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of substantial management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs potentially necessitated by ongoing revisions to our disclosure and governance practices. Finally, if we are unable to ensure compliance with such requirements, laws, or regulations, we may be subject to costly prosecution and liability, and resulting reputational harm, from such noncompliance.
Our products are used in critical communications networks which may subject us to significant liability claims.
Because our products are used in critical communications networks, we may be subject to significant liability claims if our products do not work properly. We warrant to our current customers that our products will operate in accordance with our product specifications. If our products fail to conform to these specifications, our customers could require us to remedy the failure or could assert claims for damages. The provisions in our agreements with customers that are intended to limit our exposure to liability claims may not preclude all potential claims. In addition, any insurance policies we have may not adequately limit our exposure with respect to such claims. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. Any such claims, whether or not successful, would be costly and time-consuming to defend, and could divert management’s attention and seriously damage our reputation and our business.
We may be subject to litigation regarding our intellectual property. This litigation could be costly to defend and resolve and could prevent us from using or selling the challenged technology.
The wireless telecommunications industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in often protracted and expensive litigation. Any litigation regarding patents or other owned or exclusively licensed intellectual property, including claims that our use of intellectual property infringes or violates the rights of others, could be costly and time-consuming and could divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Such litigation or claims could result in substantial costs and diversion of resources. In the event of an adverse result in any such litigation, we could be required to pay substantial damages, cease the use and transfer of allegedly infringing technology or the sale of allegedly infringing products and expend significant resources to develop non-infringing technology or obtain licenses for the infringing technology. We can give no assurances that we would be successful in developing such non-infringing technology or that any license for the infringing technology would be available to us on commercially reasonable terms, if at all. This could have a materially adverse effect on our business, results of operation, financial condition, competitive position and prospects.
System security risks,
We are subject to laws, rules, regulations and policies regarding data protection breaches,privacy and cyber attackssecurity. Many of these laws and regulations are subject to change and reinterpretation, and could compromise our proprietary information, disrupt our internal operations and harm public perception of our security products, which could causeresult in claims, changes to our business and reputation to suffer and adversely affect our stock price.
In the ordinary coursepractices, monetary penalties, increased cost of business, we store sensitive data, including intellectual property, our proprietary business information and proprietary information of our customers, suppliers and business partners, on our networks. The secure maintenance of this information is criticaloperations or other harm to our operations and business strategy. Increasingly, companies, including ours,business.
We are subject to a wide variety of attacks on their networks on an ongoing basis. Despitefederal, state and local laws, directives, rules, standards, regulations, policies and contractual obligations relating to data privacy and security. The regulatory framework for data privacy and security worldwide is continuously evolving and developing and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. It is also possible inquiries and enforcement actions from governmental authorities regarding cybersecurity breaches increase in frequency and scope. These data privacy and security laws also are not uniform, which may complicate and increase our security measures, our information technologycosts for compliance. As a result, we anticipate needing to dedicate substantial resources to comply with such laws, regulations, and infrastructure may be vulnerableother obligations relating to penetration or attacks by computer programmersprivacy and hackers, or breached due to employee error, malfeasancecybersecurity. Furthermore, we cannot provide assurance that we will not face claims, allegations, or other disruptions.proceedings related to our obligations under applicable data privacy and security laws. Any such breachfailure or perceived failure by us or our third-party service providers to comply with any applicable laws relating to data privacy and security, or any compromise of security that results in the unauthorized access, improper disclosure, or misappropriation of personal data or other customer data, could compromiseresult in significant liabilities, and negative publicity and reputational harm, one or all of which could have an adverse effect on our networks, creating system disruptionsreputation, business, financial condition and operations.
We are subject to complex federal, state, local and international laws and regulations related to protection of the environment that could materially and adversely affect the cost, manner or slowdownsfeasibility of conducting our operations, as well as those of our suppliers and exploiting security vulnerabilitiescontract manufacturers.
Environmental, health and safety regulations govern the manufacture, assembly and testing of our products, including without limitation regulations governing the emission of pollutants and the information stored onuse, remediation, and disposal of
hazardous materials (including electronic wastes). Our failure or the failure of our networks could be accessed, publicly disclosed, lostsuppliers or stolen, whichcontract manufacturers to properly manage the use, transportation, emission, discharge, storage, recycling or disposal of wastes generated from our operations could subject us to liabilityincreased compliance costs or liabilities such as fines and penalties. We may also be subject to costs and liabilities for environmental clean-up costs on sites owned by us, sites previously owned by us, or treatment and disposal of wastes attributable to us from past operations, under the Comprehensive Environmental Response, Compensation and Liability Act or equivalent laws. Existing and future environmental regulations may additionally restrict our and our suppliers’ use of certain materials to manufacture, assemble and test products. New or more stringent environmental requirements applicable to our customers,operations or the operations of our suppliers could adversely affect our costs of doing business partners and others,result in material costs to our operations.
Increased attention to Environmental, Social, and cause us reputationalGovernance (“ESG”) matters, conservation measures and climate change issues has contributed to an evolving state of environmental regulation, which could impact our results of operations, financial harm. In addition, sophisticated hardwareor competitive position and operating system softwaremay adversely impact our business.
Increasing attention to, and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs”societal expectations on companies to address, climate change and other problems that could unexpectedly interfere with the operation of our networks.
If an actual or perceived breach of network security occursenvironmental and social impacts, investor and societal expectations regarding voluntary ESG disclosures may result in our network or in the network of a customer of our security products, regardless of whether the breach is attributable to our products, the market perception of the effectiveness of our products could be harmed. Because the techniques used by computer programmers and hackers, many of whom are highly sophisticated and well-funded, to access or sabotage networks change frequently and generally are not recognized until after they are used, we may be unable to anticipate or immediately detect these techniques. This could impede our sales, manufacturing, distribution or other critical functions. In addition, the economicincreased costs to us and our suppliers, contract manufacturers, and customers. Moreover, while we create and publish voluntary disclosures regarding ESG matters from time to eliminatetime, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or alleviate cybermay not be representative of current or other security problems, bugs, viruses, worms, malicious software systemsactual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and security vulnerabilities could be significantassumptions are necessarily uncertain and may be difficultprone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters. Additionally, on March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related risks. We are currently assessing the rule, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from the rule. To the extent this rule is finalized as proposed, we could incur increased costs relating to the assessment and disclosure of climate-related risks.
Increased public awareness and worldwide focus on climate change issues has led to legislative and regulatory efforts to limit greenhouse gas emissions, and may result in more international, federal or regional requirements or industry standards to reduce or mitigate risks related to climate change. As a result, we may become subject to new or more stringent regulations, legislation or other governmental requirements or industry standards, and we anticipate that we will see increased demand to meet voluntary criteria related to reduction or measure because the damage may differ based on the identityelimination of certain constituents from products, reducing emissions of greenhouse gases, and motiveincreasing energy efficiency. Increased regulation of the programmer climate change concerns could subject us to additional costs and restrictions and require us to make certain changes to our manufacturing practices and/or hacker,product designs, which are often difficult to identify.could negatively impact our business, results of operations, financial condition and competitive position.
Anti-takeover provisions of Delaware law, the Amended and Restated Tax Benefit Preservation Plan (the “Plan”), and provisions in our Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws could make a third-party acquisition of us difficult.
Because we are a Delaware corporation, the anti-takeover provisions of Delaware law could make it more difficult for a third party to acquire control of us, even if the change in control would be supported by our stockholders. We are subject to the provisions of Section 203 of the General Corporation Law of Delaware, which prohibits us from engaging in certain business combinations, unless the business combination is approved in a prescribed manner. In addition, our Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws also contain certain provisions that may make a third-party acquisition of us difficult, including the ability of the Board to issue preferred stock and the requirement that nominations for directors and other proposals by stockholders must be made in advance of the meeting at which directors are elected or the proposals are voted upon.
In addition, the Plan and the Charter Amendmentsamendments to our Amended and Restated Certificate of Incorporation, as amended (the “Charter Amendments”) could make an acquisition of us more difficult.
General Risk Factors
Natural disasters or other catastrophic events such as terrorism and war could have an adverse effect on our business.
Natural disasters, such as hurricanes, earthquakes, fires, extreme weather conditions and floods, could adversely affect our operations and financial performance. In addition, climate change may contribute to the increased frequency or intensity of extreme weather events, including storms, wildfires, and other natural disasters. Further, acts of terrorism or war could significantly disrupt our supply chain and access to vital components. Such events have in the past and could [in the future] result in physical damage to one or more of our facilities, the temporary closure of one or more of our facilities or those of our suppliers, a temporary lack of an adequate work force in a market, a temporary or long-term disruption in the supply of products from local or overseas suppliers or contract manufacturers, a temporary disruption in the transport of goods from overseas, and delays in the delivery of goods. Accordingly, climate change and natural disasters may impact the availability and cost of materials and natural resources, sources and supply of energy necessary for our operations, and could also increase insurance and other operating costs. Many of our facilities around the world (and the operations of our suppliers) are in locations that may be impacted by the physical risks of climate change, and we face the risk of losses incurred as a result of physical damage to our facilities or those of our suppliers, such as loss or spoilage of inventory and business interruption caused by such events. In addition, if there is a natural disaster in any of the locations in which our significant customers are located, our customers may incur losses or sustained business interruption, or both, which may materially impair their ability to continue their purchase of products from us. Public health issues, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of suppliers or customers, or have an adverse impact on customer demand. As a result of any of these events, we may be required to suspend operations in some or all of our locations, which could have an adverse effect on our business, financial condition, results of operations, and cash flows. These events could also reduce demand for our products or make it difficult or impossible to receive components from suppliers. Although we maintain business interruption insurance and certain acquisitionsother insurance intended to cover some or all of these risks, such insurance may also be void underinadequate, whether because of coverage amount, policy limitations, the Charter Amendments.financial viability of the insurance companies issuing such policies, or other reasons.
System security risks, data protection breaches, and cyber-attacks could compromise our proprietary information, disrupt our internal operations and harm public perception of our products, which could cause our business and reputation to suffer and adversely affect our stock price.
In the ordinary course of business, we store sensitive data, including intellectual property, our proprietary business information and proprietary information of our customers, suppliers and business partners, on our networks. The risks associatedsecure maintenance of this information is critical to our operations and business strategy. Increasingly, companies, including ours, are subject to a wide variety of attacks on their networks on an ongoing basis. Despite our security measures, our information technology and infrastructure may be vulnerable to interruption, disruption, destruction, penetration or attacks due to natural disasters, power loss, telecommunications failure, terrorist attacks, domestic vandalism, Internet failures, computer malware, ransomware, cyberattacks, social engineering attacks, phishing attacks, data breaches and other events unforeseen or generally beyond our control. Additionally, advances in technology, an increased level of sophistication and expertise of hackers, widespread access to generative AI, and new discoveries in the field of cryptography can result in a compromise or breach of our information technology systems or security measures implemented to protect our systems. Any such breach could compromise our systems and networks, which could cause system disruptions or slowdowns and exploitation of security vulnerabilities in our products, and lead to the information stored on our networks being accessed, publicly disclosed, lost or stolen, which could subject us to liability to our customers, suppliers, business partners and others, and cause us reputational and financial harm. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the Planoperation of our networks. An increased number of our employees and service providers are working from home and connecting to our networks remotely on less secure systems, which we believe may further increase the Charter Amendmentsrisk of, and our vulnerability to, a cyber-attack or breach on our network. Any such actual or perceived security breach, incident or disruption could also divert the efforts of our technical and management personnel and could require us to incur significant costs and operational consequences in connection with investigating, remediating, eliminating and putting in place additional tools, devices, policies, and other measures designed to prevent such security breaches, incidents and system disruptions. Moreover, we could be required by applicable law in some jurisdictions, or otherwise find it appropriate to expend significant capital and other resources, to notify or respond to applicable third parties or regulatory authorities due to any actual or perceived security incidents or breaches to our systems and its root cause.
If an actual or perceived breach of network security occurs in our network or in the network of a customer of our security products, regardless of whether the breach is attributable to our products, the market perception of the effectiveness and safety of our products could be harmed. Because the techniques used by computer programmers and hackers, many of whom are described in more detail above under the heading “Ourhighly sophisticated and well-funded, to access or sabotage networks or systems change frequently and generally are not recognized until after they are used, we may be unable to anticipate or immediately detect these cyber-attacks. This could impede our sales, manufacturing, distribution or other critical functions. In addition, our ability to use net operating loss carryforwardsdefend against and mitigate cyberattacks depends in part on prioritization decisions that we and third parties upon whom we rely make to offset future taxable income for U.S. federal income tax purposesaddress vulnerabilities and other tax benefitssecurity defects. While we endeavor to address all identified vulnerabilities in our products, we must make determinations as to how we prioritize developing and deploying the respective fixes, and we may be limited.”unable to do so prior to an attack. The economic costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software systems and security vulnerabilities could be significant and may be difficult to anticipate or measure because the damage may differ based on the identity and motive of the programmer or hacker, which are often difficult to identify. Furthermore, even once a vulnerability has been addressed, for certain of our products, the fix will only be effective once a customer has updated the impacted product with the latest release, and customers that do not install and run the latest supported versions of our products may remain vulnerable to attack.
As cyber-attacks become more sophisticated, the need to develop, modify, upgrade or enhance our information technology infrastructure and measures to secure our business can lead to increased cybersecurity protection costs. Such costs may include making organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants. These efforts come at the potential cost of revenues and human resources that could be utilized to continue to enhance our product offerings, and such increased costs may adversely affect our operating margins. Additionally, certain of our suppliers have in the past and may in the future experience cybersecurity attacks that can constrain their capacity and ability to meet our product demands. If our contract manufacturers and suppliers suffer future cyberattacks, our ability to ship products or otherwise fulfill our contractual obligations to our customers could be delayed or impaired which would adversely affect our business, financial results and customer relationships.
Item 1B.Unresolved Staff Comments
None.
Item 2. Properties
As of June 30, 2017,2023, we leased approximately 178,000152,000 square feet of facilities worldwide, with approximately 42%23% in the United States, mostly in California, Texas, and North Carolina.Texas. Our corporate headquarters is located in Milpitas, California, and consists of approximately 19,000 square feet office space.Austin, Texas. We also lease approximately 54,000 square feet of office space, assembly facilities and warehousewarehouses in certainmultiple locations in Texas. Internationally, we lease approximately 104,000116,000 square feet of facilities throughout Europe, Canada, Central America, SouthNorth America, Africa and Asia regions, including officesAsia. We have repair and service centers in Singapore, Slovenia, Philippine Islands, India, Mexico, Brazil, Canada, South Africa, Ghana, Ivory Coast, Kenya, Nigeria, Algeria, France, Netherlands, Poland, Russia, Australia, Dubai, Saudi Arabia, Lebanon, China,the Philippines and Thailand.the United States. In addition, we own approximately 108,00057,000 square feet of facilities in Wellington, New Zealand and Lanarkshire, Scotland.Zealand.
We maintain our facilities in good operating condition and believe that they are suitable and adequate for our current and projected needs. We continuously review our anticipated requirements for facilities and may, from time to time, acquire additional facilities, expand existing facilities, or dispose of existing facilities or parts thereof, as we deem necessary.
For more information about our lease obligations,leases, see “Note 12. Commitments and Contingencies”Note 4. Leases of the notes to consolidated financial statements, which are included in Item 8 in this Annual Report on Form 10-K.
Item 3.Legal Proceedings
We are subject from timeFor a discussion of legal proceedings as of June 30, 2023, please refer to time to disputes with customers concerning our products“Legal Proceedings” and services. In May 2016, we received notification of a claim for $1.0 million in damages from a customer in Austria alleging that certain of our products were defective. We are continuing to investigate this claim,“Contingent Liabilities” under Note 13. Commitments and at this time an estimateContingencies of the reasonably possible loss or rangenotes to consolidated financial statements, which are included in Item 8 in this Annual Report on Form 10-K.
From time to time, we may be involved in various other legal claims and litigation that arise in the normal course of our operations. We are aggressively defending all current litigation matters. Although there can be no assurances and the outcome of these matters is currently not determinable, we currently believe that none of these claims or proceedings are likely to have a material adverse effect on our financial position. We expect to defend each of these disputes vigorously. There are many uncertainties associated with any litigation and these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, if any.
We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. Except for the matter above which was ultimately settled for $0.2 million, we have not recorded any accrual for loss contingencies associated with such legal claims or litigation discussed above.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Price Range ofon Common Stock
Our common stock with a par value of $0.01 per share, is listed and primarily traded on the NASDAQ Global Select Market, under the ticker symbol AVNW (prior to January 28, 2010 our ticker symbol was HSTX). There was no established trading market for shares of our common stock prior to January 29, 2007.
According to the records of our transfer agent, as of August 17, 2017,23, 2023, there were 2,544approximately 1,896 holders of record of our common stock. The following table sets forth the high and low closing prices for a share of our common stock on NASDAQ Global Select Market for the periods indicated during our fiscal years 2017 and 2016, as retroactively adjusted for the 1-for-12 reverse stock split discussed in “Note 1. The Company and Summary of Significant Accounting Policies” of the notes to consolidated financial statements, which are included in Item 8 in this Annual Report on Form 10-K:
|
| | | | | | | | | | | | | | | |
| | Fiscal 2017 | | Fiscal 2016 |
| | High | | Low | | High | | Low |
| First Quarter | $ | 9.93 |
| | $ | 7.39 |
| | $ | 15.96 |
| | $ | 12.48 |
|
| Second Quarter | $ | 14.94 |
| | $ | 8.43 |
| | $ | 14.04 |
| | $ | 8.92 |
|
| Third Quarter | $ | 15.86 |
| | $ | 10.35 |
| | $ | 9.57 |
| | $ | 6.60 |
|
| Fourth Quarter | $ | 23.55 |
| | $ | 14.30 |
| | $ | 9.31 |
| | $ | 6.18 |
|
Dividend Policy
We have not paid cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend to retain any earnings for use in our business. In addition, the covenants of our credit facility may restrict us from paying dividends or making other distributions to our stockholders under certain circumstances.
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.
Sales of Unregistered Securities
On April 13, 2021, we filed a registration statement on Form S-3 with the SEC using a “shelf” registration process. When we utilize the shelf registration we will be able to, from time to time, offer and sell, either individually or in combination, in one or more offerings, up to a total dollar amount of $200 million of any combination of the securities described in the shelf registration statement or a related prospectus supplement. During fiscal 2017,2023, we did not issue or sell any unregistered securities.
Issuer RepurchasesPurchases of Equity Securities
In November 2021, our Board of Directors approved a stock repurchase program to purchase up to $10.0 million of our common stock. As of June 30, 2023, $7.3 million remains available under the stock repurchase program, and we may choose to suspend or discontinue the repurchase program at any time. During the fourth quarter of fiscal 2017,2023 we did not repurchase any equity securities.shares of our common stock.
Performance Graph
The following graph and accompanying data compares the cumulative total return on our common stock withcompare the cumulative total return of our common stock, the Total Return Index for The NASDAQ Composite Market (U.S. Companies)Index and the NASDAQ Telecommunications Index for the five-year period ended June 30, 2017.2023. The comparison assumes $100 was invested on June 29, 2018, in the Company’s common stock and each of the indices and assumes reinvestment of dividends. The historical stock price performance shown on the graph below is not necessarily indicative of future price performance. Note that this graph and accompanying data is “furnished,” not “filed,” with the SEC.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*RETURN
Among Aviat Networks, Inc., the NASDAQ Composite Index
and the NASDAQ Telecommunications Index
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 06/29/18 | | 06/28/19 | | 07/03/20 | | 07/02/21 | | 07/01/22 | | 06/30/23 |
| Aviat Networks, Inc. | $ | 100.00 | | | $ | 83.69 | | | $ | 113.56 | | | $ | 389.49 | | | $ | 306.54 | | | $ | 407.65 | |
| NASDAQ Composite | $ | 100.00 | | | $ | 107.78 | | | $ | 138.86 | | | $ | 200.58 | | | $ | 153.53 | | | $ | 191.93 | |
| NASDAQ Telecommunications | $ | 100.00 | | | $ | 120.14 | | | $ | 125.46 | | | $ | 167.31 | | | $ | 133.94 | | | $ | 130.07 | |
Item 6. [Reserved]
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 6/29/2012 | | 6/28/2013 | | 6/27/2014 | | 7/3/2015 | | 7/1/2016 | | 6/30/2017 |
| Aviat Networks, Inc. | $ | 100.00 |
| | $ | 93.57 |
| | $ | 44.66 |
| | $ | 46.98 |
| | $ | 23.95 |
| | $ | 51.77 |
|
| NASDAQ Composite | $ | 100.00 |
| | $ | 117.60 |
| | $ | 153.88 |
| | $ | 177.34 |
| | $ | 174.29 |
| | $ | 222.67 |
|
| NASDAQ Telecommunications | $ | 100.00 |
| | $ | 128.44 |
| | $ | 149.22 |
| | $ | 156.24 |
| | $ | 158.51 |
| | $ | 184.31 |
|
____________________________
|
| |
* | Assumes (i) $100 invested on June 29, 2012 in Aviat Networks, Inc. common stock, the Total Return Index for The NASDAQ Composite Market (U.S. companies) and the NASDAQ Telecommunications Index; and (ii) immediate reinvestment of all dividends. |
Item 6. Selected Financial Data
The following table summarizes our selected historical financial information for each of the last five fiscal years that has been derived from our consolidated financial statements. All of the per-share data have been retroactively adjusted for the 1-for-12 reverse stock split discussed in “Note 1. The Company and Summary of Significant Accounting Policies” of the notes to consolidated financial statements, which are included in Item 8 of this Annual Report on Form 10-K. Data presented for fiscal years 2017, 2016 and 2015 are included elsewhere in this Annual Report on Form 10-K. This table should be read in conjunction with our other financial information, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes, included elsewhere in this Annual Report on Form 10-K.
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| (In thousands, except per share amounts) | June 30, 2017 | | July 1, 2016 | | July 3, 2015 | | June 27, 2014(1) | | June 28, 2013(1) |
| Revenue from product sales and services | $ | 241,874 |
| | $ | 268,690 |
| | $ | 335,878 |
| | $ | 346,032 |
| | $ | 471,255 |
|
| Cost of product sales and services | 166,402 |
| | 206,973 |
| | 255,188 |
| | 260,844 |
| | 332,913 |
|
Loss from continuing operations (2) (3) | (621 | ) | | (30,178 | ) | | (24,648 | ) | | (52,018 | ) | | (12,647 | ) |
Net loss (2) (3) | (621 | ) | | (29,637 | ) | | (24,554 | ) | | (51,100 | ) | | (16,725 | ) |
| Net income attributable to noncontrolling interests, net of tax | 202 |
| | 270 |
| | 71 |
| | — |
| | — |
|
Net loss attributable to Aviat Networks (2) (3) | (823 | ) |
| (29,907 | ) | | (24,625 | ) | | (51,100 | ) | | (16,725 | ) |
| Basic and diluted loss per common share: | | | | | | | | | |
| Loss from continuing operations | $ | (0.16 | ) | | $ | (5.81 | ) | | $ | (4.77 | ) | | $ | (10.13 | ) | | $ | (2.53 | ) |
| Net loss | (0.16 | ) | | (5.71 | ) | | (4.75 | ) | | (9.95 | ) | | (3.34 | ) |
_______________________
| |
(1) | As revised, during the fourth quarter of fiscal 2015, these amounts have been revised as we identified and corrected errors around our accrued liability related to cost of services revenue. |
| |
(2) | Include share-based compensation expense $2.1 million, $1.8 million, $2.2 million, $3.4 million and $6.4 million for fiscal 2017, 2016, 2015, 2014 and 2013 respectively. |
| |
(3) | Include restructuring charges of $0.6 million, $2.5 million, $4.9 million, $11.2 million and $3.1 million for fiscal 2017, 2016, 2015, 2014 and 2013 respectively. |
|
| | | | | | | | | | | | | | | | | | | |
| | As of |
| (In thousands) | June 30, 2017 | | July 1, 2016 | | July 3, 2015 | | June 27, 2014(1) | | June 28, 2013(1) |
| Total assets | $ | 152,576 |
| | $ | 166,111 |
| | $ | 224,715 |
| | $ | 253,184 |
| | $ | 305,816 |
|
| Long-term liabilities | 12,218 |
| | 12,707 |
| | 18,198 |
| | 19,574 |
| | 24,825 |
|
_______________________
| |
(1) | As revised, during the fourth quarter of fiscal 2015, these amounts have been revised as we identified and corrected errors around our accrued liability related to cost of services revenue. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2016 and 2017 Results
The following Management’s Discussiondiscussion and Analysis (“MD&A”)analysis is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplementcondition 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 andJune 30. This discussion should be read in conjunction with our consolidated financial statements and the accompanying notes. InFor a comparison of our results of operations for fiscal 2022 and 2021, see our Annual Report on Form 10-K for the discussion below, our fiscal year ending June 29, 2018 is referred to as “fiscal 2018” or “2018”; our fiscal year ended June 30, 2017 is referred to as “fiscal 2017” or “2017”; our fiscal year ended July 1, 2016 is referred to as “fiscal 2016” or “2016”; and our fiscal year ended July 3, 2015 is referred to as “fiscal 2015” or “2015.”2022, filed with the SEC on September 14, 2022.
Overview
We generate revenueAviat Networks, Inc. (“Aviat”, “we”, or the “Company”) is a global supplier of microwave networking and access networking solutions, backed by designing, developing, manufacturing and supporting a range of wireless networking products, solutions and services for mobile and fixed communications service providers, private network operators, government agencies, transportation, energy and utility companies, public safety agencies and broadcast network operators across the world. Our products include point-to-point digital microwave transmission systems designed for first/last mile access, middle mile/backhaul, and long distance trunking applications. We also provide network management software solutions to enable operators to deploy, monitor and manage our systems, third party equipment such as antennas, routers, optical transmission equipment and other equipment necessary to build and deploy a complete telecommunications transmission network. We provide a fullan 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 planning, deployment, operations and maintenancemuch of our customers’ networks.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.
We work continuouslyWhile supply chain lead-times were difficult to improve our established brandsmanage through parts of fiscal 2023 and to create new products that meet our customers’ evolving needs and preferences. Our fundamental business goal is to generate superior returns for our stockholders over the long term. We believe that increases in revenue, operating profits and earnings per share are the key measures of financial performance for our business. However, within the industry there continues to be strong price competition for new business and periodic large customer consolidations that intensify competition in all regions.
Our strategic focus in fiscal 2018 will be to continue to accelerate innovation and optimize our product portfolio, improve costs and operational efficiencies, grow our revenue and create a sustainable, profitable business model. To do this,certain components remain on allocation, we continue to examine our products, markets, facilities, development programs, and operational flows to ensure we are focused on what we do well and what will differentiate ushave seen recent improvements in the future. We will continue workingsupply chain environment. The impact that supply chain constraints had on our ability to streamline management processesfulfill orders during fiscal 2023 was minimal. Depending on the progression of factors such as supply allocations, lead-time trends and our ability to attain the efficiency levels required by the marketsperform field services, we could experience constraints and delays in which we do business.
Although the general trend of increasing demand for bandwidth to support mobile networks applies in all markets, we expect to see quarter-to-quarter fluctuations within markets and with individual customers based on customers’ past purchasing patterns. Seasonality is also a factor that impacts our business. Our fiscal third quarter revenue and orders have historically been lower than the revenue andfulfilling customer orders in future periods. We continually monitor, assess and adapt to each situation to mitigate impacts on our second fiscal quarter because many of our customers utilize a significant portion of their capital budgets atbusiness, supply chain and customer demand. We expect the end of their fiscal years, which is typically the calendar year end and coincides with our second fiscal quarter. The majority of our customers begin a new fiscal year on January 1, and capital expenditures tendpotential for these challenges to be lower in an organization’s first quarter than in its fourth quarter. We anticipate that this seasonality will continue. The seasonality between the second quarter and third quarter may be affected by a variety of additional factors, including changes in the global economy.
In line with industry trends, we expect to provide increased managed services, including network design, inventory management, final configuration and warehousing services, to certain customers in certain geographies. Our operating results may be impacted by providing these services to the extent that we may need to postpone the recognition of revenue and incur upfront and ongoing expenses that are not offset with additional revenue from product sales associated with these services until a future period.
We continue to explore strategic alternativesbe impacted by inflationary pressures incurred to improveovercome supply chain and logistical bottlenecks. We will monitor, assess and adapt to the market positionsituation and profitabilityprepare for implications to our business, supply chain and customer demand. We expect these challenges to continue.
Acquisitions
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 our product offeringsthe 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. See Note 7. 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 marketplace, generate additional liquidityfourth quarter of calendar year 2023.
NEC is a leader in wireless backhaul networks with an extensive installed base of their Pasolink series products.
Redline Communications Group Inc.
On July 5, 2022, we acquired 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 enhance our valuation. We may pursue our goals during the next twelve months through organic growthUnlicensed Wireless Access Solutions, by creating an integrated end-to-end offering for wireless access and through strategic alternatives. Some of these alternatives have included, and could continue to include, selective acquisitions, divestitures and the sale of assets or securities. We have also provided, and may from time to timetransport in the future provide, informationPrivate Networks segment, leveraging Aviat's sales
channel to interested parties.address a large dollar Private LTE/5G addressable market and increasing Aviat’s reach in mission-critical industrial Private Networks.
Operations Review
The market for mobile backhaul continuescontinued to be our primary addressable market segment and, over the long term, the demand for increasing the backhaul capacityglobally in our customers’ networks continues to grow.fiscal 2023. In North America, we supported 5G and long-term evolution (“LTE���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 3G deployments,LTE and the emergence of early stage LTE5G deployments. Our international business was adversely affected in fiscal 2016 and fiscal 2017 by constrained availability of U.S. dollars in countries with economies highly dependent on resource exports, particularly oil. This condition, along with decline in local purchasing power because of the currency devaluation relative to U.S. dollars, limited capital spending and slowed payments from customers in those locations. 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. We continue to find that ourOur strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers in all markets.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 above and 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 service.serve.
Fiscal 2023 Compared to Fiscal 2022
Revenue
We manage our sales activities primarily on a geographic basis in North America and three international geographic regions: (1) Africa and the Middle East, (2) Europe and Russia and (3) Latin America and Asia Pacific. Revenue by region for fiscal 2017, 20162023 and 20152022 and the related changes were shownas follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | | |
| (In thousands, except percentages) | 2023 | | 2022 | | $ Change | | % Change |
| North America | $ | 202,096 | | | $ | 199,801 | | | $ | 2,295 | | | 1.1 | % |
| Africa and the Middle East | 60,416 | | | 47,527 | | | 12,889 | | | 27.1 | % |
| Europe | 18,772 | | | 12,973 | | | 5,799 | | | 44.7 | % |
| Latin America and Asia Pacific | 65,309 | | | 42,658 | | | 22,651 | | | 53.1 | % |
| Total Revenue | $ | 346,593 | | | $ | 302,959 | | | $ | 43,634 | | | 14.4 | % |
We achieved revenue growth of 14.4% in fiscal 2023 driven by significant international share gains and the table below:contribution from the Redline acquisition.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | $ Change | | % Change |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 | | 2017/2016 | | 2016/2015 |
| North America | $ | 132,078 |
| | $ | 125,482 |
| | $ | 153,239 |
| | $ | 6,596 |
| | $ | (27,757 | ) | | 5.3 | % | | (18.1 | )% |
| Africa and Middle East | 60,150 |
| | 82,742 |
| | 97,112 |
| | (22,592 | ) | | (14,370 | ) | | (27.3 | )% | | (14.8 | )% |
| Europe and Russia | 14,128 |
| | 20,539 |
| | 35,990 |
| | (6,411 | ) | | (15,451 | ) | | (31.2 | )% | | (42.9 | )% |
| Latin America and Asia Pacific | 35,518 |
| | 39,927 |
| | 49,537 |
| | (4,409 | ) | | (9,610 | ) | | (11.0 | )% | | (19.4 | )% |
| Total Revenue | $ | 241,874 |
| | $ | 268,690 |
| | $ | 335,878 |
| | $ | (26,816 | ) | | $ | (67,188 | ) | | (10.0 | )% | | (20.0 | )% |
Our revenueRevenue in North America increased $6.6by $2.3 million, or 5.3%1.1%, in fiscal 2017 compared with fiscal 2016. The increase in North America was from private network customers, offset by decreased revenue from wireless operator customers. Private network business increased in fiscal 2017 due to new customers and substantial investments by certain customers in network upgrades. The decrease in revenue from our North America wireless operator customers was2023 primarily due to them reaching the end of their LTE network build cycle. Revenue in North America decreased $27.8 million, or 18.1%, in fiscal 2016 compared with fiscal 2015. While our order volume increased in North America compared to fiscal 2015, we experienced a shift in the mix of business away from wireless operator customers and toward private networks operatedtier one revenue, partially offset by governments and utilities. In addition, orders from private networks generally have a longer cycle time from order placement to completion for revenue than orders from the wireless operators because of the larger degree of service content included with thelower private network projects. In fiscal 2016, we saw a decrease in revenue both from the lower volume of business with wireless operator customers and from the longer cycle time to revenue from the larger volume of business with private network customers.volumes.
Revenue in Africa and the Middle East decreased $22.6increased by $12.9 million, or 27.3%27.1%, in fiscal 2017 compared with fiscal 20162023 primarily due to lowerincreased product sales to mobile operator customers in Africa and a decrease in revenue from customers in the Middle East. Our sales to major African customers have declined for several years due to a combination of factors that vary within the region, including customer constraints on capital spending and decline in local purchasing power because of currency devaluation relative to U.S. dollars. Revenue in Africa and the Middle East decreased $14.4 million, or 14.8%, in fiscal 2016 compared with fiscal 2015. The fiscal 2016 decrease in revenue came from decreased sales volume to our private network customers in the Middle East and across several customers in Africa. Revenue with our major wireless operator customersoperators in the region remained relatively low, and slightly down in fiscal 2016 compared to fiscal 2015.the contribution from the Redline acquisition.
Revenue in Europe and Russia was down $6.4increased by $5.8 million, or 31.2%44.7%, in fiscal 2017 compared with fiscal 2016. The decrease came from lower2023 primarily due to higher sales to our large customers in the region compared with fiscal 2016. In addition, sales were negatively affected by decreased purchasing power coming from the general weakness of the Euro relative to the U.S.
dollar. Revenue in Europe and Russia was down $15.5 million, or 42.9% in fiscal 2016 compared with fiscal 2015 for similar reasons.mobile operators.
Revenue in Latin America and Asia Pacific declined $4.4increased by $22.7 million, or 11.0%53.1%, in fiscal 2017 compared with fiscal 2016,2023 primarily due to decreased deliveries to our larger customersdriven by a key customer win in the Asia-Pacific region. Business in Latin AmericaAsia Pacific and increased a small amount over the previous fiscal year. Revenue in Latin America and Asia-Pacific declined $9.6 million, or 19.4%, in fiscal 2016 compared with fiscal 2015, mostly due to lower product sales to several mid-size customers in Asia Pacific, partially offset by a large increase with one of our customers in the region. The decrease was also attributable to a year-to-year reduction in sales to private network customersmobile operators in Latin America.
| | | | Fiscal Year | | $ Change | | % Change | | Fiscal Year | | | |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 | | 2017/2016 | | 2016/2015 | (In thousands, except percentages) | 2023 | | 2022 | | $ Change | | % Change |
| Product sales | $ | 153,517 |
| | $ | 167,827 |
| | $ | 214,874 |
| | $ | (14,310 | ) | | $ | (47,047 | ) | | (8.5 | )% | | (21.9 | )% | Product sales | $ | 239,321 | | | $ | 208,100 | | | $ | 31,221 | | | 15.0 | % |
| Services | 88,357 |
| | 100,863 |
| | 121,004 |
| | (12,506 | ) | | (20,141 | ) | | (12.4 | )% | | (16.6 | )% | Services | 107,272 | | | 94,859 | | | 12,413 | | | 13.1 | % |
| Total Revenue | $ | 241,874 |
| | $ | 268,690 |
| | $ | 335,878 |
| | $ | (26,816 | ) | | $ | (67,188 | ) | | (10.0 | )% | | (20.0 | )% | Total Revenue | $ | 346,593 | | | $ | 302,959 | | | $ | 43,634 | | | 14.4 | % |
Our revenue from product sales decreased $14.3 million, or 8.5%,and services increased by 15.0% and 13.1% respectively in fiscal 20172023 compared with fiscal 2016. Product sales2022. The relatively proportionate increases were weaker in all international markets, with the exception of Latin America, fordriven by the same reasons as mentioned above in the regional comments. The $23.2 million decrease in international product sales was partially offset by an $8.9 million increase in North America product sales during fiscal 2017. Our serviceoverall factors of revenue decreased $12.5 million, or 12.4%, in fiscal 2017 compared with fiscal 2016 mainly due to the reduction in product sales. Service sales in North America decreased by $2.3 million, and service sales to our international customers decreased by $10.2 million.
Our revenue from product sales decreased $47.0 million, or 21.9%, in fiscal 2016 compared with fiscal 2015. Product volumes were lower in all sectors, but the majority of the decrease was in North America and Europe. In North America this decline reflected fewer orders from wireless operators and the extended cycle time to complete large projects. In Europe, this decline reflected constrained capital spending mentioned above. Our services revenue decreased $20.1 million, or 16.6%, in fiscal 2016 compared with fiscal 2015, due to reduced service activities in all sectors, but particularly in North America, Middle East and Africa.growth discussed previously.
Gross Margin
| | | | Fiscal Year | | $ Change | | % Change | | Fiscal Year | | | |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 | | 2017/2016 | | 2016/2015 | (In thousands, except percentages) | 2023 | | 2022 | | $ Change | | % Change |
| Revenue | $ | 241,874 |
| | $ | 268,690 |
| | $ | 335,878 |
| | $ | (26,816 | ) | | $ | (67,188 | ) | | (10.0 | )% | | (20.0 | )% | Revenue | $ | 346,593 | | | $ | 302,959 | | | $ | 43,634 | | | 14.4 | % |
| Cost of revenue | 166,402 |
| | 206,973 |
| | 255,188 |
| | (40,571 | ) | | (48,215 | ) | | (19.6 | )% | | (18.9 | )% | Cost of revenue | 222,422 | | | 193,724 | | | 28,698 | | | 14.8 | % |
| Gross margin | $ | 75,472 |
| | $ | 61,717 |
| | $ | 80,690 |
| | $ | 13,755 |
| | $ | (18,973 | ) | | 22.3 | % | | (23.5 | )% | Gross margin | $ | 124,171 | | | $ | 109,235 | | | $ | 14,936 | | | 13.7 | % |
| % of revenue | 31.2 | % | | 23.0 | % | | 24.0 | % | | | | | | | | | % of revenue | 35.8 | % | | 36.1 | % | | | |
| Product margin % | 31.5 | % | | 23.3 | % | | 23.7 | % | | | | | | | | | Product margin % | 36.9 | % | | 36.4 | % | |
| Service margin % | 30.7 | % | | 22.4 | % | | 24.5 | % | | | | | | | | | Service margin % | 33.4 | % | | 35.4 | % | |
Gross margin for fiscal 20172023 increased $13.8by $14.9 million, or 22.3%13.7%, compared with fiscal 2016.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 2017 improved to 31.2%2023 remained flat at 35.8%, compared with 23.0% in fiscal 2016. Gross margin improvement was primarily due to lower supply chain costs, a decrease in inventory write-down of $9.1 million and improved sales margin rates from both product and service businesses. Product margin as a percentage of product revenue increased over the same period in fiscal 2016 primarily due to reduced supply chain costs, a decrease in inventory write-down of $9.1 million and greater concentration of sales in higher margin regions. Gross margin as a percentage of service revenue also improved in all sectors compared with the same period in fiscal 2016. We attributed the margin improvement in the service business and our reduced supply chain costs to process improvement programs along with our restructuring program implemented over the past several quarters.
Gross margin for fiscal 2016 decreased $19.0 million, or 23.5%, compared with fiscal 2015. Gross margin as a percentage of revenue for fiscal 2016 decreased to 23.0%, compared with 24.0% in fiscal 2015. The decrease was primarily due to lower revenue volume across all business sectors during fiscal 2016 and an increase in inventory write-down of $2.9 million, partially offset by reduced supply chain costs compared with fiscal 2015. Product margin as a percentage of product revenue decreased from fiscal 2015 primarily due to supply chain costs being absorbed by a
substantially smaller volume of product sales during the year and an increase in inventory write-down of $2.9 million. Service margin as a percentage of service revenue declined primarily due to a less profitable service business in international markets.higher mix of revenues generated outside of North America where margins are typically lower, offset by the contribution of the Redline acquisition.
Research and Development Expenses
| | | | Fiscal Year | | $ Change | | % Change | | Fiscal Year | | | |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 | | 2017/2016 | | 2016/2015 | (In thousands, except percentages) | 2023 | | 2022 | | $ Change | | % Change |
| Research and development expenses | $ | 18,684 |
| | $ | 20,806 |
| | $ | 25,368 |
| | $ | (2,122 | ) | | $ | (4,562 | ) | | (10.2 | )% | | (18.0 | )% | Research and development expenses | $ | 24,908 | | | $ | 22,596 | | | $ | 2,312 | | | 10.2 | % |
| % of revenue | 7.7 | % | | 7.7 | % | | 7.6 | % | | | | | | | | | % of revenue | 7.2 | % | | 7.5 | % | |
Our R&Dresearch and development expenses decreased $2.1increased by $2.3 million, or 10.2%, in fiscal 20172023 compared with fiscal 2016.2022. The decrease in R&D expensesincrease was primarily due to a $1.2 million reduction in professional services and material spending along with an increase of $1.1 million related to an international economic incentive grant credit earned in fiscal 2017. We continue to invest in new product features, new functionality and lower cost platforms that we believe will enable our product lines to retain their technology leads in a cost-effective manner.
Our R&D expenses decreased $4.6 million, or 18.0%, in fiscal 2016 compared with fiscal 2015. The decrease in R&D expenses was primarily due to a $4.4 million reduction in personnel and related expenses dueattributable to the restructuring programs implemented,addition of Redline’s research and $1.8 million facility expense reassigned to restructuring accounts. The decreases were partially offset by a $1.7 million increase in professional services and material spending for new products.development program.
Selling and Administrative Expenses
| | | | Fiscal Year | | $ Change | | % Change | | Fiscal Year | | | |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 | | 2017/2016 | | 2016/2015 | (In thousands, except percentages) | 2023 | | 2022 | | $ Change | | % Change |
| Selling and administrative expenses | $ | 57,184 |
| | $ | 65,902 |
| | $ | 76,005 |
| | $ | (8,718 | ) | | $ | (10,103 | ) | | (13.2 | )% | | (13.3 | )% | Selling and administrative expenses | $ | 69,842 | | | $ | 57,656 | | | $ | 12,186 | | | 21.1 | % |
| % of revenue | 23.6 | % | | 24.5 | % | | 22.6 | % | | | | | | | | | % of revenue | 20.2 | % | | 19.0 | % | |
Our selling and administrative expenses decreased $8.7increased by $12.2 million, or 13.2%21.1%, in fiscal 2017 compared with fiscal 2016. The decrease was2023 primarily due to a $7.6 million decrease in personnel and related expenses, and a $0.9 million reduction in professional fees primarily associated with accounting, IT, legal, and marketing consulting services. We will continue to seek ways to improve our operating efficiency in fiscal 2018.
Our selling and administrative expenses decreased $10.1 million, or 13.3%, in fiscal 2016 compared with fiscal 2015. The decrease was primarily due to a $3.8 million decrease in personnel and related expenses, a $6.5 million reduction in professional fees primarily associated with accounting, IT, legal, and marketing consulting services, a $1.4 million decrease in sales commission and incentivethe Redline acquisition, share-based compensation and a $0.4 million decrease in share-based compensationmerger and acquisition related expenses. The decreases were partially offset by a $1.9 million increase in professional fees primarily associated with process improvements, and a $0.6 million increase in bad debt expenses.
Restructuring Charges
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | | |
| (In thousands, except percentages) | 2023 | | 2022 | | $ Change | | % Change |
| Restructuring charges | $ | 3,012 | | | $ | 238 | | | $ | 2,774 | | | 1,165.5 | % |
| % of revenue | 0.9 | % | | 0.1 | % | | | | |
During fiscal 2023, our Board of Directors approved restructuring plans, primarily associated with the fourth quarteracquisition of fiscal 2016, we initiated a restructuring plan (the “Fiscal 2016-2017 Plan”) to streamline our operationsRedline and align expense with current revenue levels. Activities under the Fiscal 2016-2017 Plan primarily include reductions in forceworkforce in marketing, selling and general and administrative functions across the Company.
During the third quarter of fiscal 2015, with the intent to bring our operational cost structure in line with the changing dynamics of the microwave radio and telecommunications markets, we initiated a restructuring plan (“the Fiscal 2015-2016 Plan”) to lower fixed overhead costs and operating expenses and to preserve cash flow. Activities under the Fiscal 2015-2016 Plan primarily include reductions in force across the Company, but primarily in operations outside the United States.
During the third quarter of The fiscal 2014, in line with the decrease in revenue that we experienced and our reduced forecast for the immediate future, we initiated a restructuring plan (“the Fiscal 2014-2015 Plan”)2023 plans are expected to reduce our operating costs, primarily in North America, Europe and Asia. Activities under the Fiscal 2014-2015 Plan primarily include reductions in force and additional facility downsizing of our Santa Clara, California headquarters.
During the fourth quarter of fiscal 2013, we initiated a restructuring plan (the “Fiscal 2013-2014 Plan”) that was intended to reduce our operating expenses primarily in North America, Europe and Asia. Activities under the Fiscal 2013-2014 Plan included reductions in force and the downsizing of our Santa Clara, California headquarters and certain international field offices.
Our restructuring charges by plan for fiscal 2017, 2016 and 2015 are summarized in the table below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | $ Change | | % Change |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 | | 2017/2016 | | 2016/2015 |
| Fiscal 2016-2017 Plan | $ | 345 |
| | $ | 2,210 |
| | $ | — |
| | $ | (1,865 | ) | | $ | 2,210 |
| | (84.4 | )% | | N/A |
|
| Fiscal 2015-2016 Plan | 36 |
| | 282 |
| | 3,503 |
| | (246 | ) | | (3,221 | ) | | (87.2 | )% | | (91.9 | )% |
| Fiscal 2014-2015 Plan | 162 |
| | 77 |
| | 1,277 |
| | 85 |
| | (1,200 | ) | | 110.4 | % | | (94.0 | )% |
| Fiscal 2013-2014 Plan | 46 |
| | (114 | ) | | 87 |
| | 160 |
| | (201 | ) | | (140.4 | )% | | (231.0 | )% |
| Total | $ | 589 |
| | $ | 2,455 |
| | $ | 4,867 |
| | $ | (1,866 | ) | | $ | (2,412 | ) | | (76.0 | )% | | (49.6 | )% |
Our restructuring expenses consisted primarily of severance and related benefit charges, facilities costs related to obligations under non-cancelable leases for facilities that we ceased to use, and lease termination charges. During June 2016, we entered into a lease termination agreement for our previous headquarters lease in Santa Clara, California.
Restructuring charges for fiscal 2017 included $0.4 million employee severance and benefits costs primarily related to the Fiscal 2016-2017 Plan and $0.2 million facility charges primarily consisted of headquarters moving costs. Restructuring charges for fiscal 2016 included $2.5 million employee severance and benefits costs primarily related to the Fiscal 2016-2017 Plan and the Fiscal 2015-2016 Plan, a $1.9 million lease termination payable, offset by a $1.2 million deferred rent liability write-off and a net decrease of $0.7 million lease impairment liabilities both resulted from the termination of our Santa Clara headquarters building. Restructuring charges for fiscal 2015 included a $2.9 million employee termination charge primarily related to the Fiscal 2015-2016 Plan, a $1.4 million facility charge related to ceasing to use portion of our Santa Clara headquarters building and a $0.6 million Slovenia government fund penalty charge related to the workforce reduction.
We have substantiallybe completed the restructuring activities under all plans bythrough the end of first half of fiscal 2017.2024.
Interest Income, Interest ExpenseOur successfully executed restructuring initiatives have enabled us to restructure specific groups to optimize skill sets and Other Expense
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | $ Change | | % Change |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 | | 2017/2016 | | 2016/2015 |
| Interest income | $ | 261 |
| | $ | 252 |
| | $ | 360 |
| | $ | 9 |
| | $ | (108 | ) | | 4 | % | | (30 | )% |
| Interest expense | (50 | ) | | (104 | ) | | (388 | ) | | 54 |
| | 284 |
| | (52 | )% | | (73 | )% |
| Other income (expense) | 169 |
| | (1,245 | ) | | — |
| | 1,414 |
| | (1,245 | ) | | (114 | )% | | N/A |
|
Interest income reflected interest earnedalign structure to execute on our cash equivalents which were comprisedstrategic deliverables, in addition to aligning cost structure with core of money market funds and certificates of deposit.
Interest expense was primarily related to interest associated with borrowings under the Silicon Valley Bank (“SVB”) Credit Facility and discounts on customer letters of credit.business.
Other (Expense) Income, Net
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | | |
| (In thousands, except percentages) | 2023 | | 2022 | | $ 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 2017 included a $0.3 million foreign currency translation gain reclassified from accumulated other comprehensive loss upon liquidation2023 compared with fiscal 2022, primarily due to losses recognized on the sale of a dormant foreign legal entity. This income was offset partially by a $0.2 millionmarketable securities, higher interest expense and foreign exchange loss on a dividend declared by our Nigeria entity (a partnership for U.S. tax purposes) to our Aviat U.S. entity. Other expense in fiscal 2016 related to the foreign exchange loss on a dividend declared by our Nigeria entity to Aviat U.S. entity which was caused by a significant devaluation of the Nigerian Naira in June 2016.
losses.
Income Taxes
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | $ Change |
| (In thousands, except percentages) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 |
| Loss from continuing operations before income taxes | $ | (605 | ) | | $ | (28,543 | ) | | $ | (25,958 | ) | | $ | 27,938 |
| | $ | (2,585 | ) |
| Provision for (benefit from) income taxes | 16 |
| | 1,635 |
| | (1,310 | ) | | (1,619 | ) | | 2,945 |
|
| As % of loss from continuing operations before income taxes | (2.6 | )% | | (5.7 | )% | | 5.0 | % | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | | |
| (In thousands, except percentages) | 2023 | | 2022 | | $ Change | | % Change |
| Income before income taxes | $ | 23,103 | | | $ | 30,435 | | | $ | (7,332) | | | (24.1) | % |
| Provision for income taxes | 11,575 | | | 9,275 | | | 2,300 | | | 24.8 | % |
| As % of income before income taxes | 50.1 | % | | 30.5 | % | | | | |
Our provision for income tax expense (benefit) from continuing operationstaxes was $16 thousand of expense for fiscal 2017 compared to $1.6$11.6 million of expense for fiscal 20162023 and $1.3$9.3 million of benefitexpense for fiscal 2015. The difference between our income2022. Our tax expense (benefit) from continuing operations and income tax expense at the statutory rate of 35% was primarily attributable to losses in tax jurisdictions in which we cannot recognize a tax benefit and increase in foreign withholding taxes. Duringfor fiscal 2017, we recorded a $3.7 million tax benefit from the audit assessment refund received from the Inland Revenue Authority of Singapore. During fiscal 2015, we released approximately $4.4 million of the deferred tax valuation allowance in jurisdictions where management believed the utilization of deferred tax assets was more likely than not based on the weighting of positive and negative evidence.
Income from Discontinued Operations
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | $ Change |
| (In thousands) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 |
| Income from discontinued operations, net of tax | $ | — |
| | $ | 541 |
| | $ | 94 |
| | $ | (541 | ) | | $ | 447 |
|
Our discontinued operations consisted of the WiMAX business, which was sold to EION Networks, Inc. (“EION”) on September 2, 2011. We completed the business transition with EION in fiscal 2012. The income recognized in fiscal 20162023 was primarily due to recoverytax expense related to U.S. and profitable foreign subsidiaries, including tax expense associated with our acquisition of certain WiMAX customer receivables that were previously written down. The income recognizedRedline in July 2022 and subsequent restructuring and integration impact. See Note 12. Acquisitions.
Our tax expense for fiscal 20152022 was primarily due to tax expenses related to U.S. and profitable foreign subsidiaries.
Fiscal 2022 Compared to Fiscal 2021
For a $0.1 million write-offcomparison of accrued liabilities due to EION.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.
Liquidity, Capital Resources and Financial Strategies
As of June 30, 2017,2023, our total cash and cash equivalents and short-term investments totaled $35.9$22.2 million. Approximately $22.0$7.5 million, or 61.4%33.9%, was held in the United States. The remaining balance of $13.9$14.7 million, or 38.6%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, 2017, $9.72023, $13.8 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to U.S. taxes which would be nominal.foreign withholding taxes.
Operating Activities
Cash used in or provided by (used in) operating activities is presented as net lossincome adjusted for certain non-cash items and changes in operating assets and liabilities. Net cash provided by (used in)used in operating activities was $9.4$1.6 million for fiscal 2017, $0.42023,
compared with $2.8 million for fiscal 2016 and $(9.6) million for fiscal 2015.
For fiscal 2017 compared to fiscal 2016, cash provided by operating activities improved by $9.0 million. Results from operations improved by $29.0 million as we had a lower net loss of $0.6 millionfor fiscal 2022. Cash used in fiscal 2017 compared to a net loss of $29.6 million in fiscal 2016. Net contribution of non-cash items to cash provided by operating activities decreasedincreased by $12.0$4.4 million, andprimarily attributable to net contribution of changes in operating assets and liabilities, partially offset by improved net income prior to cash provided by operating activities decreased by $8.0 million in fiscal 2017 as compared to fiscal 2016.
The $29.0 million decrease in net loss includes a $3.7 million tax refund from the Inland Revenue Authority of Singaporenon-cash adjustments related to a $13.2 million tax assessment we paid in fiscal 2014. This tax refund was recorded as a discrete tax benefit when it was received during our first quarter of fiscal 2017.
The $12.0 million decrease in the net contribution of non-cash items to cash provided by operating activities was primarily due to a $8.7 million decrease in charges for inventory write-downs, a $2.1 million decrease in bad debtshare-based compensation expense, a $0.8 million decrease in depreciation and amortization of property, plant and equipment, a $0.7 million decrease in loss on disposition of property, plant and equipment and a $0.3 million gainlosses recognized on liquidationthe sale of a dormant subsidiary in the third quarter of fiscal 2017.marketable securities.
ChangesNet changes in operating assets and liabilities resulted in a decrease$5.8 million of $8.0 millionadditional cash used by operating activities for fiscal 2017 compared2023, primarily attributable to fiscal 2016. The decreaseincreases in accounts receivable was primarily due to stronger collections, and unbilled receivables increased due tocosts as a result of the timing of billings. The fluctuation in accounts payablesales and accrued expenses was primarily due to timing of liabilities incurredbilling activities and vendor payments. The change in inventories and in customer service inventories was primarily due to demand and our focus on improving our inventory management. The change in advance payments and unearned income was due to timing of payment from customers and revenue recognition. We used $3.7 million in cash during fiscal 2017 on expenses related to restructuring liabilities.
For fiscal 2016 compared to fiscal 2015, the $10.0 million increase in cash provided by operating activities was primarily due to a $9.0 million increase in working capital, a $4.4 million decrease in deferred income taxes benefits and a $1.8 million higher inventory and customer service inventory write-downs, offset by a $5.1 million higher net loss.collections.
Investing Activities
Net cash used in investing activities was $4.0$11.9 million for fiscal year 2017, $1.82023, compared to $7.8 million for fiscal 20162022. The $4.2 million increase is primarily due to the acquisition of Redline and $3.7 million for fiscal 2015, which consisted primarily of capital expenditures.
For fiscal 2018, we expect to spend approximately $5.3 million forhigher capital expenditures, primarilypartially offset by proceeds on equipment for development and manufacturingthe sale of new products and to support customer managed services.marketable securities originally purchased in fiscal 2022.
Financing Activities
Financing cash flows consist primarily of proceedsborrowings and repayments under our revolving credit line, repurchase of short-term debtstock, and proceeds from salethe exercise of share of commonemployee stock through employee equity plans.options. Net cash provided byused in financing activities was $21 thousand for fiscal year 2017, $13 thousand for fiscal 2016 and $2.9$0.7 million for fiscal 2015.2023, 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, 2017,2023, our principal sources of liquidity consisted of the $35.9$22.2 million in cash and cash equivalents, and short-term investments, $5.8$40.0 million of available credit under our $30.0 million credit facility with Silicon Valley Bank (“SVB”) which expires on June 30, 2018,Credit Facility, and future collections of receivables from customers. We regularly require letters of credit from somecertain customers and, from time to time, these letters of credit are discounted without recourse shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce our credit and sovereign risk. Historically, our primary sources of liquidity have been cash flows from operations and credit facilities. Additionally, we have an effective shelf registration statement on Form S-3 allowing us to offer and sell, either individually or in combination, in one or more offerings, up to a total dollar amount of $200.0 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 line of creditborrowings under the SVBour Credit Facility, (as defined below)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 working capital and capital expenditurescash for at least the next 12 months. Our SVB Credit Facility expires on June 30, 2018. WhileIn addition, we intend and expect the SVB Credit Facility to be renewed, there can be no assurance that the SVB Credit Facilitybelieve these sources of liquidity will be renewed. In addition, there can be no assurance, however, thatsufficient to provide for our business will generateanticipated requirements and plans for cash flow from operations, that we will be in compliance withbeyond the quarterly financial covenants contained in the SVB Credit Facility, or that we will have a sufficient borrowing base under such facility, or that anticipated operational improvements will be achieved. If we are not in compliance with the financial covenants or do not have sufficient eligible accounts receivable to support our borrowing base, the availability of our credit facility is not certain or may be diminished. Over the longer term, if we are unable to maintain cash balances or generate sufficient cash flow from operations to service our obligations that may arise in the future, we may be required to sell assets, reduce capital expenditures, or obtain financing. If we need to obtain additional financing, we cannot be assured that it will be available on favorable terms, or at all. Our ability to make scheduled principal payments or pay interest on or refinance any future indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the microwave communications market and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.next 12 months.
Available Credit Facility, Borrowings and Repayment of Debt
On March 28, 2014,May 9, 2023, we entered into a Second Amended and Restated Loan Agreement with SVB (the “SVB Credit Facility”). The SVBSecured Credit Facility was amended on September 25, 2014, October 30, 2014Agreement (the “Credit Facility” or “Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, swingline lender and December 2, 2014 to provide for extensions to the deadline for preparingissuing lender and filing our fiscal 2014 financial statements with the SEC. On February 27, 2015, the SVB Credit Facility was further amended to provide for certain amendments to the financial covenants, borrowing baseWells Fargo Securities LLC, Citigroup Global Markets Inc., and an early termination fee if the SVB Credit Facility is terminated prior to its expiration. In March 2016, we amended the SVB Credit Facility to amend financial covenants and to reduce the maximum borrowing capacity from $40.0 million to $30.0 million. In June 2016, we amended the SVB Credit Facility to amend the minimum Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) covenant; to create a new sub-limit for letters
of credit issued under the revolving credit facility of $12.0 million; to reduce the advance rate applicable to Singapore Borrower’s eligible accounts in the calculation of the borrowing base of the revolving credit facility; to increase the interest rate margins applicable to revolving loans made to Singapore Borrower by 2.00% above the applicable margin; and to extend the facility maturity date to June 30, 2018. In June 2017, the SVB Credit Facility was amended to exclude certain guarantee, indemnity and similar agreements from the borrowing base calculations and to extend the effective date to July 15, 2017 for the requirement that we obtain credit insurance on the receivables of the Singapore Borrower to be included in the borrowing base.
The SVB Credit Facility carries an interest rate computed at the daily prime rateRegions Capital Markets as published in the Wall Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio. During fiscal 2017, the weighted average interest rate on our outstanding loan was 4.21%. As of June 30, 2017 and July 1, 2016, our outstanding debt balance under the SVB Credit Facility was $9.0 million in each fiscal year, and the interest rate was 4.75% and 4.00% respectively.
lenders. The SVB Credit Facility provides for a committed amount of up to $30.0$40.0 million revolving credit facility (“the Revolver”) and a $50.0 million Delayed Draw Term Loan Facility (the “Term Loan”) with a $30.0maturity date of May 8, 2028. The $40.0 million sublimit thatrevolving credit facility can be borrowed by our Singapore subsidiary. Borrowings that may be advanced under the SVB Credit Facility at the lesser of $30.0with a $10.0 million or a borrowing base equal to a specified percentage of the value of eligible accounts receivable and U.S. unbilled accounts of the Company, subject to certain reserves and eligibility criteria. The SVB Credit Facility can also be utilized to issuesublimit for letters of credit, withand a $12.0$10.0 million swingline loan sublimit. If the SVB Credit Facility is terminated by us in certain circumstancesThe Term Loan has a funding date on or prior to its expiration, we are subject to an early termination fee equal to 1%the closing date of the revolving line. previously announced NEC Transaction with the proceeds used to settle the cash portion of the consideration and related expense. See Note 12. Acquisitions for further information.
As of June 30, 2017,2023, available credit under the SVBRevolver 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.
Outstanding borrowings under the Credit Facility was $5.8 million reflectingbear interest at either: (a) Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus the calculated borrowing baseapplicable margin; or (b) the Base Rate plus the applicable margin. The pricing levels for interest rate margins are determined based on the Consolidated Total Leverage Ratio as determined and adjusted quarterly.
The SVBCredit 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. The Credit Facility also requires that the Company maintain a maximum leverage ratio of 3.00 times EBITDA, with a step-down to 2.75 times EBITDA after four full quarters, and 2.50 times EBITDA after eight full quarters. The Credit Facility contains quarterly financialcustomary affirmative and negative covenants, including, minimum adjusted quick ratioamong others, covenants limiting the ability of the Company and minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB Credit Facility. The SVB Credit Facility also imposes certain restrictions on our abilityits 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, under certain circumstances. Certain of our assets, including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an event of default, outstanding obligations would be immediately due and payable. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equalin each case subject to 2.00% above the applicable interest rate.customary exceptions.
As of June 30, 2017,2023, we were in compliance with the quarterlyall financial covenants as amended, 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, Credit Facility. However, we have historically amended the agreement to revise financial covenantsas lender. We borrowed $65.7 million and the fact thatrepaid $65.7 million against the SVB Credit Facility contains subjective acceleration clauses that could be triggered by the lender, the $9.0 million borrowing was classified as a current liability asduring fiscal 2023. As of June 30, 2017 and July 1, 2016. We repaid the $9.02023, we had $2.6 million in July 2017.of collateralized cash on deposit with SVB associated with certain commercial commitments.
Restructuring Payments
We had liabilities for restructuring activities totaling $1.7$0.6 million as of June 30, 2017, of2023, which $1.5 million 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.
Contractual Obligations
The following table summarizes our contractual obligations and commitments as of June 30, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Obligations Due by Fiscal Year |
| (In thousands) | Total | | < 1 year | | 1 - 3 years | | 3 - 5 years | | > 5 years | | Other |
| Borrowings under credit facility | $ | 9,000 |
| | $ | 9,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Purchase obligations (1)(4) | 17,846 |
| | 17,529 |
| | 137 |
| | 72 |
| | 108 |
| | — |
|
Other purchase obligations (3)(4) | 1,364 |
| | 1,364 |
| | — |
| | — |
| | — |
| | |
Operating lease commitments (4) | 7,555 |
| | 1,997 |
| | 2,419 |
| | 1,116 |
| | 2,023 |
| | — |
|
Reserve for uncertain tax positions (2) | 2,453 |
| | — |
| | — |
| | — |
| | — |
| | 2,453 |
|
| Total contractual cash obligations | $ | 38,218 |
| | $ | 29,890 |
| | $ | 2,556 |
| | $ | 1,188 |
| | $ | 2,131 |
| | $ | 2,453 |
|
___________________________
| |
(1) | From time to time in the normal course of business we may enter into purchasing agreements with our suppliers that require us to accept delivery of, and remit full payment for, finished products that we have ordered, finished products that we requested be held as safety stock, and work in process started on our behalf in the event we cancel or terminate the purchasing agreement. 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 we have no present intention to cancel or terminate any of these agreements, we currently do not believe that we have any future liability under these agreements. |
| |
(2) | Liabilities for uncertain tax positions of $2.5 million were included in long-term liabilities in the consolidated balance sheets. At this time, we are unable to make a reasonably reliable estimate of the timing of payments related to this amount due to uncertainties in the timing of tax audit outcomes. |
| |
(3) | Contractual obligation related to software licenses. |
| |
(4) | These items are not recorded on our consolidated balance sheets. |
Commercial Commitments
We have entered into commercial commitments in the normal course of business including surety bonds, standby letters of credit and other arrangements with financial institutions and insurers primarily relating to the guarantee of future performance on certain tenders and contracts to provide products and services to customers. As of June 30, 2017, we had commercial commitments on outstanding surety bonds and standby letters of credit as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Expiration of Commitments by Fiscal Year |
| (In thousands) | Total | | 2018 | | 2019 | | 2020 | | After 2021 |
| Standby letters of credit used for: | | | | | | | | | |
| Payment guarantees | $ | 267 |
| | $ | 158 |
| | $ | — |
| | $ | — |
| | $ | 109 |
|
| Performance | 6,226 |
| | 3,635 |
| | 2,577 |
| | 14 |
| | — |
|
| Tax bonds | 14 |
| | 9 |
| | — |
| | 5 |
| | — |
|
| | 6,507 |
| | 3,802 |
| | 2,577 |
| | 19 |
| | 109 |
|
| Surety bonds used for: | | | | | | | | | |
| Bids | 100 |
| | 100 |
| | — |
| | — |
| | — |
|
| Performance | 23,984 |
| | 13,354 |
| | 10,630 |
| | — |
| | — |
|
| Payment guarantees | 760 |
| | 725 |
| | 35 |
| | — |
| | — |
|
| Tax bonds | 3,390 |
| | 13 |
| | — |
| | 3,377 |
| | — |
|
| | 28,234 |
| | 14,192 |
| | 10,665 |
| | 3,377 |
| | — |
|
| Total commercial commitments | $ | 34,741 |
| | $ | 17,994 |
| | $ | 13,242 |
| | $ | 3,396 |
| | $ | 109 |
|
Historically, we have not paid out any significant amount of our performance guarantees. As such, the outstanding commercial commitments have not been recorded in our consolidated balance sheets.
Off-Balance Sheet Arrangements
In accordance with the definition under SEC rules (Item 303(a) (4) (ii) of Regulation S-K), any of the following qualify as off-balance sheet arrangements:
any obligation under certain guarantee contracts;
a retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity See Note 8. Restructuring Activities for such assets;
any obligation, including a contingent obligation, under certain derivative instruments; and
any obligation, including a contingent obligation, under a material variable interest held by the registrant in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with the registrant.
Currently we are not participating in transactions that generate relationships with unconsolidated entities or financial partnerships, including variable interest entities, and we do not have any material retained or contingent interest in assets as defined above. As of June 30, 2017, we did not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity. In addition, we are not currently a party to any related party transactions that materially affect our results of operations, cash flows or financial condition.
Due to the downsizing of certain of our operations pursuant to restructuring plans or otherwise, some properties leased by us have been sublet to third parties. In the event any of these third parties vacate any of these premises, we would be legally obligated under master lease arrangements. We believe that the financial risk of default by such sublessors is not likely to be individually or in the aggregate material to our financial position, results of operations or cash flows.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.
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 use foreign exchange forward contracts to hedge forecasted foreign currency transactions relating to forecasted sales and purchase transactions. Prior to the fourth quarter of fiscal 2015, these derivatives were designated as cash flow hedges and are carried at fair value. The effective portion of the gain or loss was initially reported as a component of accumulated other comprehensive loss, and upon occurrence of the forecasted transaction, was subsequently reclassified into the income or expense line item to which the hedged transaction relates. Beginning the fourth quarter of fiscal 2015, we no longer prepared contemporaneous documentation of hedges for the new foreign exchange forward contracts we entered into. As a result, the foreign exchange hedges no longer qualified as cash flow hedges. The changes in fair value related to the hedges were recorded in income or expenses line items on our statements of operations. 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. 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. The last qualifying cash flow hedges occurred in the first quarter of fiscal 2016 and we reclassified a $41 thousand gain out of accumulated other comprehensive loss into cost of revenues during the first quarter of fiscal 2016.
AsWe did not have any foreign exchange forward contracts outstanding as of June 30, 2017, we had one foreign currency forward contract outstanding as follows:
|
| | | | | | | |
| Currency | | Notional Contract Amount (Local Currency) | | Notional Contract Amount (USD) |
| | | (In thousands) |
| South African Rand | | 6,687 |
| | $ | 511 |
|
2023.
Net foreign exchange losslosses recorded in our consolidated statements of operations during fiscal 2017, 20162023 and 2015 was as follows:2022 were $1.0 million and $1.1 million, respectively.
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Amount included in costs of revenues | $ | (847 | ) | | $ | (556 | ) | | $ | (3,308 | ) |
| Amount included in other income (expense) | 135 |
| | (1,245 | ) | | — |
|
| Total foreign exchange loss, net | $ | (712 | ) | | $ | (1,801 | ) | | $ | (3,308 | ) |
A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of June 30, 2017 would have an impact of approximately $0.1 million on the fair value of such instruments. 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, 20172023 and July 1, 2016,2022, the cumulative translation adjustment decreased our stockholders’ equity by $11.8$16.0 million and $11.2$16.0 million, respectively.
In 2017, we reclassified a $0.3 million foreign current translation gain from accumulated other comprehensive loss to other income (expense) upon liquidation of a dormant foreign legal entity.
In June of 2016, the Nigeria Central Bank allowed the Naira to float freely after being fixed at approximately 197 Naira to one U.S. dollar. This event caused a devaluation in the Naira to approximately 280 Naira to one U.S. dollar resulting in the year over year losses in foreign exchange and cumulative translation adjustments for our Nigeria transactions.
During fiscal 2015 the company experienced increased volatility in foreign currency markets, resulting in the increased year over year losses in foreign exchange and cumulative translation adjustments, particularly in countries where there is no available market to hedge the local currency.
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 $35.9$22.2 million in total cash and cash equivalents and short-term investments as of June 30, 2017.2023. Cash equivalents and short-term investments totaled $22.4$4.4 million as of June 30, 20172023 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 in order 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; 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, 20172023, had a weighted averageweighted-average days to maturity of 28543 days, and an average yield of 7.13%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.
Exposure on Borrowings
During fiscal 2017, we had $9.0 million of demandOur borrowings outstanding under our credit facility thatthe current Credit Facility bear interest at either: (a) Adjusted Term SOFR plus the applicable margin; or (b) the Base Rate plus the applicable margin. 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.
ratio. During fiscal 2017, our weighted average2023, the weighted-average interest rate under our available credit facilities was 4.21% and we recorded total interest expense of less than $0.1 million on these borrowings.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 since interest on our borrowings is not material to our overall financial position.flows.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us.
These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.
The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
•revenue recognition and valuation of accounts receivable;for estimated costs to complete over-time services;
•inventory valuation and provision for excess and obsolete inventory losses;
impairment of long-lived assets; and
•income taxes valuation.valuation; and
•business combinations.
In some cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Board.
The following is not intended to be a comprehensive list of all of our accounting policies or estimates. 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. In preparing our financial statements and accounting for the underlying transactions and balances, we apply those accounting policies. We consider the estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain.
Besides estimates that meet the “critical” accounting estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenue and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem “critical.”
Revenue Recognition and Valuation of Accounts Receivable
ApplicationWe recognize revenue by applying the following five-step approach: (1) identification of the various accounting principlescontract with a customer; (2) identification of the performance obligations in GAAP relatedthe contract; (3) determination of the transaction price; (4) allocation of the transaction price to the measurementperformance obligations in the contract; and (5) recognition of revenue requires uswhen, or as, we satisfy a performance obligation.
Revenue from services includes certain network planning and design, engineering, installation and commissioning, extended warranty, customer support, consulting, training, and education. Maintenance and support services are generally offered to make judgmentsour customers and estimates. Specifically, complex arrangements with nonstandard termsrecognized over a specified period of time and conditions may require significant contract interpretation to determine the appropriate accounting, including whether the deliverables specified in a multiple-deliverable arrangement should be treated as separate unitsfrom sales and subsequent renewals of accounting. Additionally, we are required to make subjective estimates and apply judgment regarding matters that are inherently uncertain including the allocation of revenue to various components of our multiple element arrangements which may contain hardware, software, licenses, maintenance and servicesupport contracts.
Revenue The network planning and design, engineering and installation related services noted are recognized based on an over-time recognition is also impacted by our ability to estimate expected returns and collectability. We consider various factors, including a review of specific transactions,model using the creditworthiness of the customers’ historical experience and market and economic conditions, when calculating these provisions and allowances. Evaluations are conducted each
quarter to assess the adequacy of the estimates.
Recognition of profit on long-term contracts requires estimates of the total contract value, the total cost at completion and the measurement of progress towards completion. Significantcost-input method. Certain judgment is required when estimating total contract costs and progress to completion on the over-time arrangements, as well as whether a loss is expected to be incurred on the contract. The cost estimation process for these contracts is based on the knowledge and experience of the Company’s project managers, engineers, and financial professionals. Changes in job performance and job conditions are factors that influence estimates of the total costs to complete those contracts and the Company’s revenue recognition. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made.made in a timely manner. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known byto us. We perform ongoing profitability analysis of our service contracts accounted for under this method to determine whether the company.latest estimates of revenues, costs, and profits require updating. In rare circumstances if these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately.
Inventory Valuation and Provisions for Excess and Obsolete Losses
Our inventories have been valued at the lower of cost or market.net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We balance the need to maintain prudent inventory levels to ensure competitive delivery performance with the risk of excess or obsolete inventory due to changing technology and customer requirements, and new product introductions. The manufacturing of our products is handled primarily by contract manufacturers. Our contract manufacturers procure components and manufacture our products based on our forecast of product demand. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand, the stage of the product life cycle, anticipated end of product life and production requirements. Several factors may influence the sale and use of our inventories, including decisions to exit a product line, technological change, new product development and competing product offerings. These factors could result in a change in the amount of obsolete inventory quantities on hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case the provision required for excess and obsolete inventory may be overstated or understated. In the future, if we determine that our inventory is overvalued, we would be required to recognize such costs in cost of product sales and services in our consolidated statementstatements of operations at the time of such determination. In the case of goods which have been written down below cost at the close of a fiscal quarter, such reduced amount is considered the new lower cost basis for subsequent accounting purposes, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. We did not make any material changes in the valuation methodology during the past three fiscal years.
Our customer service inventories are stated at the lower of cost or market.net realizable value. We carry service parts because we generally provide product warranty for 12 to 36 months and earn revenue by providing enhanced and extended warranty and repair service during and beyond this warranty period. Customer service inventories consist of both component parts, which are primarily used to repair defective units, and finished units, which are provided for customer use permanently or on a temporary basis while the defective unit is being repaired. 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
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.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. If impairment exists, the impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of cash flows from other asset groups.
Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future operating performance, growth rates and other factors. The actual cash flows realized from these assets may vary significantly from our estimates due to increased competition, changes in technology, fluctuations in demand, consolidation of our customers, reductions in average selling prices and other factors. Assumptions underlying future cash flow estimates are therefore subject to significant risks and uncertainties.
Income Taxes Valuation
We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities of amounts reported in our consolidated balance sheets, as well as operating loss and tax credit carryforwards. SignificantCertain judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the opening and closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may result in an increase or decrease to our tax provision in a subsequent period in which such determination is made.
We record deferred taxes by applying enacted statutory tax rates to the respective jurisdictions and follow specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the consolidated balance sheets and provide necessary valuation allowances as required. Future realization of deferred tax assets ultimately depends on meeting certain criteria in ASCFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC 740”). One of the major criteria is the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carrybackcarry-back or carryforwardcarry-forward periods available under the tax law. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgments regarding future profitability may change due to many factors, including future market conditions and our ability to successfully execute our business plans and/or tax planning strategies. Should there be a change in our ability to recover our deferred tax assets, our tax provision would increase or decrease in the period in which the assessment is changed.
The accounting estimates related to the liability for uncertain tax position require us to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. It is inherently difficult and subjective to estimate our reserves for the uncertain tax positions. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will be the same as these estimates. These estimates are updated quarterly based on factors such as changechanges in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues.
Business Combinations
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. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Impact of Recently Issued Accounting Pronouncements
See “Note 1. 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Risk
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. For a discussion of such policies and procedures and the related risks, see “Financial Risk Management” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is incorporated by reference into this Item 7A.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
TheTo the shareholders and the Board of Directors and Stockholders
of Aviat Networks, Inc.
Milpitas, California:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Aviat Networks, Inc. and subsidiaries (the "Company") as of June 30, 2017 and July 1, 2016, and2023, the related consolidated statements of operations, comprehensive loss, equity andincome, cash flows, and equity, for the yearsfiscal year ended June 30, 2017, July 1, 20162023, the related notes and July 3, 2015. In connection with our audits of the financial statements, we have also audited the financial statement schedule - Valuation and Qualifying Accounts as of and for the years ended June 30, 2017, July 1, 2016 and July 3, 2015 listed in the Index at Item 15(a)(2)15 (collectively referred to as the "financial statements"). TheseIn our opinion, the financial statements and schedule arepresent fairly, in all material respects, the responsibilityfinancial position of the Company’s management. Our responsibility is to express an opinion on these financial statementsCompany as of June 30, 2023, and schedule based on our audits.the results of its operations and its cash flows for the fiscal year ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.
We conducted our auditshave also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company's internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 30, 2023 expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not requiredmisstatement, whether due to have, nor were we engagederror or fraud. Our audit included performing procedures to perform, an auditassess the risks of its internal control overmaterial misstatement of the financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditstatements, whether due to error or fraud, and performing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesrespond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule.statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition — Service Revenues - Estimated Costs to Complete - Refer to Note 3 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue from two primary sources: products and services. Revenues from services include revenues from network planning and design, engineering and installation-related services and are recognized based on an over-time recognition model using the cost-input method. Judgment is required when estimating total contract costs and progress to completion on the over-time arrangements. The cost estimation process for these contracts is based on the knowledge and experience of the Company’s project managers, engineers, and financial professionals. Changes in job performance and job conditions are factors that influence estimates of the total costs to complete those contracts and the Company’s revenue recognition.
We identified estimated costs to complete for open over-time revenue contracts at year end as a critical audit matter. The determination of the total estimated cost and progress toward completion requires management to make significant estimates and assumptions. Changes in these estimates or timing of when the costs occur can have a significant impact
on the revenue recognized each period. Auditing these elements involved especially challenging and subjective auditor judgment in evaluating the reasonableness of management’s assumptions and estimates over the duration of these contracts.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of costs to complete for open over-time revenue contracts used to recognize service revenues included the following, among others:
•We tested the effectiveness of controls related to estimated costs to complete, including controls over management’s review of cost estimates.
•We selected a sample of revenue contracts and performed the following:
◦Tested the accuracy and completeness of the costs incurred to date
◦Evaluated the estimates of cost to complete for a sample of open over-time contracts by:
▪Comparing costs incurred to date to the costs management estimated to be incurred to date
▪Evaluating the progress to completion by performing inquiries of project managers and assessing the nature of activities required to complete
▪Comparing management’s estimates of gross margin for the selected contracts to the gross margin of similar contracts, when applicable
◦Tested the mathematical accuracy of management’s calculation of revenue for the contract
•We developed an expectation of service revenue by creating an independent estimate of gross margin based on historical margin rates and compared it to the recorded service revenue
•We performed a lookback to evaluate management’s ability to estimate costs accurately by making a selection of changes in estimates during the year and testing whether the change in estimate was properly supported and recorded within the correct period
/s/ Deloitte & Touche LLP
Austin, Texas
August 30, 2023
We have served as the Company's auditor since fiscal year 2023.
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Aviat Networks, Inc.
Austin, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Aviat Networks, Inc. (the “Company”) as of July 1, 2022, the related consolidated statements of operations, comprehensive (loss) income, equity, and cash flows for each of the two fiscal years in the period ended July 1, 2022, the related notes and the financial statement schedule - Valuation and Qualifying Accounts (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aviat Networks, Inc. as of June 30, 2017 andthe Company at July 1, 20162022, and the results of its operations and its cash flows for each of the two fiscal years in the period ended June 30, 2017, July 1, 2016 and July 3, 2015,2022, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule - Valuation and Qualifying Accounts as of and
Basis for the years ended June 30, 2017, July 1, 2016 and July 3, 2015, when considered in relation to the basicOpinion
These consolidated financial statements takenare the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a whole, presents fairly in all material respects the information set forth therein.reasonable basis for our opinion.
/s/ BDO USA, LLP
San Jose, California
September 6, 201714, 2022
We served as the Company's auditor from 2015 to 2022.
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| (In thousands, except per share amounts) | June 30,
2017 | | July 1,
2016 | | July 3,
2015 |
| Revenues: | | | | | |
| Revenue from product sales | $ | 153,517 |
| | $ | 167,827 |
| | $ | 214,874 |
|
| Revenue from services | 88,357 |
| | 100,863 |
| | 121,004 |
|
| Total revenues | 241,874 |
| | 268,690 |
| | 335,878 |
|
| Cost of revenues: | | | | | |
| Cost of product sales | 105,183 |
| | 128,727 |
| | 163,890 |
|
| Cost of services | 61,219 |
| | 78,246 |
| | 91,298 |
|
| Total cost of revenues | 166,402 |
| | 206,973 |
| | 255,188 |
|
| Gross margin | 75,472 |
| | 61,717 |
| | 80,690 |
|
| Operating expenses: | | | | | |
| Research and development expenses | 18,684 |
| | 20,806 |
| | 25,368 |
|
| Selling and administrative expenses | 57,184 |
| | 65,902 |
| | 76,005 |
|
| Amortization of identifiable intangible assets | — |
| | — |
| | 380 |
|
| Restructuring charges | 589 |
| | 2,455 |
| | 4,867 |
|
| Total operating expenses | 76,457 |
| | 89,163 |
| | 106,620 |
|
| Operating loss | (985 | ) | | (27,446 | ) | | (25,930 | ) |
| Interest income | 261 |
| | 252 |
| | 360 |
|
| Interest expense | (50 | ) | | (104 | ) | | (388 | ) |
| Other income (expense) | 169 |
| | (1,245 | ) | | — |
|
| Loss from continuing operations before income taxes | (605 | ) | | (28,543 | ) | | (25,958 | ) |
| Provision for (benefit from) income taxes | 16 |
| | 1,635 |
| | (1,310 | ) |
| Loss from continuing operations | (621 | ) | | (30,178 | ) | | (24,648 | ) |
| Income from discontinued operations, net of tax | — |
| | 541 |
| | 94 |
|
| Net loss | (621 | ) | | (29,637 | ) | | (24,554 | ) |
| Less: Net income attributable to noncontrolling interests, net of tax | 202 |
| | 270 |
| | 71 |
|
| Net loss attributable to Aviat Networks | $ | (823 | ) | | $ | (29,907 | ) | | $ | (24,625 | ) |
| | | | | | |
| Amount attributable to Aviat Networks | | | | | |
| Net loss from continuing operations, net of tax | $ | (823 | ) | | $ | (30,448 | ) | | $ | (24,719 | ) |
| Net income from discontinued operations, net of tax | $ | — |
| | $ | 541 |
| | $ | 94 |
|
| | | | | | |
| Basic and diluted loss per share attributable to Aviat Networks’ common stockholders: | | |
| Continuing operations | $ | (0.16 | ) | | $ | (5.81 | ) | | $ | (4.77 | ) |
| Discontinued operations | $ | — |
| | $ | 0.10 |
| | $ | 0.02 |
|
| Net loss | $ | (0.16 | ) | | $ | (5.71 | ) | | $ | (4.75 | ) |
| Weighted average shares outstanding, basic and diluted | 5,292 |
| | 5,238 |
| | 5,184 |
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| (In thousands, except per share amounts) | June 30,
2023 | | July 1, 2022 | | July 2, 2021 |
| Revenues: | | | | | |
| Product sales | $ | 239,321 | | | $ | 208,100 | | | $ | 185,787 | |
| Services | 107,272 | | | 94,859 | | | 89,124 | |
| Total revenues | 346,593 | | | 302,959 | | | 274,911 | |
| Cost of revenues: | | | | | |
| Product sales | 151,008 | | | 132,404 | | | 113,055 | |
| Services | 71,414 | | | 61,320 | | | 59,241 | |
| Total cost of revenues | 222,422 | | | 193,724 | | | 172,296 | |
| Gross margin | 124,171 | | | 109,235 | | | 102,615 | |
| Operating expenses: | | | | | |
| Research and development | 24,908 | | | 22,596 | | | 21,810 | |
| Selling and administrative | 69,842 | | | 57,656 | | | 56,324 | |
| Restructuring charges | 3,012 | | | 238 | | | 2,271 | |
| Total operating expenses | 97,762 | | | 80,490 | | | 80,405 | |
| Operating income | 26,409 | | | 28,745 | | | 22,210 | |
| | | | | |
| | | | | |
| Other (expense) income, net | (3,306) | | | 1,690 | | | 230 | |
| Income before income taxes | 23,103 | | | 30,435 | | | 22,440 | |
| Provision for (benefit from) income taxes | 11,575 | | | 9,275 | | | (87,699) | |
| Net income | $ | 11,528 | | | $ | 21,160 | | | $ | 110,139 | |
| | | | | |
| Net income attributable to Aviat Networks | $ | 11,528 | | | $ | 21,160 | | | $ | 110,139 | |
| | | | | |
| Net income per share: | | | | | |
| Basic | $ | 1.01 | | | $ | 1.89 | | | $ | 9.98 | |
| Diluted | $ | 0.97 | | | $ | 1.79 | | | $ | 9.42 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 11,358 | | | 11,167 | | | 11,036 | |
| Diluted | 11,855 | | | 11,820 | | | 11,688 | |
See accompanying notesNotes to consolidated financial statementsConsolidated Financial Statements
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| (In thousands) | June 30,
2017 | | July 1,
2016 | | July 3,
2015 |
| Net loss | $ | (621 | ) | | $ | (29,637 | ) | | $ | (24,554 | ) |
| Other comprehensive income (loss): | | | | | |
| Cash flow hedges: | | | | | |
| Change in unrealized loss on cash flow hedges | — |
| | — |
| | (314 | ) |
| Reclassification adjustments for (gain) loss included in net loss | — |
| | (41 | ) | | 321 |
|
| Net change in unrealized (loss) gain on hedging activities | — |
| | (41 | ) | | 7 |
|
| Foreign currency translation: | | | | | |
| Loss arising during period | (279 | ) | | (2,488 | ) | | (5,672 | ) |
| Reclassification of gain on liquidation of subsidiary | (349 | ) | | — |
| | — |
|
| Net change in cumulative translation adjustment | (628 | ) | | (2,488 | ) | | (5,672 | ) |
| Other comprehensive loss | (628 | ) | | (2,529 | ) | | (5,665 | ) |
| Comprehensive loss | (1,249 | ) | | (32,166 | ) | | (30,219 | ) |
| Comprehensive income attributable to noncontrolling interests, net of tax | 202 |
| | 270 |
| | 71 |
|
| Comprehensive loss attributable to Aviat Networks | $ | (1,451 | ) | | $ | (32,436 | ) | | $ | (30,290 | ) |
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended |
| (In thousands) | June 30,
2023 | | July 1, 2022 | | July 2, 2021 |
| Net income | $ | 11,528 | | | $ | 21,160 | | | $ | 110,139 | |
| Other comprehensive income (loss): | | | | | |
| Net change in cumulative translation adjustment | 25 | | | (1,702) | | | 642 | |
| Other comprehensive income (loss) | 25 | | | (1,702) | | | 642 | |
| Comprehensive income | $ | 11,553 | | | $ | 19,458 | | | $ | 110,781 | |
See accompanying notesNotes to consolidated financial statementsConsolidated Financial Statements
AVIAT NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
| | | (In thousands, except share and par value amounts) | June 30, 2017 | | July 1, 2016 | (In thousands, except share and par value amounts) | June 30, 2023 | | July 1, 2022 |
| ASSETS | | | | ASSETS | | | |
| Current Assets: | | | | Current Assets: | |
| Cash and cash equivalents | $ | 35,658 |
| | $ | 30,479 |
| Cash and cash equivalents | $ | 22,242 | | | $ | 36,877 | |
| Restricted cash | 541 |
| | 558 |
| |
| Short-term investments | 264 |
| | 222 |
| |
| Marketable securities | | Marketable securities | 2 | | | 10,893 | |
| Accounts receivable, net | 45,945 |
| | 63,449 |
| Accounts receivable, net | 101,653 | | | 73,168 | |
| Unbilled receivables | 12,110 |
| | 5,117 |
| Unbilled receivables | 58,588 | | | 45,857 | |
| Inventories | 21,794 |
| | 27,293 |
| Inventories | 33,057 | | | 27,169 | |
| Customer service inventories | 1,871 |
| | 3,064 |
| |
| Other current assets | 6,402 |
| | 10,232 |
| Other current assets | 22,162 | | | 12,437 | |
| Total current assets | 124,585 |
| | 140,414 |
| Total current assets | 237,704 | | | 206,401 | |
| Property, plant and equipment, net | 16,406 |
| | 18,162 |
| Property, plant and equipment, net | 9,452 | | | 8,887 | |
| Goodwill | | Goodwill | 5,112 | | | — | |
| Intangible assets, net | | Intangible assets, net | 9,046 | | | — | |
| Deferred income taxes | 6,178 |
| | 6,068 |
| Deferred income taxes | 86,650 | | | 95,412 | |
| Right of use assets | | Right of use assets | 2,554 | | | 2,759 | |
| Other assets | 5,407 |
| | 1,467 |
| Other assets | 13,978 | | | 10,445 | |
| Total long-term assets | 27,991 |
| | 25,697 |
| |
| TOTAL ASSETS | $ | 152,576 |
| | $ | 166,111 |
| TOTAL ASSETS | $ | 364,496 | | | $ | 323,904 | |
| | LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | |
| Current Liabilities: | | | | Current Liabilities: | |
| Short-term debt | $ | 9,000 |
| | $ | 9,000 |
| |
| | Accounts payable | 33,606 |
| | 33,217 |
| Accounts payable | $ | 60,141 | | | $ | 42,394 | |
| Accrued expenses | 21,933 |
| | 23,205 |
| Accrued expenses | 24,442 | | | 26,451 | |
| Advance payments and unearned income | 20,004 |
| | 30,615 |
| |
| Short-term lease liabilities | | Short-term lease liabilities | 610 | | | 513 | |
| Advance payments and unearned revenue | | Advance payments and unearned revenue | 44,268 | | | 33,740 | |
| Restructuring liabilities | 1,475 |
| | 3,910 |
| Restructuring liabilities | 600 | | | 1,381 | |
| Total current liabilities | 86,018 |
| | 99,947 |
| Total current liabilities | 130,061 | | | 104,479 | |
| Unearned income | 7,062 |
| | 8,387 |
| |
| Unearned revenue | | Unearned revenue | 7,416 | | | 8,920 | |
| Long-term lease liabilities | | Long-term lease liabilities | 2,140 | | | 2,412 | |
| Other long-term liabilities | 1,022 |
| | 1,409 |
| Other long-term liabilities | 314 | | | 273 | |
| Reserve for uncertain tax positions | 2,453 |
| | 1,414 |
| Reserve for uncertain tax positions | 3,975 | | | 5,504 | |
| Deferred income taxes | 1,681 |
| | 1,497 |
| Deferred income taxes | 492 | | | 563 | |
| Total liabilities | 98,236 |
| | 112,654 |
| Total liabilities | 144,398 | | | 122,151 | |
| Commitments and contingencies (Note 12) |
| |
| |
| Commitments and contingencies (Note 13) | | Commitments and contingencies (Note 13) | |
| Equity: | | | | 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; 5,317,766 and 5,261,041 shares issued and outstanding as of as of June 30, 2017 and July 1, 2016, respectively | 53 |
| | 53 |
| |
| Preferred stock, $0.01 par value; 50.0 million shares authorized; none issued | | Preferred stock, $0.01 par value; 50.0 million shares authorized; none issued | — | | | — | |
| Common stock, $0.01 par value; 300.0 million shares authorized; 11.5 million and 11.2 million shares issued and outstanding as of June 30, 2023 and July 1, 2022, respectively | | Common stock, $0.01 par value; 300.0 million shares authorized; 11.5 million and 11.2 million shares issued and outstanding as of June 30, 2023 and July 1, 2022, respectively | 115 | | | 112 | |
| Treasury stock 0.2 million and 0.2 million shares as of June 30, 2023 and July 1, 2022, respectively | | Treasury stock 0.2 million and 0.2 million shares as of June 30, 2023 and July 1, 2022, respectively | (6,147) | | | (6,147) | |
| Additional paid-in-capital | 813,733 |
| | 811,601 |
| Additional paid-in-capital | 830,048 | | | 823,259 | |
| Accumulated deficit | (748,204 | ) | | (747,381 | ) | Accumulated deficit | (587,914) | | | (599,442) | |
| Accumulated other comprehensive loss | (11,785 | ) | | (11,157 | ) | Accumulated other comprehensive loss | (16,004) | | | (16,029) | |
| Total Aviat Networks stockholders’ equity | 53,797 |
| | 53,116 |
| |
| Noncontrolling interests | 543 |
| | 341 |
| |
| Total equity | 54,340 |
| | 53,457 |
| Total equity | 220,098 | | | 201,753 | |
| TOTAL LIABILITIES AND EQUITY | $ | 152,576 |
| | $ | 166,111 |
| TOTAL LIABILITIES AND EQUITY | $ | 364,496 | | | $ | 323,904 | |
See accompanying notesNotes to consolidated financial statementsConsolidated Financial Statements
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| (In thousands) | June 30,
2023 | | July 1, 2022 | | July 2, 2021 |
| Operating Activities | | | | | |
| Net income | $ | 11,528 | | | $ | 21,160 | | | $ | 110,139 | |
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | |
| Depreciation of property, plant and equipment | 5,475 | | | 4,463 | | | 5,383 | |
| Amortization of intangible assets | 704 | | | — | | | — | |
| Provision for (recovery from) uncollectible receivables | 467 | | | (23) | | | 171 | |
| Share-based compensation | 6,720 | | | 3,834 | | | 2,921 | |
| Deferred income taxes | 9,442 | | | 8,004 | | | (90,599) | |
| Charges for inventory and customer service inventory write-downs | 2,138 | | | 1,735 | | | 1,452 | |
| Noncash lease expense | 639 | | | 1,057 | | | (342) | |
| Net loss (gain) on marketable securities | 1,734 | | | (2,614) | | | — | |
| Other non-cash operating activities, net | 67 | | | (55) | | | 6 | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | (25,496) | | | (25,719) | | | (4,232) | |
| Unbilled receivables | (13,816) | | | (8,725) | | | (8,579) | |
| Inventories | (4,521) | | | (3,901) | | | (11,091) | |
| Accounts payable | 16,040 | | | 10,503 | | | 580 | |
| Accrued expenses | (4,306) | | | 876 | | | 1,767 | |
| Advance payments and unearned revenue | 6,254 | | | 1,713 | | | 10,560 | |
| Income taxes payable or receivable | 710 | | | (1,620) | | | 159 | |
| Other assets and liabilities | (15,423) | | | (7,899) | | | (997) | |
| Net cash (used in) provided by operating activities | (1,644) | | | 2,789 | | | 17,298 | |
| Investing Activities | | | | | |
| Payments for acquisition of property, plant and equipment | (5,335) | | | (1,792) | | | (2,847) | |
| Purchases of marketable securities | — | | | (8,279) | | | — | |
| Proceeds from sale of marketable securities | 9,157 | | | — | | | — | |
| Proceeds from sale of asset held for sale | — | | | 2,284 | | | — | |
| Acquisition, net of cash acquired and purchases of intangible assets | (15,769) | | | — | | | — | |
| Net cash used in investing activities | (11,947) | | | (7,787) | | | (2,847) | |
| Financing Activities | | | | | |
| Proceeds from borrowings | 102,200 | | | — | | | — | |
| Repayments of borrowings | (102,200) | | | — | | | (9,000) | |
| Payments of deferred financing costs | (753) | | | — | | | — | |
| Payments for repurchase of common stock - treasury shares | — | | | (5,362) | | | (787) | |
| Payments for taxes related to net settlement of equity awards | (1,198) | | | (541) | | | (167) | |
| Proceeds from issuance of common stock under employee stock plans and exercises of stock options | 1,270 | | | 1,029 | | | 1,906 | |
| Net cash used in financing activities | (681) | | | (4,874) | | | (8,048) | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (311) | | | (1,222) | | | (77) | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (14,583) | | | (11,094) | | | 6,326 | |
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| (In thousands) | June 30,
2017 | | July 1,
2016 | | July 3,
2015 |
| Operating Activities | | | | | |
| Net loss | $ | (621 | ) | | $ | (29,637 | ) | | $ | (24,554 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | |
| Amortization of identifiable intangible assets | — |
| | — |
| | 380 |
|
| Depreciation and amortization of property, plant and equipment | 5,840 |
| | 6,648 |
| | 7,242 |
|
| (Recovery) provision for uncollectible receivables | (580 | ) | | 1,532 |
| | 880 |
|
| Share-based compensation | 2,111 |
| | 1,836 |
| | 2,187 |
|
| Deferred tax assets, net | 75 |
| | (334 | ) | | (4,711 | ) |
| Charges for inventory and customer service inventory write-downs | 1,137 |
| | 9,868 |
| | 8,043 |
|
| Gain on disposition of WiMAX business | — |
| | — |
| | (85 | ) |
| Loss on disposition of property, plant and equipment, net | 153 |
| | 827 |
| | 384 |
|
| Gain on liquidation of subsidiary | (349 | ) | | — |
| | — |
|
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | 18,178 |
| | 17,023 |
| | (8,816 | ) |
| Unbilled receivables | (6,986 | ) | | 12,041 |
| | 6,125 |
|
| Inventories | 6,383 |
| | (4,995 | ) | | (663 | ) |
| Customer service inventories | 90 |
| | 2,419 |
| | 2,285 |
|
| Accounts payable | 608 |
| | (13,976 | ) | | 1,562 |
|
| Accrued expenses | (1,310 | ) | | (599 | ) | | (4,140 | ) |
| Advance payments and unearned income | (13,099 | ) | | (4,425 | ) | | 4,666 |
|
| Income taxes payable or receivable | 1,415 |
| | 2 |
| | 1,450 |
|
| Other assets and liabilities | (3,640 | ) | | 2,126 |
| | (1,833 | ) |
| Net cash provided by (used in) operating activities | 9,405 |
| | 356 |
| | (9,598 | ) |
| Investing Activities | | | | | |
| Payments for acquisition of property, plant and equipment | (4,021 | ) | | (1,574 | ) | | (3,693 | ) |
| Purchase of short-term investments | (139 | ) | | (222 | ) | | — |
|
| Maturities of short-term investments | 122 |
| | — |
| | — |
|
| Net cash used in investing activities | (4,038 | ) | | (1,796 | ) | | (3,693 | ) |
| Financing Activities | | | | | |
| Proceeds from borrowings | 33,000 |
| | 36,000 |
| | 54,000 |
|
| Repayments of borrowings | (33,000 | ) | | (36,000 | ) | | (51,000 | ) |
| Proceeds from issuance of common stock under employee stock plans | 21 |
| | 13 |
| | 13 |
|
| Payments on capital lease obligations | — |
| | — |
| | (140 | ) |
| Net cash provided by financing activities | 21 |
| | 13 |
| | 2,873 |
|
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (244 | ) | | (2,347 | ) | | (4,246 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 5,144 |
| | (3,774 | ) | | (14,664 | ) |
| Cash, cash equivalents and restricted cash, beginning of year | 31,425 |
| | 35,199 |
| | 49,863 |
|
| Cash, cash equivalents and restricted cash, end of year | $ | 36,569 |
| | $ | 31,425 |
| | $ | 35,199 |
|
| | | | | | |
| | Cash, cash equivalents, and restricted cash, beginning of year | | Cash, cash equivalents, and restricted cash, beginning of year | 37,104 | | | 48,198 | | | 41,872 | |
| Cash, cash equivalents, and restricted cash, end of year | | Cash, cash equivalents, and restricted cash, end of year | $ | 22,521 | | | $ | 37,104 | | | $ | 48,198 | |
| | | | Fiscal Year Ended | | Fiscal Year Ended |
| (In thousands) | June 30,
2017 | | July 1,
2016 | | July 3,
2015 | (In thousands) | June 30,
2023 | | July 1, 2022 | | July 2, 2021 |
| Non-cash investing activities | | | | | | |
| Reclassification of property, plant and equipment to inventory | $ | — |
| | $ | 1,094 |
| | $ | — |
| |
| Non-cash investing activities: | | Non-cash investing activities: | | | | | |
| Unpaid property, plant and equipment | $ | 1,219 |
| | $ | 1,261 |
| | $ | 319 |
| Unpaid property, plant and equipment | $ | 168 | | | $ | 95 | | | $ | 228 | |
| Supplemental disclosures of cash flow information: | | | | | | Supplemental disclosures of cash flow information: | |
| Cash paid for interest | $ | 94 |
| | $ | 111 |
| | $ | 387 |
| Cash paid for interest | $ | 880 | | | $ | — | | | $ | 4 | |
| Cash (refunded) paid for income taxes, net | $ | (313 | ) | | $ | 1,964 |
| | $ | 2,042 |
| |
| Cash paid (received) for income taxes, net | | Cash paid (received) for income taxes, net | $ | 1,613 | | | $ | 1,241 | | | $ | (2,119) | |
|
See accompanying notesNotes to consolidated financial statementsConsolidated Financial Statements
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Aviat Networks Stockholders’ Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Aviat Networks Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| (In thousands, except share amounts) | Shares | | $ Amount | | | | | | |
| Balance as of June 27, 2014 | 5,184,852 |
| | $ | 52 |
| | $ | 807,588 |
| | $ | (692,849 | ) | | $ | (2,963 | ) | | $ | 111,828 |
| | $ | — |
| | $ | 111,828 |
|
| Net (loss) income | | | | | | | (24,625 | ) | | | | (24,625 | ) | | 71 |
| | (24,554 | ) |
| Other comprehensive loss, net of tax | | | | | | | | | (5,665 | ) | | (5,665 | ) | | | | (5,665 | ) |
| Issuance of common stock under employee stock plans | 23,348 |
| | — |
| | 13 |
| | | | | | 13 |
| | | | 13 |
|
| Share-based compensation |
|
| |
|
| | 2,187 |
| | | | | | 2,187 |
| | | | 2,187 |
|
| Balance as of July 3, 2015 | 5,208,200 |
| | 52 |
| | 809,788 |
| | (717,474 | ) | | (8,628 | ) | | 83,738 |
| | 71 |
| | 83,809 |
|
| Net (loss) income | | | | | | | (29,907 | ) | | | | (29,907 | ) | | 270 |
| | (29,637 | ) |
| Other comprehensive loss, net of tax | | | | | | | | | (2,529 | ) | | (2,529 | ) | | | | (2,529 | ) |
| Issuance of common stock under employee stock plans | 54,498 |
| | 1 |
| | 12 |
| | | | | | 13 |
| | | | 13 |
|
| Fractional shares buyback and other | (1,657 | ) | | | | (35 | ) | | | | | | (35 | ) | | | | (35 | ) |
| Share-based compensation |
|
| |
|
| | 1,836 |
| | | | | | 1,836 |
| | | | 1,836 |
|
| Balance as of July 1, 2016 | 5,261,041 |
| | 53 |
| | 811,601 |
| | (747,381 | ) | | (11,157 | ) | | 53,116 |
| | 341 |
| | 53,457 |
|
| Net (loss) income | | | | | | | (823 | ) | | | | (823 | ) | | 202 |
| | (621 | ) |
| Other comprehensive loss, net of tax | | | | | | | | | (628 | ) | | (628 | ) | | | | (628 | ) |
| Issuance of common stock under employee stock plans | 56,725 |
| | — |
| | 21 |
| | | | | | 21 |
| | | | 21 |
|
| Share-based compensation |
|
| |
|
| | 2,111 |
| | | | | | 2,111 |
| | | | 2,111 |
|
| Balance as of June 30, 2017 | 5,317,766 |
| | $ | 53 |
| | $ | 813,733 |
| | $ | (748,204 | ) | | $ | (11,785 | ) | | $ | 53,797 |
| | $ | 543 |
| | $ | 54,340 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Common Stock | | Treasury Stock | | Additional
Paid-in
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Loss | | Total
Stockholders’
Equity |
| (In thousands) | Shares | | $ Amount | | Shares | | $ Amount | | | | |
| Balance as of July 3, 2020 | 10,801 | | | $ | 108 | | | — | | | $ | — | | | $ | 814,283 | | | $ | (730,741) | | | $ | (14,969) | | | $ | 68,681 | |
| | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | — | | | 110,139 | | | — | | | 110,139 | |
| Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | 642 | | | 642 | |
| Issuance of common stock under employee stock plans | 394 | | | 4 | | | — | | | — | | | 1,902 | | | — | | | — | | | 1,906 | |
| Shares withheld for taxes related to vesting of equity awards | (13) | | | — | | | — | | | — | | | (167) | | | — | | | — | | | (167) | |
| Stock repurchase | (28) | | | — | | | 20 | | | (787) | | | — | | | — | | | — | | | (787) | |
| Share-based compensation | — | | | — | | | — | | | — | | | 2,921 | | | — | | | — | | | 2,921 | |
| Balance as of July 2, 2021 | 11,154 | | | 112 | | | 20 | | | (787) | | | 818,939 | | | (620,602) | | | (14,327) | | | 183,335 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 21,160 | | | — | | | 21,160 | |
| Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | (1,702) | | | (1,702) | |
| Issuance of common stock under employee stock plans | 198 | | | 2 | | | — | | | — | | | 1,029 | | | — | | | — | | | 1,031 | |
| Shares withheld for taxes related to vesting of equity awards | (16) | | | — | | | — | | | — | | | (543) | | | — | | | — | | | (543) | |
| Stock repurchase | (175) | | | (2) | | | 175 | | | (5,360) | | | — | | | — | | | — | | | (5,362) | |
| Share-based compensation | — | | | — | | | — | | | — | | | 3,834 | | | — | | | — | | | 3,834 | |
| Balance as of July 1, 2022 | 11,161 | | | 112 | | | 195 | | | (6,147) | | | 823,259 | | | (599,442) | | | (16,029) | | | 201,753 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 11,528 | | | — | | | 11,528 | |
| Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | 25 | | | 25 | |
| Issuance of common stock under employee stock plans | 396 | | | 3 | | | — | | | — | | | 1,267 | | | — | | | — | | | 1,270 | |
| Shares withheld for taxes related to vesting of equity awards | (39) | | | — | | | — | | | — | | | (1,198) | | | — | | | — | | | (1,198) | |
| Stock repurchase | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation | — | | | — | | | — | | | — | | | 6,720 | | | — | | | — | | | 6,720 | |
| Balance as of June 30, 2023 | 11,518 | | | $ | 115 | | | 195 | | | $ | (6,147) | | | $ | 830,048 | | | $ | (587,914) | | | $ | (16,004) | | | $ | 220,098 | |
See accompanying notesNotes to consolidated financial statementsConsolidated Financial Statements
AVIAT NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
The Company
We design, manufactureAviat Networks, Inc. (“Aviat,” the “Company,” “we,” “us,” and sell“our”) designs, manufactures, and sells a range of wireless networking and access 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 and license-exempt applications, supporting new network deployments, network expansion, and capacity upgrades.
We wereAviat was incorporated in Delaware in 2006 to combine the businesses of Harris Corporation’s Microwave Communications Division (“MCD”) and Stratex Networks, Inc. (“Stratex”). On January 28, 2010, we changed our corporate name from Harris Stratex Networks, Inc. to Aviat Networks, Inc. (“the Company”, “Aviat Networks,” “Aviat”, “we,” “us,” and “our”) to more effectively reflect our business and communicate our brand identity to customers. Additionally, the change of our corporate name was to comply with the termination of the Harris Corporation (“Harris”) trademark licensing agreement resulting from the spin-off by Harris of its interest in our stock to its stockholders in May 2009.
Basis of Presentation
The consolidated financial statements include the accounts of Aviat Networksthe Company and its wholly-owned and majority owned subsidiaries. SignificantAll intercompany transactions and accounts have been eliminated. Certain amounts in the prior-years consolidated financial statements have been reclassified for comparative purposes to conform to the current-year presentationcurrent period financial statement presentation.
Our fiscal year includes 52 or 53 weeks and ends on the Friday nearest June 30. This was June 30, 2023 for fiscal 2017,2023, July 1, 2022 for fiscal 20162022 and July 32, 2021 for fiscal 2015.2021. Fiscal years 20172023, 2022 and 2016 presented each included2021 includes 52 weeks, and fiscal year 2015 included 53 weeks. In these notes to consolidated financial statements, we refer to our fiscal years as “fiscal 2017”2023”, “fiscal 2016”2022” and “fiscal 2015.2021.”
Stock Split
On April 7, 2021 we effected a two-for-one stock 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 consolidated financial statements in accordance with accounting principles generally accepted in the United States (“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 uncollectible receivables, inventory valuation, goodwill and identified intangible assets in business combinations, valuation allowances for deferred tax assets and uncertainties in income taxes, restructuring obligations, product warranty obligations, share-based awards, contingencies, recoverability of long-lived assets and useful lives of property, plant and equipment.
Reverse Stock Split
On June 14, 2016,taxes. The actual results that we effected a reverse stock split of all of the outstanding shares ofexperience may differ materially from our common stock at a ratio of 1-for-12 (“Reverse Stock Split”). The authorized shares of 300 million and par value per share of the common stock at $0.01 per share remain unchanged after the reverse stock split. All share and per-share data in our consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect this reverse stock split.
To reflect the reverse stock split on shareholders' equity, we reclassified an amount equal to the par value of the reduced shares from the common stock par value account to the additional paid in capital account, resulting in no net impact to shareholders' equity on our consolidated balance sheets.
estimates.
Cash, Cash Equivalents and Restricted Cash and Short-Term Investments
We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents are carried at amortized cost, which approximates fair value due to the short-term nature of these investments. Investments with an original maturity of greater than three months and less than 12 months are accounted for as short-term investments and are classified as such at the time of purchase.
We hold cash and cash equivalents and short-term investments at several major financial institutions, which often significantly exceed Federal Deposit Insurance Corporation insured limits. However, a substantial portion of the cash equivalents is invested in prime money market funds which are backed by the securities in the fund. Our short-term investments are comprised
As of June 30, 20172023 and July 1, 2016,2022, all of our high-quality marketable debt securities were invested in prime money market funds and were classified as cash equivalents except for $0.3 million and $0.2 million, respectively, in short-term investments.funds.
Cash and cash equivalents that are restricted as to withdrawal or usage under the terms of contractual agreements are recorded as restricted cash. At June 30, 2017, our short-termOur restricted cash mainlyis included cash balances at one ofin other assets on our international subsidiaries. At July 1, 2016, our short-term restricted cash included $0.6 million of restricted cash in one of our Africa subsidiaries related to a severance amount paid to a former employee inconsolidated balance sheets and represents the first quarter of fiscal 2017. We accrued the severance in restructuring liabilities as of July 1, 2016. Our long-term restricted cash included cash balance inon our disability insurance voluntary plan account that cannot be used by us for any operating purposes other than to pay benefits to the insured employees and was recorded in other assets in our consolidated balance sheets and the corresponding liabilities were included in other long-term liabilities in our consolidated balance sheets.employees. See Note 5. Balance Sheet Components for further information.
Significant Concentrations
We typically invoice our customers for the sales order (or contract) value of the related products delivered at various milestones, including order receipt, shipment, installation and acceptance and for services when rendered. Our trade receivables are derived from sales to customers located in North America, Africa, Europe, the Middle East, Russia, Asia-Pacific and Latin America.
Accounts receivable is presented net of allowance for estimated uncollectible accounts to reflect any loss anticipated on the collection of accounts receivable balances. We calculate the allowance based on our history of write-offs, level of past due accounts and the economic status of the customers. The fair value of our accounts receivable approximates their net realizable value.
We regularly require letters of credit from somecertain customers and, from time to time, we discount these letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, including the willingness of financial institutions to discount the letters of credit and the cost of such arrangements. Under these arrangements, collection risk is fully transferred to the financial institutions. We record the financing charges on discounting these letters of credit as interest expense.
During fiscal 2017, 20162023 and 2015, we had2021, no customer accounted for more than 10% of our total revenue. During fiscal 2022 there was one customer in Africa, Mobile Telephone Networks Group (“MTN Group”) that accounted for 14%, 18% and 14%, respectively,13% of our total revenue. As of June 30, 20172023 and July 1, 2016, MTN Group2022, a group of related entities accounted for approximately 26%14% and 22%17%, respectively, of our accounts receivable. As of July 1, 2016, Motorola accounted for approximately 11% of our accounts receivable. No other customers accounted for more than 10% of our revenue or accounts receivable for the years presented. The loss of all business from MTN Group, Motorola, or any other significant customers, could adversely affect our results of operations, cash flows and financial position.
Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash equivalents, marketable debt securities, trade accounts receivable and financial instruments used in foreign currency hedging activities. We invest our excess cash primarily in prime money market funds and certificates of deposit. We are exposed to credit risks related to such instruments in the event of default or decrease in credit-worthiness of the issuers of the investments. Risks associated with cash and cash equivalents, and investments are mitigated by banking with, and investing in, creditworthy institutions.
We perform ongoing credit evaluations of our customers and generally do not require collateral on accounts receivable, as the majority of our customers are large, well-established companies. However, in certain circumstances, we may require letters of credit, additional guarantees or advance payments. We maintain allowances for collection losses, but historically have not experienced any significant losses related to any particular geographic area. Our
customers are primarily in the telecommunications industry, so our accounts receivable are concentrated within one industry and exposed to concentrations of credit risk within that industry. Accounts receivable are written off when attempts to collect outstanding amounts have been exhausted or there are other indicators that the amounts are no longer collectible.
We rely on third parties to manufacture our products and we purchase raw materials from third-party vendors. We outsource our manufacturing services to two independent manufacturers. In addition, we purchase certain strategic component inventory which is consigned to our third-party manufacturers. Other components included in our products are sourced from various suppliers and are principally industry standard parts and components that are available from multiple vendors. The inability of a contract manufacturer or supplier to fulfill our supply requirements or changes in their financial or business condition could disrupt our ability to supply quality products to our customers, and thereby may have a material adverse effect on our business and operating results.
We have entered into agreements relating to our foreign currency contracts with Silicon Valley Bank, a multinational financial institution. The amounts subject to credit risk arising from the possible inability of any such parties to meet the terms of their contracts are generally limited to the amounts, if any, by which such party’s obligations exceed our obligations to that party.
Inventories
Inventories are valued at the lower of cost or market.net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Cost is determined using standard cost, which approximates actual cost on a weighted-average first-in-first-out basis. We regularly review inventory quantities on hand and record adjustments to reduce the cost of inventory for excess and obsolete inventory based primarily on our estimated forecast of product demand and production
requirements. Inventory adjustments are measured as the difference between the cost of the inventory and estimated marketnet realizable value based upon assumptions about future demand and charged to the provision for inventory, which is a component of cost of sales. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Customer Service Inventories
OurWe carry customer service related inventories are stated at the lower of cost or market. We carrysuch as service parts because we generally provide product warranty for 12 to 36 months and earn revenue by providing enhanced and extended warranty and repair service during and beyond this warranty period. Customer service related inventories consist of both component parts, which are primarily used to repair defective units, and finished units, which are provided for customer use permanently or on a temporary basis while the defective unit is being repaired. 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 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. See Note 5. Balance Sheet Components for further information.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost less accumulated depreciation and amortization.depreciation. We capitalize costs of software, consulting services, hardware and other related costs incurred to purchase or develop internal-use software. We expense costs incurred during preliminary project assessment, re-engineering, training and application maintenance.
Depreciation and amortization areis calculated using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortizeddepreciated on the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvements. The useful lives of the assets are generally as follows:
|
| | | | |
| Buildings | 40 years |
| Leasehold improvements | 2 to 10 years |
| Software | 3 to 5 years |
| Machinery and equipment | 2 to 5 years |
Expenditures for maintenance and repairs are charged to expense as incurred.incurred and are included in cost of revenues and selling and administrative expenses on our consolidated statements of operations. Cost and accumulated depreciation of assets sold or retired are removed from the respective property accounts, and any gain or loss is reflected in the consolidated statements of operations.
Business Combinations
ImpairmentThe Company accounts for acquisitions as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill
The Company accounts for goodwill as required by FASB ASC Topic 350, Intangibles - Goodwill and Other (“ASC 350”). We test goodwill for impairment on an annual basis and when events occur that may suggest that the fair value of such assets cannot support the carrying value. ASC 350 gives an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary. However, if an entity concludes otherwise, then the quantitative impairment test shall be used to identify the impairment and measure the amount of an impairment loss to be recognized (if applicable).
As of June 30, 2023, we had recorded goodwill in the amount of $5.1 million, related to the Redline acquisition completed in the first quarter of fiscal 2023. We did not have any recorded goodwill as of July 1, 2022. We test our goodwill for impairment on an annual basis on the first day of our fourth fiscal quarter. We have determined that we have one reporting unit. We performed a qualitative assessment in fiscal 2023. This assessment considered changes in our projected future cash flows and discount rates, recent market transactions and overall macroeconomic conditions. Based on this assessment, we concluded that it was more likely than not that the estimated fair value of our reporting unit was higher than its carrying value and that the performance of a quantitative impairment test was not required. See Note 10. Segment and Geographic Information and Note 12. Acquisitions for further information.
Valuation of Long-Lived Assets
We evaluateThe Company periodically reviews the carrying value of its long-lived assets, for impairmentincluding finite-lived intangibles, and property, plant and equipment, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.recoverable or that the assigned useful lives may not longer be appropriate. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. If impairment exists, the impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of cash flows from other asset groups.
Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future operating performance, growth rates and other factors. The actual cash flows realized from these assets may vary significantly from our estimates due to increased competition, changes in technology, fluctuations in demand, consolidationestimates. There were no impairment losses recorded for fiscal 2023, 2022 or 2021.
The Company amortizes the cost of our customers, reductions in average selling prices and other factors. Assumptions underlying future cash flow estimatesfinite-lived intangible assets on a straight-line basis over their estimated useful lives, which approximates the pattern of economic benefit.
The useful lives of the finite-lived purchased intangible assets are therefore subject to significant risks and uncertainties.as follows:
| | | | | |
| Years |
| Patents | 10 |
| Customer relationships | 14 |
| Trade names | 16 |
Warranties
On product sales, we provide for future warranty costs upon product delivery. The specific terms and conditions of those warranties vary depending upon the product sold and the country in which we do business. In the case of products sold by us, our warranties generally start from the delivery date and continue for one to three years, depending on the terms.
Many of our products are manufactured to customer specifications and their acceptance is based on meeting those specifications. Factors that affect our warranty liabilities include the number of product units subject to warranty protection, historical experience and management’s judgment regarding anticipated rates of warranty claims and cost per claim. We assess the adequacy of our recorded warranty liabilities every quarter and make adjustments to the liabilities as necessary. See Note 5. Balance Sheet Components for further information.
Noncontrolling interests
A noncontrolling interest represents the equity interest in a subsidiary that is not attributable, either directly or indirectly, to Aviat Networks and is reported as our equity, separately from our controlling interests. The noncontrolling interests relate to our ownership interest in a subsidiary company in South Africa with a local partner, where we are the majority owner at 51%. Revenues, expenses, gains, losses, net loss and other comprehensive income (loss) are reported in the consolidated financial statements at the consolidated amounts, which include the amounts attributable to both the controlling and noncontrolling interests.
Operating Leases
We lease facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to 20 years and equipment under variouscontain leasehold improvement incentives, rent holidays and escalation clauses. In addition, some of these leases have renewal options for up to 3 years.
We determine if an arrangement contains a lease at inception. These operating leases. Theseleases are included in right of use assets (ROU assets) on our June 30, 2023 consolidated balance sheets and represent our right to use the underlying asset for the lease agreements generallyterm. Our obligation to make lease payments are included in short-term lease liabilities and long-term lease liabilities on our June 30, 2023 consolidated balance sheets. We have not entered into any financing leases during fiscal 2023.
Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we used
the incremental borrowing rate based on the remaining lease term at commencement date in determining the present value of future payments. The operating lease ROU assets also include rent escalation clauses,any lease payments made and many include renewal periods at our option. We recognizeexclude lease incentives and initial direct costs incurred. Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation. Lease expense for scheduled rent increasesminimum lease payments is recognized on a straight-line basis over the lease term. Certain of our lease arrangements include non-lease components and we account for non-lease components together with lease components for all such lease arrangements.
Leases with an initial term beginning with the date we take possession of the leased space. Leasehold improvements made either at the inception of12 months or less are not recorded on our consolidated balance sheets. We recognize lease expense for these leases on a straight-line basis over the lease or during the lease term are amortized over the current lease term, or estimated life, if shorter.term.
Foreign Currency Translation
The functional currency of our subsidiaries located in the United Kingdom, Singapore, Mexico, Algeria, Lebanon and New Zealand is the United States (“U.S.”) dollar. Determination of the functional currency is dependent upon the economic environment in which an entity operates as well as the customers and suppliers the entity conducts business with. Changes in facts and circumstances may occur which could lead to a change in the functional currency of that entity. Accordingly, all of thenon-functional currency denominated monetary assets and liabilities of these subsidiaries are re-measured into U.S. dollars at the current exchange rate as of the applicable balance sheet date, and all non-monetarydate. Non-monetary assets and liabilities are re-measuredmeasured at historical rates. Income and expenses are re-measured at the average exchange rate prevailing during the period. Gains and losses resulting from the re-measurement of these subsidiaries’ financial statements are included in the consolidated statements of operations.
Our other international subsidiaries use their respective local currency as their functional currency. Assets and liabilities of these subsidiaries are translated at the local current exchange rates in effect at the balance sheet date, and income and expense accounts are translated at the average exchange rates during the period. The resulting translation adjustments are included in accumulated other comprehensive loss.
Gains and losses resulting from foreign exchange transactions and revaluationre-measurement of monetary assets and liabilities in non-functional currencies are included in either cost of product sales and services or other (expense) income, (expense)net in the accompanying consolidated statements of operations, based on the nature of the transactions. Net foreign exchange loss(losses) gains recorded in our consolidated statements of operations during fiscal 2017, 20162023, 2022 and 2015 was as follows:
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Amount included in costs of revenues | $ | (847 | ) | | $ | (556 | ) | | $ | (3,308 | ) |
| Amount included in other income (expense) | 135 |
| | (1,245 | ) | | — |
|
| Total foreign exchange loss, net | $ | (712 | ) | | $ | (1,801 | ) | | $ | (3,308 | ) |
Retirement Benefits
As of June 30, 2017,2023, we provided retirement benefits to substantially all employees primarily through our defined contribution retirement plans. These plans have matching and savings elements. Contributions by us to these retirement plans are based on profits and employees’ savings with no other funding requirements. We halted making matching contributions to the U.S. plan from the second quarter of fiscal 2014 through the end of fiscal 2015. We resumed making contributions to the plans in fiscal 2016.
Contributions to retirement plans are expensed as incurred. Retirement plan expense amounted to $1.8$2.1 million, $2.0$1.9 million and $1.7$1.8 million in fiscal 2017, 20162023, 2022 and 2015,2021, respectively. Retirement plan expenses are included in cost of revenues, research and development, and selling and administrative expenses on our consolidated statements of operations.
Revenue Recognition
We generate substantially all of our revenue from the sales or licensing of our microwave radio and wireless access systems, network management software, and professional services including installation, commissioning, maintenance and support services and training. Principal customers for our products and services include domestic and international wireless/mobile service providers, original equipment manufacturers, resellers, system integrators, as well as private network users such as public safety agencies, government institutions, and utility, pipeline, railroad and other industrial enterprises that operate broadband wireless networks. Our customers generally purchase a combination of our products and services as part of a multiple element arrangement. Our assessment of which revenue recognition guidance is appropriate to account for each element in an arrangement can involve significant judgment.
Revenue from product sales is generated predominately from the sales of products manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes. In general, printed circuit assemblies, mechanical housings, and packaged modules are manufactured by contract manufacturing partners, with periodic business reviews of material levels and obsolescence. Product assembly, product testing, complete system integration and system testing may either be performed within our own facilities or at the locations of our third-party manufacturers.
Revenue from services includes certain installation, extended warranty, customer support, consulting, training and education. It also can include certain revenue generated from the resale of equipment purchased on behalf of customers for installation service contracts we perform for customers. Such equipment may include towers, antennas, and other related materials. Maintenance and support services are generally offered to our customers over a specified period of time and from sales and subsequent renewals of maintenance and support contracts.
We recognize revenue when the earnings process is complete as evidenced by persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of allowances for returns, discounts and any taxes collected from customers and subsequently remitted to governmental authorities. Delivery does not occur until products have been shipped or services have been provided to the customer, title and risk of loss has transferred to the customer, and (if applicable) either customer acceptance has been obtained or customer acceptance provisions have lapsed. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved. Revenue from net product sales is recognized when title and risk of loss has transferred to the customer and there are no unfulfilled company obligations that affect the customer’s final acceptance of the arrangement. We recognize maintenance and support services revenue ratably over the maintenance or service period. Professional services revenue consists of fees we earn related to consulting and educational services. We recognize revenue from professional services as the services are performed or upon written acceptance from customers, if applicable, or acceptance provisions have lapsed assuming all other conditions for revenue recognition noted above have been met.
We often enter into multiple contractual agreements with the same customer. Such agreements are reviewed to determine whether they should be evaluated as one arrangement. If an arrangement, other than a long-term contract, requires the delivery or performance of multiple deliverables or elements, we determine whether the individual elements represent “separate units of accounting”. Based on the terms and conditions of our typical product sales arrangement, we believe that our products and services can be accounted for as separate units because our products and services have value to our customers on a stand-alone basis.
When a sale involves multiple deliverables, the entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price of each deliverable. When applying the relative selling price method, the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of the selling price (“ESP”). Generally, we are not able to determine TPE because our go-to-market strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality cannot be obtained. When we are unable to establish a selling price using VSOE or TPE, we use ESP to allocate the arrangement fees to the deliverables. Revenue allocated to each element is then recognized when the other revenue recognition criteria are met for each element. There is generally no customer right of return in our sales agreements. The sequence for typical multiple element arrangements: we deliver our products, perform installation services and then provide post-contract support services.
ESP is determined by considering a number of factors including our pricing policies, internal costs and gross margin objectives, method of distribution, information gathered from experience in customer negotiations, market research and information, recent technological trends, competitive landscape and geographies. The determination of ESP is approved by our management taking into consideration our pricing strategy. We regularly review VSOE, TPE and ESP and maintain internal controls over the establishment and updating of these estimates.
Revenues related to long-term contracts for customized network solutions are recognized using the percentage-of-completion method. In using the percentage-of-completion method, we generally apply the cost-to-cost method of accounting where sales and profits are recorded based on the ratio of costs incurred to estimated total costs at completion. Recognition of profit on long-term contracts requires estimates of the total contract value, the total cost at completion and the measurement of progress towards completion. Significant judgment is required when estimating total contract costs and progress to completion on the arrangements as well as whether a loss is expected to be incurred on the contract. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known by the company. We perform ongoing profitability analysis of our services contracts accounted for under the percentage-of-completion method in order to determine whether the latest estimates of revenues, costs and profits require updating. If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainderfollowing five-step approach: (1) identification of the contract is recorded immediately. We establish billing terms at the time project deliverables and milestones are agreed. Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled receivables in our consolidated balance sheets.
We reserve for estimated product returns as an offset to revenue or deferred revenue based primarily on historical trends. Actual product returns may be different than what was estimated. These factors and unanticipated changes in the economic and industry environment could make actual results differ from our return estimates.
We also consider whether contracts should be combined when specific aggregation criteria are met including when the contracts are in substance an arrangement to perform a single project with a customer; (2) identification of the contracts are negotiated as a packageperformance obligations in the same economic environment with an overall profit objective; andcontract; (3) determination of the contracts require interrelated activities with common costs that cannot be separately identified with, or reasonably allocatedtransaction price; (4) allocation of the transaction price to the elements, phases or units of output and the contracts are performed concurrently or in a continuous sequence under the same project management at the same location or at different locationsperformance obligations in the same general vicinity.contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation. See Note 3. Revenue Recognition for further information.
Cost of Product Sales and Services
Cost of sales consists primarily of materials, labor and overhead costs incurred internally and amounts incurred for contract manufacturers to produce our products, personnel and other implementation costs incurred to install our products and train customer personnel, and customer service and third party original equipment manufacturer costs to provide continuing support to our customers.
Shipping and handling costs are included as a component of costs of product sales in our consolidated statements of operations because they are also included in revenue that we bill our customers.
Advertising Costs
We expense all advertising costs as incurred. Advertising costs were immaterial during fiscal 2017, 20162023, 2022 and 2015.2021.
Presentation of Transactional Taxes Collected from Customers and Remitted to Government Authorities
We present transactional taxes such as sales and use tax collected from customers and remitted to governmental authorities on a net basis.
Research and Development Costs
Our research and development costs, which include costs in connection with new product development, improvement of existing products, process improvement, and product use technologies, are generally charged to operations in the period in which they are incurred. For certain software projects under development, we capitalize the development costs during the period between determining technological feasibility of the product and commercial release and are included in Other assets on the consolidated balance sheet. We amortize the capitalized development cost upon commercial release, generally over three years. To date, the amount of development costs capitalized and amount amortized have not been material.
Share-Based Compensation
The Company has a share-based compensation plan which includes non-qualified stock options, restricted stock units and performance share awards. We estimate the grant date fair value of our share-based awards and amortize thisthe fair value to compensation expense over the requisite service period or vesting term. To estimate the fair value of our stock option awards, we use the Black-Scholes option pricing model. The determination of the fair value of stock option awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, the risk-free interest rate and expected dividends.dividend yield. Due to the inherent limitations of option valuation models, including consideration of future events that are unpredictable and the estimation process utilized in determining the valuation of the share-based awards, the ultimate value realized by our employees may vary significantly from the amounts expensed in our financial statements. For restricted stock awards and units, and performance share awards and units, we measure the grant date fair value based upon the market price of our common stock on the date of the grant. The fair value of each market-based stock unitperformance share award with market conditions wasis estimated using thea Monte-Carlo simulation model.model on the date of the grant. We account for forfeitures as they occur.
We generally recognize compensation cost for share-based payment awards on a straight-line basis over the requisite service period. For an award that has a graded vesting schedule, compensation expense is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The amount of compensation cost recognized at any date must at least equal the portion of the grant-date value of the award that is vested at that date.
For awards with a performance condition vesting feature, we recognize share-based compensation costs for the performance awards and units when achievement of the performance conditions is considered probable. Any previously recognized compensation cost would be reversed if the performance condition is not satisfied or if it is not probable that the performance conditions will be achieved. For awards with a market condition vesting feature, we recognize share-based compensation costs over the period the requisite service is rendered, regardless of when, if ever, the market condition is satisfied.
During the fourth quarter of fiscal 2017, we adopted Accounting Standards Update (“ASU”) 2016-09 and elected to account for forfeitures as they occur. Refer to accounting standards adopted below for changes to the accounting for share-based compensation expense.
Restructuring Charges
Our restructuring charges represent expenses incurred in connection with certain cost reduction programs that we have implemented, and consisted of the costs of employee termination costs, lease and other contract termination charges and other costs of exiting activities or geographies. A liability for costs associated with an exit or disposal activity is measured at its fair value when the liability is incurred. Expenses for one-time termination benefits are recognized at the date we notify the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period. We recognize severance benefits provided as part of an ongoing benefit arrangement when the payment is probable, and the amounts can be reasonably estimated. Liabilities related to termination of an operating lease or contract are measured and recognized at fair value when the contract does not have any future economic benefit to the entity and the fair value of the liability is determined based on the present value of the
remaining lease obligations, adjusted for the effects of deferred items recognized under the lease, and reduced by estimated sublease rentals that could be reasonably obtained for the property. The assumptions in determining such estimates include anticipated timing of sublease rentals and estimates of sublease rental receipts and related costs based on market conditions. We expense all other costs related to an exit or disposal activity as incurred.
Income Taxes and Related Uncertainties
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statement and tax basis of assets and liabilities, as measured by tax rates at which temporary differences are expected to reverse as well as operating loss and tax credit carry forwards. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. A valuation allowance is established to offset any deferred tax assets if, based upon the available information, it is more likely than not that some or all of the deferred tax assets will not be realized.
We are required to compute our income taxes in each federal, state, and internationalforeign jurisdiction in which we operate. This process requires that we estimate the current tax exposure as well as assess temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes as well as operating loss and tax credit carry forwards. The income tax effects of the differences we identify are classified as current or long-term deferred tax assets and liabilities in our consolidated balance sheets. Our judgments, assumptions, and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our consolidated balance sheets and consolidated statements of operations. We must also assess the likelihood that deferred tax assets will be realized from future taxable income and, based on this assessment, establish a valuation allowance, if required. Our determination of our valuation allowance is based upon a number of assumptions, judgments, and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. To the extent we establish a valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase or decrease to our tax provision in our consolidated statements of operations.
We use a two-step process to determine the amount of tax benefit to be recognized for uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
Accounting Standards Adopted
In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. The amendment provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718.The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The amendment in this ASU should be applied prospectively to an award modified on or after the adoption date. We adopted this standard during the fourth quarter of fiscal 2017.
In NovemberJune 2016, the FASB issued ASU 2016-18, Statement of Cash FlowsAccounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 230)326): Restricted Cash. The guidance addresses diversity in practice that exists in the classification and presentation of changes in restricted cash and requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. We adopted this standard during the fourth quarter of fiscal 2017 with no material impact on our consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, Clarification of Certain Cash Receipts and Cash Payments, which provides guidance on the presentation and classification of eight specific cash flow issues.
We adopted this standard during the fourth quarter of fiscal 2017. There was no reclassification impact resulted from the adoption on our consolidated statements of cash flows for fiscal year 2016 and fiscal year 2015, and such statements have been presented in accordance with this new guidance.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeiture, statutory tax withholding requirements, and classification on the statement of cash flows. We adopted this standard during the fourth quarter of fiscal 2017 and elected to account for forfeitures as they occur using a modified retrospective transition method. The change from the current method of estimating forfeitures resulted in a cumulative-effect adjustment of approximately $9 thousand, which we recorded as expense in fiscal 2017. The guidance also requires companies to record excess tax benefits and tax deficiencies as income tax benefit or expense in the statement of operations prospectively when share-based awards vest or are settled. The adoption had no impact on our deferred tax assets and the fiscal 2017 opening accumulated deficit balance because we had no historical excess tax benefit related tax attributes. We also elected to apply the change in cash flow classification of excess tax benefits prospectively, resulting in no reclassification of our consolidated statements of cash flows.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Topic 835-30), Simplifying the Presentation of Debt Issuance Costs. To simplify the presentation of debt issuance costs, the standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. ThisCredit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU includes an SEC staff announcement that the SEC staff would not object to an entity deferring2018-19, ASU 2019-04, ASU 2019-05 and presenting the costsASU 2022-02 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of securing a revolving line ofexpected credit as an asset, and amortizing the costs over the term of the line-of-credit arrangement, regardless of there are any outstanding borrowings on the line-of-credit arrangement. The subject of this ASU was not previously addressed by ASU No. 2015-03. We have adopted both accounting guidance during thelosses for financial assets held. Topic 326 became effective for our first quarter of fiscal 2017 and applied its provisions retrospectively.2023. The adoption of these standards had no material impact on ourthe Company’s consolidated financial statementsstatements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and related disclosures.Contract Liabilities from Contracts with Customers, which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 became effective for our first quarter of fiscal 2023. The adoption had no material impact on the Company’s consolidated financial statements.
Accounting Standards Not Yet Adopted
In May 2014,The Company considers the FASB issued ASU 2014-09 (ASC Topic 606), Revenue from Contracts with Customers, which along with amendments issued in 2015applicability and 2016, will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures will also be required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This accounting standard update, as amended, will be effective for us in the first quarter of fiscal year 2019. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption. We are in process of evaluating the impact of all ASUs issued by the standard update.FASB. The ultimate impact on revenue resulting from the application of the new standard will be subject to assessmentsCompany determined at this time that are dependent on many variables, including,all other ASUs issued but not limited to, the terms of our contractual arrangements and our mix of business. We have established a cross-functional implementation team to implement the standard update related to the recognition of revenue from contracts with customers. We have identified andyet adopted are in the process of evaluating changes to our systems, processes and internal controls to meet the reporting and increased disclosure requirements associated with this standard update. We expect the timing of revenue recognition to change in certain areas, including our services segment’s installation revenue, which upon adoption will be recognized as revenue and costs over a period of time. Also, since we currently expense sales commissions as incurred, the requirement in the new standard to capitalize certain in-scope sales commissions is being evaluated to determine its potential impact in the consolidated financial statements in the year of adoption. We expect to adopt the new standard on a modified retrospective basis in the first quarter of fiscal 2019. Weeither not applicable or are continuing to assess all potential impacts of the guidance and given normal ongoing business dynamics, preliminary conclusions are subject to change.
In October 2016, the FASB issued ASU 2016-16 Income Taxes (Topic 740), Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory, which requires that an entity recognizes the tax expense from the sale of intra-entity sales of assets, other than inventory, in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The guidance will be effective for our fiscal year 2019. Early adoption is permitted. The ASU must be adopted using a modified retrospective method. We do not expect the adoption of this standardexpected to have a materialminimal impact on our consolidatedits financial statementsposition and related disclosures.results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which introduces the recognition
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance retains the current accounting for classifying and measuring investments in debt securities and loans, but requires equity investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring consolidation. The guidance also changes the accounting for investments without a readily determinable fair value and that do not qualify for the practical expedient to estimate fair value. A policy election can be made for these investments whereby estimated fair value may be measured at cost and adjusted in subsequent periods for any impairment or changes in observable prices of identical or similar investments. This ASU is effective for fiscal years beginning after December 15, 2017. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11 Inventory (Topic 330), Simplifying the Measurement of Inventory, which provides guidance to companies who account for inventory using either the first-in, first-out (“FIFO”) or average cost methods. The guidance states that companies should measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
Note 2. Accumulated Other Comprehensive Loss
The changes in components of our accumulated other comprehensive loss during fiscal 2017, 2016 and 2015 were as follows:
|
| | | | | | | | | | | |
| (In thousands) | Foreign Currency Translation Adjustment (“CTA”) | | Hedging Derivatives | | Total Accumulated Other Comprehensive Income (Loss) |
| Balance as of June 27, 2014 | $ | (2,997 | ) | | $ | 34 |
| | $ | (2,963 | ) |
| Other comprehensive loss before reclassification | (5,672 | ) | | (314 | ) | | (5,986 | ) |
| Less: reclassification for amounts included in net loss | — |
| | 321 |
| | 321 |
|
| Balance as of July 3, 2015 | (8,669 | ) | | 41 |
| | (8,628 | ) |
| Other comprehensive loss before reclassification | (2,488 | ) | | — |
| | (2,488 | ) |
| Less: reclassification for amounts included in net loss | — |
| | (41 | ) | | (41 | ) |
| Balance as of July 1, 2016 | (11,157 | ) | | — |
| | (11,157 | ) |
| Other comprehensive loss before reclassification | (279 | ) | | — |
| | (279 | ) |
| Less: reclassification for amounts included in net loss | (349 | ) | | — |
| | (349 | ) |
| Balance as of June 30, 2017 | $ | (11,785 | ) | | $ | — |
| | $ | (11,785 | ) |
No income tax benefits were allocated to other comprehensive loss in fiscal 2017, 2016 and 2015.
In fiscal 2017, 2016 and 2015, the realized gain (loss) reclassified out of accumulated other comprehensive loss were included in the following line item locations in our consolidated statements of operations:
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Revenues | $ | — |
| | $ | — |
| | $ | (378 | ) |
| Cost of revenues | — |
| | 41 |
| | 57 |
|
| Other income (expense) | 349 |
| | — |
| | — |
|
| | $ | 349 |
| | $ | 41 |
| | $ | (321 | ) |
Note 3. Net LossIncome per Share of Common Stock
Net lossincome per share is computed using the two-class method, by dividing net lossincome attributable to us by the weighted average number of shares of our outstanding common sharesstock.
The following table presents the computation of basic and participating securities outstanding during the period. Our restricted shares contain rights to receive non-forfeitable dividends and therefore are considered to be participating securities and included in the calculations ofdiluted net income per basic and dilutedshare attributable to our common share. Undistributed losses are not allocated to unvested restricted shares because the unvested restricted shares are not contractually obligated to share our losses. The impact on earnings per share of the participating securities under the two-class method was immaterial.stockholders:
As we incurred net loss for all periods in fiscal 2017, 2016 and 2015, the effect of outstanding stock options, restricted stock awards and units and performance share awards and units were anti-dilutive and therefore were excluded from the diluted net loss per share calculations. | | | | | | | | | | | | | | | | | |
| Fiscal Year |
| (In thousands, except per share amounts) | 2023 | | 2022 | | 2021 |
| Numerator: | | | | | |
| Net income | $ | 11,528 | | | $ | 21,160 | | | $ | 110,139 | |
| | | | | |
| Denominator: | | | | | |
| Weighted average shares outstanding, basic | 11,358 | | | 11,167 | | | 11,036 | |
| Effect of potentially dilutive equivalent shares | 497 | | | 653 | | | 652 | |
| Weighted average shares outstanding, diluted | 11,855 | | | 11,820 | | | 11,688 | |
| | | | | |
| Net income per share: | | | | | |
| Basic | $ | 1.01 | | | $ | 1.89 | | | $ | 9.98 | |
| Diluted | $ | 0.97 | | | $ | 1.79 | | | $ | 9.42 | |
The following table summarizes the potential shares of common stockweighted-average equity awards that were excluded from the diluted net lossincome per share calculations:calculations since they were anti-dilutive:
| | | | | | | | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Stock options | 194 | | | 114 | | | 8 | |
| Restricted stock units and performance stock units | 21 | | | 72 | | | 4 | |
| Total shares of common stock excluded | 215 | | | 186 | | | 12 | |
Note 3. Revenue Recognition
We recognize revenue by applying the following five-step approach: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation.
Contracts and customer purchase orders are used to determine the existence of an arrangement.
Many of the Company’s arrangements with customers contain multiple performance obligations and therefore promises to provide multiple goods and services. The Company evaluates each promised good and service in a contract to determine whether it represents a distinct performance obligation or should be accounted for as a combined performance obligation. For goods and services determined to be distinct we have concluded that they provide a benefit to the customer either on their own or together with other resources that are readily available to the customer, without having the need for significant integration or customization.
Revenue from product sales, recognized at a point-in-time, is generated predominately from the sales of products manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes. Printed circuit assemblies, mechanical housings, and packaged modules are manufactured by contract manufacturing partners, with periodic business reviews of material levels and obsolescence. Product assembly, product testing, complete system integration, and system testing may either be performed within our own facilities or at the locations of our third-party manufacturers.
Revenue from services includes certain network planning and design, engineering, installation and commissioning (“field services”), extended warranty, hosted software-as-a-service (“SaaS”), customer support, consulting, training, and
|
| | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Stock options | 410 |
| | 538 |
| | 613 |
|
| Restricted stock awards and units and performance share awards and units | 403 |
| | 258 |
| | 42 |
|
| Total potential shares of common stock excluded | 813 |
| | 796 |
| | 655 |
|
In addition, shipping documents and customer acceptances, when applicable, are used to verify delivery and transfer of control. We typically satisfy our performance obligations upon shipment or delivery of product depending on the contractual terms. Payment terms to customers generally range from net 30 to 120 days from invoice, which are considered to be standard payment terms. Revenue recognition does not necessarily follow payment terms as there are a number of scenarios where they would be different. Recognition follows contractual terms and those vary depending on the nature of the performance obligation being satisfied. These timing differences result in contract assets and liabilities as discussed below. We assess our ability to collect from our customers based primarily on the creditworthiness and past payment history of the customer.
While our customers do not have the right of return, we reserve for estimated product returns as an offset to revenue based primarily on historical trends. Actual product returns may be different than what was estimated. These factors and unanticipated changes in economic and industry condition could make actual results differ from our return estimates.
We present transactional taxes such as sales and use tax collected from customers and remitted to government authorities on a net basis.
Bill-and-Hold Sales
Certain customer arrangements consist of bill-and-hold characteristics under which control has been transferred to the customer, while we retain physical possession of the product. We evaluate bill-and-hold arrangement criteria to determine when the customer has obtained control. Once control has been obtained by the customer, they can direct or determine the use of the bill-and-hold inventory while we retain physical possession of the product until it is installed at a customer site at a point in time in the future.
Termination Rights
The contract term is determined on the basis of the period over which the parties to the contract have present enforceable rights and obligations. Certain customer contracts include a termination for convenience clause that allows the customer to terminate services without penalty, upon advance notification. We concluded that the duration of support contracts does not extend beyond the non-cancellable portion of the contract.
Variable Consideration
The consideration associated with customer contracts is generally fixed. Variable consideration includes discounts, rebates, refunds, credits, incentives, penalties, or other similar items. The amount of consideration that can vary is not a substantial portion of total consideration.
Variable consideration estimates are re-assessed at each reporting period until a final outcome is determined. The changes to the original transaction price due to a change in estimated variable consideration are applied on a retrospective basis, with the adjustment recorded in the period in which the change occurs. Changes to variable consideration are tracked and material changes disclosed.
Stand-alone Selling Price
Stand-alone selling price is the price at which an entity would sell a good or service on a stand-alone (or separate) basis at contract inception. Under the model, the observable price of a good or service sold separately provides the best evidence of stand-alone selling price. However, in certain situations, stand-alone selling prices will not be readily observable and the entity must estimate the stand-alone selling price.
When allocating on a relative stand-alone selling price basis, any discount provided in the contract is allocated proportionately to all of the performance obligations in the contract.
The majority of products and services that we offer have readily observable selling prices. For products and services that do not, we estimate stand-alone selling price using the market assessment approach based on expected selling price and adjust those prices as necessary to reflect our costs and margins. As part of our stand-alone selling price policy, we review product pricing on a periodic basis to identify any significant changes and revise our expected selling price assumptions as appropriate.
Shipping and Handling
Shipping and handling costs are included as a component of costs of product sales in our consolidated statements of operations because they are also included in revenue that we bill our customers.
Costs to Obtain a Contract
We have assessed the treatment of costs to obtain or fulfill a contract with a customer. We capitalize sales commissions related to multi-year service contracts, and amortize the asset over the period of benefit, which is the estimated service period. Sales commissions paid on contract renewals, including service contract renewals, is commensurate with the sales commissions paid on the initial contracts. The capitalized sales commissions are included in other current assets and other assets on the consolidated balance sheets. We have not identified any impairments during the periods presented.
We elected the practical expedient to expense sales commissions as incurred when the amortization period of the related asset is one year or less. These costs are recorded as selling and administrative expense and included in our consolidated balance sheet as accrued expenses until paid. Our amortization expense was not material for the fiscal years ended June 30, 2023, July 1, 2022 and July 2, 2021.
Contract Balances, Performance Obligations, and Backlog
The following table provides information about receivables and liabilities from contracts with customers (in thousands):
| | | | | | | | | | | |
| June 30, 2023 | | July 1, 2022 |
| Contract Assets | | | |
| Accounts receivable, net | $ | 101,653 | | | $ | 73,168 | |
| Unbilled receivables | $ | 58,588 | | | $ | 45,857 | |
| Capitalized commissions | $ | 3,492 | | | $ | 2,341 | |
| Contract Liabilities | | | |
| Advance payments and unearned revenue | $ | 44,268 | | | $ | 33,740 | |
| Unearned revenue, long-term | $ | 7,416 | | | $ | 8,920 | |
Significant changes in contract balances may arise as a result of recognition over time for services, transfer of control for equipment, and periodic payments (both in arrears and in advance). The contract balances have continued to grow as we continue to execute on large North American over time projects and International projects that carry notably longer payment terms.
From time to time, we may experience unforeseen events that could result in a change to the scope or price associated with an arrangement. We would update the transaction price and measure of progress for the performance obligation and recognize the change as a cumulative catch-up to revenue. Because of the nature and type of contracts we engage in, the timeframe to completion and satisfaction of current and future performance obligations can shift; however, this will have no impact on our future obligation to bill and collect.
As of June 30, 2023, we had $51.7 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 72% is expected to be recognized as revenue in fiscal 2024 and the remainder thereafter. During fiscal 2023 and 2022, we recognized approximately $47.2 million and $23.3 million respectively, that was included in advance payments and unearned revenue at the beginning of each reporting period.
Remaining Performance Obligations
We elect the practical consideration to exclude performance obligations that relate to contracts with original expected durations of one year or less. As our product purchase orders are generally delivered within one year or less and our maintenance and support service contracts can be terminated without substantive termination penalties resulting in contracts with less than one year of duration, these performance obligations have been excluded from the remaining performance obligation amounts. The aggregate amount of transaction price allocated to the remaining unsatisfied performance obligations (or partially unsatisfied) was approximately $151.8 million at June 30, 2023 relating to our long-term field service projects. Of this amount, we expect to recognize approximately 70% as revenue during fiscal 2024, with the remaining amount to be recognized as revenue beyond 12 months.
Note 4. Leases
As of June 30, 2023, total ROU assets were approximately $2.6 million, and short-term lease liabilities and long-term lease liabilities were approximately $0.6 million and $2.1 million, respectively. Cash paid for lease liabilities was $0.9 million for fiscal 2023. As of July 1, 2022, total ROU assets were approximately $2.8 million, and short-term lease liabilities and long-term lease liabilities were approximately $0.5 million and $2.4 million, respectively. Cash paid for lease liabilities was $0.7 million for fiscal 2022.
The following summarizes our lease costs, lease term and discount rate for fiscal 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | |
| | Fiscal |
| | | 2023 | | 2022 |
| Operating lease costs | | $ | 1,288 | | | $ | 1,061 | |
| Short-term lease costs | | 1,999 | | | 2,252 | |
| Variable lease costs | | 107 | | | 171 | |
| Total lease costs | | $ | 3,394 | | | $ | 3,484 | |
Other information related to our operating leases for fiscal 2023 and 2022 (in thousands, except for weighted average):
| | | | | | | | | | | | | | |
| | Fiscal |
| | 2023 | | 2022 |
| Weighted average remaining lease term | | 6.9 years | | 7.9 years |
| Weighted average discount rate | | 5.8 | % | | 5.6 | % |
| Operating lease assets obtained in exchange for operating lease liabilities | | $ | 95 | | | $ | 104 | |
Rental expense for operating leases, including rentals on a month-to-month basis was $3.4 million, $3.6 million, and $3.3 million for fiscal 2023, 2022 and 2021, respectively.
As of June 30, 2023, our future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):
| | | | | | | | |
| Fiscal years | | Amount |
| 2024 | | $ | 837 | |
| 2025 | | 634 | |
| 2026 | | 490 | |
| 2027 | | 169 | |
| 2028 | | 175 | |
| Thereafter | | 1,211 | |
| Total lease payments | | 3,516 | |
| Less: interest | | (766) | |
| Present value of lease liabilities | | $ | 2,750 | |
Note 4.5. Balance Sheet Components
Cash, Cash Equivalents, and Restricted Cash
The following table provides a summary of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheetsconsolidated balance sheets that reconciles to the corresponding amount in the Consolidated Statementsconsolidated statements of cash flows:
| | | | | | | | | | | |
| (In thousands) | June 30, 2023 | | July 1, 2022 |
| Cash and cash equivalents | $ | 22,242 | | | $ | 36,877 | |
| Restricted cash included in other assets | 279 | | | 227 | |
| Total cash, cash equivalents, and restricted cash | $ | 22,521 | | | $ | 37,104 | |
Cash Flows:
|
| | | | | | | |
| (In thousands) | June 30,
2017 | | July 1,
2016 |
| Cash and cash equivalents | $ | 35,658 |
| | $ | 30,479 |
|
| Restricted cash | 541 |
| | 558 |
|
| Restricted cash included in Other assets | 370 |
| | 388 |
|
| Total cash, cash equivalents, and restricted cash in the Statements of Cash Flows | $ | 36,569 |
| | $ | 31,425 |
|
Accounts Receivable, net
Our net accounts receivable isare summarized below:
| | | (In thousands) | June 30,
2017 | | July 1,
2016 | (In thousands) | June 30, 2023 | | July 1, 2022 |
| Accounts receivable | $ | 49,864 |
| | $ | 71,416 |
| Accounts receivable | $ | 102,372 | | | $ | 74,102 | |
| Less: allowances for collection losses | (3,919 | ) | | (7,967 | ) | Less: allowances for collection losses | (719) | | | (934) | |
| | $ | 45,945 |
| | $ | 63,449 |
| |
| Total accounts receivable, net | | Total accounts receivable, net | $ | 101,653 | | | $ | 73,168 | |
Inventories
Our inventories are summarized below:
| | | (In thousands) | June 30,
2017 | | July 1,
2016 | (In thousands) | June 30, 2023 | | July 1, 2022 |
| Finished products | $ | 16,619 |
| | $ | 20,044 |
| Finished products | $ | 18,502 | | | $ | 14,916 | |
| Work in process | 3,088 |
| | 5,104 |
| |
| Raw materials and supplies | 2,087 |
| | 2,145 |
| Raw materials and supplies | 12,794 | | | 10,478 | |
| Customer service inventories | | Customer service inventories | $ | 1,761 | | | $ | 1,775 | |
| Total inventories | $ | 21,794 |
| | $ | 27,293 |
| Total inventories | $ | 33,057 | | | $ | 27,169 | |
| Deferred cost of revenue included within finished goods | $ | 7,120 |
| | $ | 5,984 |
| |
| Consigned inventories included within raw materials | $ | 1,268 |
| | $ | 2,035 |
| Consigned inventories included within raw materials | $ | 11,224 | | | $ | 9,796 | |
During fiscal 2017, 20162023, 2022 and 2015,2021, we recorded charges to adjust our inventory and customer service inventoryinventories due to excess and obsolete inventory resulting from lower sales forecast,forecasts, product transitioning or discontinuance. Such charges incurred during
fiscal 2017, 20162023, 2022 and 20152021 were classified in cost of product sales as follows:
| | | | | | | | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Excess and obsolete inventory charges | $ | 1,109 | | | $ | 647 | | | $ | 544 | |
| Customer service inventory write-downs | 1,029 | | | 1,088 | | | 908 | |
| Total charges | $ | 2,138 | | | $ | 1,735 | | | $ | 1,452 | |
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Excess and obsolete inventory charges | $ | 39 |
| | $ | 9,175 |
| | $ | 6,291 |
|
| Customer service inventory write-downs | 1,098 |
| | 693 |
| | 1,752 |
|
| | $ | 1,137 |
| | $ | 9,868 |
| | $ | 8,043 |
|
| As % of revenue | 0.5 | % | | 3.7 | % | | 2.4 | % |
Our other current assets are summarized below:
| | | | | | | | | | | |
| (In thousands) | June 30, 2023 | | July 1, 2022 |
| Contract manufacturing assets | $ | 6,487 | | | $ | 1,621 | |
| Prepaids and other current assets | 15,675 | | | 10,816 | |
| Total other current assets | $ | 22,162 | | | $ | 12,437 | |
Property, Plant and Equipment, net
Our property, plant and equipment, net areis summarized below:
| | | | | | | | | | | |
| (In thousands) | June 30, 2023 | | July 1, 2022 |
| Land | $ | 210 | | | $ | 210 | |
| Buildings and leasehold improvements | 5,889 | | | 5,796 | |
| Software | 16,989 | | | 21,368 | |
| Machinery and equipment | 47,150 | | | 49,584 | |
| 70,238 | | | 76,958 | |
| Less accumulated depreciation | (60,786) | | | (68,071) | |
| Total property, plant and equipment, net | $ | 9,452 | | | $ | 8,887 | |
|
| | | | | | | |
| (In thousands) | June 30,
2017 | | July 1,
2016 |
| Land | $ | 710 |
| | $ | 710 |
|
| Buildings and leasehold improvements | 11,442 |
| | 11,714 |
|
| Software | 14,803 |
| | 14,620 |
|
| Machinery and equipment | 43,174 |
| | 42,960 |
|
| | 70,129 |
| | 70,004 |
|
| Less accumulated depreciation and amortization | (53,723 | ) | | (51,842 | ) |
| | $ | 16,406 |
| | $ | 18,162 |
|
DepreciationIncluded in the total plant, property and amortizationequipment above were $0.4 million and $1.2 million of assets in progress which have not been placed in service as of June 30, 2023 and July 1, 2022, respectively. Depreciation expense related to property, plant and equipment including amortization of internal use software and capital lease equipment, was $5.8$5.5 million, $6.6$4.5 million and $7.2$5.4 million respectively, in fiscal 2017, 20162023, 2022 and 2015.2021, respectively.
Accrued Expenses
Our accrued expenses are summarized below:
| | | | | | | | | | | |
| (In thousands) | June 30, 2023 | | July 1, 2022 |
| Compensation and benefits | $ | 10,368 | | | $ | 11,625 | |
| Taxes | 4,553 | | | 5,286 | |
| Professional fees | 2,104 | | | 944 | |
| Warranties | 2,100 | | | 2,913 | |
| Commissions | 1,453 | | | 1,864 | |
| Other | 3,864 | | | 3,819 | |
| Total accrued expenses | $ | 24,442 | | | $ | 26,451 | |
|
| | | | | | | |
| (In thousands) | June 30,
2017 | | July 1,
2016 |
| Accrued compensation and benefits | $ | 8,317 |
| | $ | 7,161 |
|
| Accrued agent commissions | 1,911 |
| | 3,551 |
|
| Accrued warranties | 3,056 |
| | 3,944 |
|
| Other | 8,649 |
| | 8,549 |
|
| | $ | 21,933 |
| | $ | 23,205 |
|
We accrue for the estimated cost to repair or replace products under warranty. Changes in our accrued warranty liability, which is included as a component of accrued expenses in the consolidated balance sheets were as follows:
| | | | | | | | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Balance as of the beginning of the fiscal year | $ | 2,913 | | | $ | 3,228 | | | $ | 3,196 | |
| Warranty provision recorded during the period | 768 | | | 1,328 | | | 1,679 | |
| Acquisition | 55 | | | — | | | — | |
| Consumption during the period | (1,636) | | | (1,643) | | | (1,647) | |
| Balance as of the end of the fiscal year | $ | 2,100 | | | $ | 2,913 | | | $ | 3,228 | |
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Balance as of the beginning of the fiscal year | $ | 3,944 |
| | $ | 4,221 |
| | $ | 3,777 |
|
| Warranty provision recorded during the period | 1,604 |
| | 3,462 |
| | 5,595 |
|
| Consumption during the period | (2,492 | ) | | (3,739 | ) | | (5,151 | ) |
| Balance as of the end of the period | $ | 3,056 |
| | $ | 3,944 |
| | $ | 4,221 |
|
AdvancedAdvance payments and Unearned IncomeRevenue
Our advancedadvance payments and unearned incomerevenue are summarized below:
| | | | | | | | | | | |
| (In thousands) | June 30, 2023 | | July 1, 2022 |
| Advance payments | $ | 1,607 | | | $ | 1,870 | |
| Unearned revenue | 42,661 | | | 31,870 | |
| $ | 44,268 | | | $ | 33,740 | |
|
| | | | | | | |
| (In thousands) | June 30,
2017 | | July 1,
2016 |
| Advanced payments | $ | 8,760 |
| | $ | 12,124 |
|
| Unearned income | 11,244 |
| | 18,491 |
|
| | $ | 20,004 |
| | $ | 30,615 |
|
Note 5.6. Fair Value Measurements of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants as of the measurement date. We maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value and establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
•Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;
•Level 2 — Observable market-based inputs or observable inputs that are corroborated by market data; and
•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 carrying amounts, estimated fair values and valuation input levels of our assets and liabilities that are measured at fair value on a recurring basis as of June 30, 20172023 and July 1, 20162022 were as follows:
| | | | June 30, 2017 | | July 1, 2016 | | | | June 30, 2023 | | July 1, 2022 | | |
| (In thousands) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Valuation Inputs | (In thousands) | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value | | Valuation
Inputs |
| Assets: | | | | | | | | | Assets: | | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | Cash and cash equivalents: | |
| Money market funds | $ | 22,059 |
| | $ | 22,059 |
| | $ | 18,800 |
| | $ | 18,800 |
| | Level 1 | Money market funds | $ | 571 | | | $ | 571 | | | $ | 5,367 | | | $ | 5,367 | | | Level 1 |
| Bank certificates of deposit | $ | 66 |
| | $ | 66 |
| | $ | 11 |
| | $ | 11 |
| | Level 2 | Bank certificates of deposit | $ | 3,793 | | | $ | 3,793 | | | $ | 3,682 | | | $ | 3,682 | | | Level 2 |
| Short-term investments: | | | | | | | | | |
| Bank certificates of deposit | $ | 264 |
| | $ | 264 |
| | $ | 222 |
| | $ | 222 |
| | Level 2 | |
| Other current assets: | | | | | | | | | |
| Foreign exchange forward contracts | $ | — |
| | $ | — |
| | $ | 5 |
| | $ | 5 |
| | Level 2 | |
| Marketable securities | | Marketable securities | $ | 2 | | | $ | 2 | | | $ | 10,893 | | | $ | 10,893 | | | Level 1 |
| | Liabilities: | | | | | | | | | Liabilities: | |
| Other accrued expenses: | | | | | | | | | Other accrued expenses: | |
| Foreign exchange forward contracts | $ | 5 |
| | $ | 5 |
| | $ | 9 |
| | $ | 9 |
| | Level 2 | Foreign exchange forward contracts | $ | — | | | $ | — | | | $ | 114 | | | $ | 114 | | | Level 2 |
We classify items within Level 1 if quoted prices are available in active markets. Our Level 1 items mainly are marketable securities and money market funds purchased from two major financial institutions. Our marketable securities are included in current assets on our balance sheet as they are available to be converted into cash to fund current operations. These marketable securities are publicly traded stock measured at fair value and classified within Level 1. As of June 30, 2017,2023, these money market funds were valued at $1.00 net asset value per share by these financial institutions.
We classify items in 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. Our bank
certificates of deposit and foreign exchange forward contracts are classified within Level 2. The carrying value of bank certificates of deposit approximates their fair value. Foreign currency forward contracts are measured at fair value using observable foreign currency exchange rates. The assets and liabilities related to ourWe did not have any foreign currency forward contracts were not materialoutstanding as of June 30, 2017 and July 1, 2016.2023. We did not have any recurring assets or liabilities that were valued using significant unobservable inputs.
Our 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 fiscal 2017, 20162023 and 2015,2022, we had no transfers between levels of the fair value hierarchy of our assets or liabilities measured at fair value.
Note 6.7. Credit Facility and Debt
On March 28, 2014,May 9, 2023, we entered into a Second Amended and Restated Loan Agreement with Silicon Valley Bank (the “SVB Credit Facility”). The SVBSecured Credit Facility was amended on September 25, 2014, October 30, 2014Agreement (the “Credit Facility” or “Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, swingline lender and December 2, 2014 to provide for extensions to the deadline for preparingissuing lender and filing our fiscal 2014 financial statements with the SEC. On February 27, 2015, the SVB Credit Facility was further amended to provide for certain amendments to the financial covenants, borrowing baseWells Fargo Securities LLC, Citigroup Global Markets Inc., and an early termination fee if the SVB Credit Facility is terminated prior to its expiration. In March 2016, we amended the SVB Credit Facility to amend financial covenants and to reduce the maximum borrowing capacity from $40.0 million to $30.0 million. In June 2016, we amended the SVB Credit Facility to amend the minimum EBITDA covenant; to create a new sub-limit for letters of credit issued under the revolving credit facility of $12.0 million; to reduce the advance rate applicable to Singapore Borrower’s eligible accounts in the calculation of the borrowing base of the revolving credit facility; to increase the interest rate margins applicable to revolving loans made to Singapore Borrower by 2.00% above the applicable margin; and to extend the maturity date to June 30, 2018. In June 2017, the SVB Credit Facility was amended to exclude certain guarantee, indemnity and similar agreements from the borrowing base calculations and to extend the effective date to July 15, 2017 for the requirement that we obtain credit insurance on the receivables of the Singapore Borrower to be included in the borrowing base.Regions Capital Markets as lenders. The SVB Credit Facility carries an interest rate computed at the daily prime rate as published in the Wall Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio. During fiscal 2017, the weighted average interest rate on our outstanding loan was 4.21%. As of June 30, 2017 and July 1, 2016, our outstanding debt balance under the SVB Credit Facility was $9.0 million, and the interest rate was 4.75% and 4.00% respectively.
The SVB Credit Facility provides for a committed amount of up to $30.0$40.0 million revolving credit facility (the “Revolver”) and a $50.0 million Delayed Draw Term Loan Facility (the “Term Loan”) with a $30.0maturity date of May 8, 2028. The $40.0 million sublimit thatRevolver can be borrowed by our Singapore subsidiary. Borrowings may be advanced under the SVB Credit Facility at the lesser of $30.0with a $10.0 million or a borrowing base equal to a specified percentage of the value of eligible accounts receivable and U.S. unbilled accounts of the Company, subject to certain reserves and eligibility criteria. The SVB Credit Facility can also be utilized to issuesublimit for letters of credit, withand a $12.0$10.0 million swingline loan sublimit. If the SVB Credit Facility is terminated by us in certain circumstancesThe Term Loan has a funding date on or prior to its expiration, we are subject to an early termination fee equal to 1.00%the closing date of the revolving line. previously announced NEC Transaction with the proceeds used to settle the cash portion of the consideration and related expense. See Note 12. Acquisitions for further information.
As of June 30, 2017,2023, available credit under the SVBRevolver was $40.0 million. Available credit under the Term Loan was $50.0 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. Deferred financing costs of $0.8 million were paid in association with entering into the Credit Facility.
Outstanding borrowings under the Credit Facility was $5.8 million reflectingbear interest at either: (a) Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus the calculated borrowing base of $20.0 million less existing borrowings of $9.0 millionapplicable margin; or (b) the Base Rate plus the applicable margin. The pricing levels for interest rate margins are determined based on the Consolidated Total Leverage Ratio as determined and outstanding letters of credit of $5.2 million.adjusted quarterly.
The SVBCredit 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. The Credit Facility also requires that the Company maintain a maximum leverage ratio of 3.00 times EBITDA, with a step-down to 2.75 times EBITDA after four full quarters, and 2.50 times EBITDA after eight full quarters. The Credit Facility contains quarterly financialcustomary affirmative and negative covenants, including, minimum adjusted quick ratioamong others, covenants limiting the ability of the Company and minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB Credit Facility. The SVB Credit Facility also imposes certain restrictions on our abilityits 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, under certain circumstances. Certain of our assets, including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an event of default, outstanding obligations would be immediately due and payable. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equalin each case subject to 2.00% above the applicable interest rate. customary exceptions.
As of June 30, 2017,2023, we were in compliance with the quarterlyall financial covenants as amended, 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, Credit Facility. However, we have historically amended the agreement to revise financial covenantsas lender. We borrowed $65.7 million and the fact thatrepaid $65.7 million against the SVB Credit Facility contains subjective acceleration clauses that could be triggered by the lender, the $9.0 million borrowing was classified as a current liability asduring fiscal 2023. As of June 30, 2017 and July 1, 2016.2023, we had $2.6 million of collateralized cash on deposit with SVB associated with certain commercial commitments.
We also obtained an uncommitted short-term lineDuring fiscal 2023, the weighted-average interest rate under our available credit facilities was 7.6%.
issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of June 30, 2017. This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee.
Note 7.8. Restructuring Activities
The following tables summarizetable summarizes our restructuring related activities during fiscal year 2017, 20162023, 2022 and 2015:2021:
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | Severance and Benefits |
Fiscal 2016-2017 Plan | | Fiscal 2015-2016 Plan | | Fiscal 2014-2015 Plan | | Fiscal 2013-2014 Plan | | Total |
| Balance as of June 27, 2014 | $ | — |
| | $ | — |
| | $ | 1,290 |
| | $ | 214 |
| | $ | 1,504 |
|
| Charges, net | — |
| | 2,862 |
| | (29 | ) | | (43 | ) | | 2,790 |
|
| Cash payments | — |
| | (2,212 | ) | | (1,261 | ) | | (65 | ) | | (3,538 | ) |
| Balance as of July 3, 2015 | — |
| | 650 |
| | — |
| | 106 |
| | 756 |
|
| Charges, net | 2,210 |
| | 344 |
| | — |
| | (6 | ) | | 2,548 |
|
| Cash payments | (698 | ) | | (637 | ) | | — |
| | (32 | ) | | (1,367 | ) |
| Balance as of July 1, 2016 | 1,512 |
| | 357 |
| | — |
| | 68 |
| | 1,937 |
|
| Charges, net | 345 |
| | 36 |
| | — |
| | — |
| | 381 |
|
| Cash payments | (1,542 | ) | | (294 | ) | | — |
| | (4 | ) | | (1,840 | ) |
| Balance as of June 30, 2017 | $ | 315 |
| | $ | 99 |
| | $ | — |
| | $ | 64 |
| | $ | 478 |
|
|
| | | | | | | | | | | | | | | |
| (In thousands) | Facilities and Other |
Fiscal 2015-2016 Plan | | Fiscal 2014-2015 Plan | | Fiscal 2013-2014 Plan | | Total |
| Balance as of June 27, 2014 | $ | — |
| | $ | 92 |
| | $ | 3,572 |
| | $ | 3,664 |
|
| Charges, net | 641 |
| | 1,306 |
| | 130 |
| | 2,077 |
|
| Cash payments | (8 | ) | | (608 | ) | | (1,371 | ) | | (1,987 | ) |
| Balance as of July 3, 2015 | 633 |
| | 790 |
| | 2,331 |
| | 3,754 |
|
| Charges, net | (62 | ) | | 77 |
| | (108 | ) | | (93 | ) |
| Cash payments | (21 | ) | | (584 | ) | | (1,373 | ) | | (1,978 | ) |
| Noncash adjustments | — |
| | 299 |
| | 896 |
| | 1,195 |
|
| Balance as of July 1, 2016 | 550 |
| | 582 |
| | 1,746 |
| | 2,878 |
|
| Charges, net | — |
| | 162 |
| | 46 |
| | 208 |
|
| Cash payments | 13 |
| | (576 | ) | | (1,287 | ) | | (1,850 | ) |
| Balance as of June 30, 2017 | $ | 563 |
| | $ | 168 |
| | $ | 505 |
| | $ | 1,236 |
|
In June 2016, we entered into a lease termination agreement for our headquarters lease in Santa Clara, California (“Termination Agreement”). The noncash adjustments in the table above represents a $1.2 million deferred rent credit write-off to the restructuring expenses. Under the Termination Agreement, we agreed to pay a termination fee of $1.9 million payable over 14 months. The unpaid termination fee was included in the restructuring liabilities as of June 30, 2017 under the Fiscal 2014-2015 Plan and the Fiscal 2013-2014 Plan. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Employee Severance and Benefits | Facilities and Other | | |
| Fiscal 2023 Plans | | Prior Years Plans | | Prior Years Plans | | Total |
| Balance as of July 3, 2020 | | $ | — | | | $ | 2,502 | | | $ | 236 | | | $ | 2,738 | |
| Charges, net | | — | | | 2,271 | | | — | | | 2,271 | |
| Cash payments | | — | | | (2,291) | | | — | | | (2,291) | |
| Foreign currency translation (gain) loss | | — | | | 7 | | | 12 | | | 19 | |
| Balance as of July 2, 2021 | | — | | | 2,489 | | | 248 | | | 2,737 | |
| Charges (reversals), net | | — | | | 474 | | | (236) | | | 238 | |
| Cash payments | | — | | | (1,559) | | | — | | | (1,559) | |
| Foreign currency translation (gain) loss | | — | | | (23) | | | (12) | | | (35) | |
| Balance as of July 1, 2022 | | — | | | 1,381 | | | — | | | 1,381 | |
| Charges, net | | 2,947 | | | — | | | — | | | 2,947 | |
| Cash payments | | (2,347) | | | (1,381) | | | — | | | (3,728) | |
| | | | | | | | |
| Balance as of June 30, 2023 | | $ | 600 | | | $ | — | | | $ | — | | | $ | 600 | |
As of June 30, 2017, $1.52023, the accrued restructuring balance of $0.6 million of the accrual balance was in short-term restructuring liabilities while $0.2 million was included in other long-term liabilities on the consolidated balance sheets. Included in the above were positions identified for termination that have not been executed from a restructuring perspective.
Fiscal 2016-2017 Plan2023 Plans
During fiscal 2023, our Board of Directors approved restructuring plans, primarily associated with the fourth quarteracquisition of fiscal 2016, we initiated a restructuring plan (the “Fiscal 2016-2017 Plan”) to streamline our operationsRedline and align expenses with current revenue levels. Activities under the Fiscal 2016-2017 Plan primarily include reductions in workforce in marketing, selling and general and administrative functions. We have substantially completeour operations outside the remaining restructuring activities under the Fiscal 2016-2017 Plan byUnited States. The fiscal 2023 plans are expected to be completed through the end of first half of fiscal 2017.2024.
Prior Years’ Plans
Activities under the prior years’ plans primarily included reductions in workforce across the Company, primarily in our operations outside the United States. Payments related to the accrued restructuring liability balance for this plan will be paid through fiscal 2018.these plans are complete.
Fiscal 2015-2016 Plan
During the third quarter of fiscal 2015, with the intent to bring our operational cost structure in line with the changing dynamics of the microwave radio and telecommunications markets, we initiated a restructuring plan (the “Fiscal 2015-2016 Plan”) to lower fixed overhead costs and operating expenses and to preserve cash flow. Activities under the Fiscal 2015-2016 Plan primarily include reductions in workforce across the Company, but primarily in operations outside the United States. We have substantially completed the restructuring activities under the Fiscal 2015-2016 Plan as of July 1, 2016. Payments related to the accrued restructuring liability balance for this plan is expected to be paid through fiscal 2020.
Fiscal 2014-2015 Plan
During the third quarter of fiscal 2014, in line with the decrease in revenue that we experienced and our reduced forecast for the immediate future, we initiated a restructuring plan (the “Fiscal 2014-2015 Plan”) to reduce our operating costs, primarily in North America, Europe and Asia. Activities under the Fiscal 2014-2015 Plan primarily include reductions in workforce and additional facility downsizing of our Santa Clara, California headquarters. We have substantially completed the restructuring activities under the Fiscal 2014-2015 Plan as of July 1, 2016. Payments related to the accrued restructuring liability balance for this plan will be paid through fiscal 2018.
Fiscal 2013-2014 Plan
During the fourth quarter of fiscal 2013, we initiated a restructuring plan (the “Fiscal 2013-2014 Plan”) that was intended to reduce our operating expenses primarily in North America, Europe and Asia. Activities under the Fiscal 2013-2014 Plan included reductions in workforce and facility downsizing of our Santa Clara, California headquarters and certain international field offices. We substantially completed the restructuring activities under the Fiscal 2013-2014 Plan as of June 27, 2014. Payments related to the accrued restructuring liability balance for this plan will be paid through fiscal 2018.
Note 8.9. Stockholders’ Equity
As discussedStock Repurchase Program
During the second quarter of fiscal 2022 we completed the $7.5 million stock repurchase program approved by our Board of Directors in Note 1, on June 14, 2016, we effectedMay 2018. This repurchase program was temporarily suspended from February 2020 to February 2021. In November 2021, our Board of Directors approved a 1-for-12 reverse stock splitrepurchase program to purchase up to $10.0 million of our common stock. During fiscal 2023 we did not repurchase any shares of our common stock. In fiscal 2022 and 2021 we repurchased $5.4 million and $0.8 million, respectively. As of June 30, 2023, $7.3 million remained available for repurchase.
The following table summarizes the repurchase of our common stock:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands, except share and per-share amounts) | | Shares | | Weighted-Average Price Paid per Share | | Aggregate purchase price |
| Fiscal 2023 Treasury Shares | | — | | | $ | — | | | $ | — | |
| Fiscal 2022 Treasury Shares | | 175,356 | | | $ | 30.57 | | | $ | 5,360 | |
| Fiscal 2021 Treasury Shares | | 19,587 | | | $ | 40.16 | | | $ | 787 | |
| | | | | | |
Starting in February 2021, repurchased shares were recorded as treasury stock and we do not anticipate retiring them. Treasury stock did not participate in the two-for-one stock split in the form of a stock dividend paid on April 7, 2021. All sharerepurchased shares prior to February 2021 were retired and per share data in this note have been retroactively adjusted to reflect this reversereflected the two-for-one stock split.
Stock Incentive Programs
2007 Stock Equity Plan
As of June 30, 2017,2023, we had one stock incentive plan for our employees and nonemployeenon-employee directors, the 2007 Stock Equity2018 Incentive Plan as amended and restated effective November 13, 2015 (the “2007 Stock“2018 Plan”). The 2018 Plan was approved by the Company’s stockholders in March 2018. An increase of 1,250,000 shares available to grant to employees and non-employee directors was approved at the Annual Meeting of Stockholders in November 2021. The 2018 Plan replaced the 2007 Stock Plan provides for accelerated vesting of certain share-based awards if there is a change in controlas our primary long-term incentive program (“LTIP”). The 2007 Plan was discontinued following stockholder approval of the Company.2018 Plan, but the outstanding awards under the 2007 Plan will continue to remain in effect in accordance with their terms; provided that, as shares are returned under the 2007 Plan upon cancellation, termination or otherwise of awards outstanding under the 2007 Plan, such shares will be available for grant under the 2018 Plan. The 2007 Stock2018 Plan also 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. We have various incentive programs under the 2007 Stock Plan, including annual and long-term incentive programs (“AIP” or “LTIP”).
Under the 2007 Stock2018 Plan, option exercise prices are equal to the fair market value of our common stock on the date the options are granted using our closing stock price. Options granted in fiscal 2015 would be fully vested after 3.5 years from the grant date. We did not grant any options in fiscal 2017 and 2016. After vesting, options generally may be exercised within seven years after the date of grant.
Restricted stock unit isunits are not transferable until vested and the restrictions lapse upon the achievement of continued employment or service over a specified time period. Restricted stock unitunits issued to employees generally vests betweenvest three to four years from the date of grant.grant (three-year cliff or annually over three years). Restricted stock unitunits issued to non-executive board members annually generally vestsvest on the day before the annual stockholders’ meeting.
Vesting of performance share awards and unitunits is subject to the achievement of pre-determinedpredetermined financial performance and share price criteria, and continued employment through the end of the applicable period. Market-based stock units vest upon meeting certain pre-determined share price performance criteria and continued employment through the end of the applicable period. The performance criteria of the performance share awards and units and the market-based stock units can be achieved before the end of the vesting period.
We issue new shares of our common stock to our employees upon the exercise of stock options, vesting of restricted stock awards and units or vesting of performance share awards and units. All awards that are canceled prior to vesting or expire unexercised are returned to the approved pool of reserved shares under the 2007 Stock Plan and made available for future grants.grants under the 2018 Plan. Shares of our common stock remaining available for future issuance under the 2007 Stock2018 Plan totaled 270,9471,822,810 as of June 30, 2017.2023.
On September 6, 2016, theMarch 3, 2020, our Board of Directors authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of our common stock, par value $0.01 per share, (the “Common Shares”), to our stockholders of record as of the close of business on September 16, 2016.March 3, 2020, (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the Company at an exercise price of $35.00 (the “Exercise Price”) per one one-thousandth of a Preferred Share, subject to adjustment. Until the rights become exercisable, they will not be evidenced by separate certificates and will trade automatically with shares of the Company’s common stock. The Rights have a de minimis fair value. The complete terms of the Rights are set forth in athe Amended and Restated Tax Benefit Preservation Plan (the “Plan”), dated as of September 6, 2016,August 27, 2020, and amended as of February 28, 2023, between the Company and Computershare Inc., as rights agent. By adopting the Plan, we are helping to preserve the value of certain deferred tax benefits, including those generated by net operating losses (collectively, the “Tax Benefits”), which could be lost in the event of an “ownership change” as defined under Section 382 Code. The amended Plan will be submitted to the Company’s stockholders for ratification at the Company’s 2023 annual meeting (the “Annual Meeting”), which extends the final expiration date of the Internal Revenue Code of 1986, as amended. The Plan reduces the likelihood that changes in our investor base have the unintended effect of limiting our use of the Tax Benefits.until March 3, 2026.
Also, on September 6, 2016, our Board of Directors adopted certain amendments to our Amended and Restated Certificate of Incorporation, as amended (the “Charter Amendments”). The Charter Amendments are designed to preserve the Tax Benefits by restricting certain transfers of our common stock.
Both the Plan and the Charter Amendments were approved at our 2016 annual meeting
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (“ESPP”), employees are entitled to purchase shares of our common stock at a 5% discount from the fair market value at the end of a three-month purchase period. As of June 30, 2017, 61,065 shares were reserved for future issuances under the ESPP. We issued 9741,254 shares under the ESPP during fiscal 2017.2023. The ESPP was terminated at the end of calendar year 2022 and the remaining shares reserved for future issuance expired.
Share-Based Compensation
TotalThe following table presents the compensation expense for share-based awards included in our consolidated statements of operations for fiscal 2017, 20162023, 2022 and 2015:2021:
| | | | Fiscal Year | | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 | (In thousands) | | 2023 | | 2022 | | 2021 |
| By Expense Category: | | By Expense Category: | | |
| Cost of product sales and services | $ | 208 |
| | $ | 154 |
| | $ | 151 |
| Cost of product sales and services | | $ | 627 | | | $ | 440 | | | $ | 372 | |
| Research and development | 138 |
| | 110 |
| | 108 |
| Research and development | | 514 | | | 246 | | | 250 | |
| Selling and administrative | 1,765 |
| | 1,572 |
| | 1,928 |
| Selling and administrative | | 5,579 | | | 3,148 | | | 2,299 | |
| Total share-based compensation expense | $ | 2,111 |
| | $ | 1,836 |
| | $ | 2,187 |
| Total share-based compensation expense | | $ | 6,720 | | | $ | 3,834 | | | $ | 2,921 | |
| By Types of Award: | | | | | | By Types of Award: | | | | | | |
| Options | $ | 260 |
| | $ | 837 |
| | $ | 1,459 |
| Options | | $ | 1,394 | | | $ | 582 | | | $ | 757 | |
| Restricted stock awards and units | 1,473 |
| | 933 |
| | 688 |
| Restricted stock awards and units | | 3,565 | | | 1,482 | | | 857 | |
| Performance share awards and units and market-based stock units | 378 |
| | 66 |
| | 40 |
| |
| Performance share awards and units | | Performance share awards and units | | 1,761 | | | 1,770 | | | 1,307 | |
| Total share-based compensation expense | $ | 2,111 |
| | $ | 1,836 |
| | $ | 2,187 |
| Total share-based compensation expense | | $ | 6,720 | | | $ | 3,834 | | | $ | 2,921 | |
The following table summarizes the unamortized compensation expense and the remaining years over which such expense would be expected to be recognized, on a weighted-average basis, by type of award:
| | | | | June 30, 2017 | | June 30, 2023 |
| | | Unamortized Expense | | Weighted Average Remaining Recognition Period | | Unamortized Expense | | Weighted-Average Remaining Recognition Period |
| | | (In thousands) | | (Years) | | (In thousands) | | (Years) |
| Options | | $ | 152 |
| | 1.09 | Options | | $ | 1,637 | | | 1.38 |
| Restricted stock awards and units | | $ | 2,485 |
| | 1.79 | Restricted stock awards and units | | $ | 5,426 | | | 1.38 |
| Performance share awards and units and market-based stock units | | $ | 900 |
| | 1.50 | |
| Performance share awards and units | | Performance share awards and units | | $ | 2,096 | | | 0.98 |
Stock Options
A summary of the combined stock option activity under our equity plans during fiscal 20172023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted-Average
Exercise Price- | | Weighted-Average
Remaining
Contractual
Life | | Aggregate
Intrinsic
Value |
| | | | | | (Years) | | (In thousands) |
| Options outstanding as of July 1, 2022 | 469,716 | | | $ | 15.15 | | | 4.68 | | $ | 5,599 | |
| Granted | 110,945 | | | $ | 32.10 | | | | | |
| Exercised | (148,674) | | | $ | 8.31 | | | | | |
| Forfeited | (16,705) | | | $ | 22.97 | | | | | |
| Expired | (1,190) | | | $ | 35.97 | | | | | |
| Options outstanding as of June 30, 2023 | 414,092 | | | $ | 21.77 | | | 4.65 | | $ | 4,911 | |
| Options vested and expected to vest as of June 30, 2023 | 414,092 | | | $ | 21.77 | | | 4.65 | | $ | 4,911 | |
| Options exercisable as of June 30, 2023 | 188,254 | | | $ | 14.41 | | | 3.78 | | $ | 3,607 | |
|
| | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| | | | | | (Years) | | (In thousands) |
| Options outstanding as of July 1, 2016 | 448,359 |
| | $ | 32.95 |
| | 3.37 | | |
| Granted | — |
| | N/A |
| | | | |
| Exercised | (573 | ) | | $ | 14.88 |
| | | | |
| Forfeited | (34,282 | ) | | $ | 33.50 |
| | | | |
| Expired | (40,799 | ) | | $ | 74.40 |
| | | | |
| Options outstanding as of June 30, 2017 | 372,705 |
| | $ | 28.39 |
| | 2.72 | | $ | 167 |
|
| Options vested and expected to vest as of June 30, 2017 | 372,705 |
| | $ | 28.39 |
| | 2.72 | | $ | 167 |
|
| Options exercisable as of June 30, 2017 | 348,506 |
| | $ | 29.30 |
| | 2.59 | | $ | 118 |
|
The aggregate intrinsic value represents the total pre-tax intrinsic value or the aggregate difference between the closing price of our common stock on June 30, 20172023 of $17.40$33.37, and the exercise price for in-the-money options that would have been received by the optionees if all options had been exercised on June 30, 2017. The2023.
Additional information related to our stock options expected to vest are the result of applying the pre-vesting forfeiture rate assumptions to total outstanding options.is summarized below:
| | | | | | | | | | | | | | | | | |
| Fiscal Year |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Intrinsic value of options exercised | $ | 3,725 | | | $ | 1,624 | | | $ | 2,208 | |
| Fair value of options vested | $ | 1,142 | | | $ | 608 | | | $ | 484 | |
The fair value of each option grant under our 2007 Stock2018 Plan was estimated using the Black-Scholes option pricing model on the date of grant. No options were granted during fiscal 2017 and 2016. A summary of the significant weighted averageweighted-average assumptions we used in the Black-Scholes valuation model is as follows:
| | | | Fiscal Year | | Fiscal Year |
| | 2015 | | 2023 | | 2022 | | 2021 |
| Expected dividends | — | % | Expected dividends | — | % | | — | % | | — | % |
| Expected volatility | 53.9 | % | Expected volatility | 62.9 | % | | 61.9 | % | | 48.5 | % |
| Risk-free interest rate | 1.13 | % | Risk-free interest rate | 3.5 | % | | 0.4 | % | | 0.2 | % |
| Expected term (years) | 4.25 |
| |
| Weighted average grant date fair value per share granted | $ | 6.60 |
| |
| Expected term (in years) | | Expected term (in years) | 3.0 | | 3.0 | | 3.0 |
The following summarizes all of our stock options outstanding and exercisable as of June 30, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable |
| Actual Range of Exercise Prices | Number
Outstanding | | Weighted-Average
Remaining
Contractual
Life | | Weighted-Average
Exercise Price | | Number
Exercisable | | Weighted-Average
Exercise Price |
| | | | | (Years) | | | | | | |
| $7.23 — $35.97 | 414,092 | | | 4.65 | | $ | 21.77 | | | 188,254 | | | $ | 14.41 | |
|
| | | | | | | | | | | | | | | | | |
| | | | Options Outstanding | | Options Exercisable |
| Actual Range of Exercise Prices | Number Outstanding | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | | Number Exercisable | | Weighted Average Exercise Price |
| | | | | | (Years) | | | | | | |
| $14.88 | — | $15.60 | 82,615 |
| | 4.59 | | $ | 15.38 |
| | 58,416 |
| | $ | 15.38 |
|
| $20.64 | — | $27.36 | 83,863 |
| | 2.56 | | $ | 26.17 |
| | 83,863 |
| | $ | 26.17 |
|
| $27.72 | — | $30.72 | 70,725 |
| | 1.64 | | $ | 29.28 |
| | 70,725 |
| | $ | 29.28 |
|
| $31.20 | — | $31.20 | 74,462 |
| | 3.19 | | $ | 31.20 |
| | 74,462 |
| | $ | 31.20 |
|
| $32.52 | — | $62.16 | 56,222 |
| | 1.10 | | $ | 42.33 |
| | 56,222 |
| | $ | 42.33 |
|
| $71.04 | — | $71.04 | 4,818 |
| | 0.69 | | $ | 71.04 |
| | 4,818 |
| | $ | 71.04 |
|
| $14.88 | — | $71.04 | 372,705 |
| | 2.72 | | $ | 28.39 |
| | 348,506 |
| | $ | 29.30 |
|
Additional information related to our stock options is summarized below:
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Intrinsic value of options exercised | $ | 3 |
| | $ | — |
| | $ | — |
|
| Fair value of options vested | $ | 654 |
| | $ | 1,395 |
| | $ | 1,990 |
|
Restricted Stock Awards and Units
A summary of the status of our restricted stock as of June 30, 20172023 and changes during fiscal 20172023 is as follows:
| | | | | | | Shares | | Weighted-Average
Grant Date
Fair Value |
| | Shares | | Weighted Average Grant Date Fair Value | |
| Restricted stock outstanding as of July 1, 2016 | 210,596 |
| | $ | 12.01 |
| |
| Restricted stock outstanding as of July 1, 2022 | | Restricted stock outstanding as of July 1, 2022 | 383,257 | | | $ | 25.59 | |
| Granted | 237,874 |
| | $ | 9.66 |
| Granted | 74,827 | | | $ | 31.67 | |
| Vested and released | (55,178 | ) | | $ | 9.40 |
| Vested and released | (146,226) | | | $ | 22.92 | |
| Forfeited | (14,277 | ) | | $ | 12.29 |
| Forfeited | (38,407) | | | $ | 29.32 | |
| Restricted stock outstanding as of June 30, 2017 | 379,015 |
| | $ | 10.91 |
| |
| Restricted stock outstanding as of June 30, 2023 | | Restricted stock outstanding as of June 30, 2023 | 273,451 | | | $ | 28.16 | |
The fair value of each restricted stock grant is based on the closing price of our common stock on the date of grant. The total grant date fair value of restricted stock that vested during fiscal 2017, 20162023, 2022 and 20152021 was $3.4 million, $0.5 million $0.7and $0.5 million, and $0.6 million, respectively.
Market -Based Stock Units
A summary of the status of our market-based stock units as of June 30, 2017 and changes during fiscal 2017 is as follows:
|
| | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
| Market-based stock units outstanding as of July 1, 2016 | 149,169 |
| | $ | 2.56 |
|
| Granted | 50,000 |
| | $ | 6.83 |
|
| Forfeited | (55,845 | ) | | $ | 2.56 |
|
| Market-based stock units outstanding as of June 30, 2017 | 143,324 |
| | $ | 4.05 |
|
The fair value of each market-based stock unit with market condition was estimated using the Monte-Carlo simulation model. A summary of the significant weighted average assumptions we used in the Monte Carlo simulation model is as follows:
|
| | | | | | | | | |
| | Fiscal Year |
| | 2017 | | 2016 | | 2015 |
| Expected Dividends | — | % | | — | % | | N/A |
| Expected volatility | 58.1 | % | | 52.4 | % | | N/A |
| Risk-free interest rate | 1.20 | % | | 1.21 | % | | N/A |
| Weighted average grant date fair value per share granted | $ | 6.83 |
| | $ | 2.56 |
| | N/A |
The fair value of the market-based stock units with market condition criteria is expensed over the derived service period for each separate vesting tranche. If the derived service period is rendered, the total fair value of the award at the date of the grant is recognized as compensation expense even if the market condition is not achieved.
Performance Share Awards and Units
A summary of the status of our performance shares awards and units as of June 30, 20172023 and changes during fiscal 20172023 is as follows:
| | | | | | | Shares | | Weighted-Average
Grant Date
Fair Value |
| | Shares | | Weighted Average Grant Date Fair Value | |
| Performance share awards and units outstanding as of July 1, 2016 | — |
| | N/A | |
| Performance shares outstanding as of July 1, 2022 | | Performance shares outstanding as of July 1, 2022 | 225,103 | | | $ | 16.69 | |
| Granted | 72,941 |
| | $ | 9.18 |
| Granted | 66,649 | | | 30.01 | |
| Vested and released | | Vested and released | (99,348) | | | 9.56 | |
| Forfeited | — |
| | N/A | Forfeited | (12,350) | | | 21.71 | |
| Performance share awards and units outstanding as of June 30, 2017 | 72,941 |
| | $ | 9.18 |
| |
| Performance shares outstanding as of June 30, 2023 | | Performance shares outstanding as of June 30, 2023 | 180,054 | | | $ | 25.20 | |
NoThe fair value of performance shares award or unit vested during fiscal 2017 and 2016. was estimated using the Monte-Carlo simulation model. A summary of the significant weighted-average assumptions is as follows:
| | | | | | | | | | | | | | |
| Fiscal Year |
| 2023 | | 2022 | |
| Expected dividends | — | | | — | | |
| Expected volatility | 63.7 | % | | 62.2% - 60.0% | |
| Risk-free interest rate | 3.5 | % | | 0.45% - 0.37% | |
| Weighted-average grant date fair value per share granted | $32.10 | | $35.56 - $31.38 | |
The total grant date fair value of performance share awards and units that vested during fiscal 20152023, 2022 and 2021 was $0.1 million.$1.0 million, $0.4 million and $0.4 million, respectively.
Note 9.10. Segment and Geographic Information
We operate in one reportable business segment: the design, manufacturing and sale of a range of wireless networking products, solutions and services. We conduct business globally and our sales and support activities are managed on a geographic basis. Our Chief Executive Officer is the Chief Operating Decision Maker (the “CODM”). Our CODM manages our business primarily by function globally and reviews financial information on a consolidated basis, accompanied by disaggregated information about revenues by geographic region, for purposes of allocating resources and evaluating financial performance. The profitability of our geographic regionregions is not a determining factor in allocating resources and the CODM does not evaluate profitability below the level of the consolidated company.
We report revenue by region and country based on the location where our customers accept delivery of our products and services. Revenue by region for 2017, 20162023, 2022 and 20152021 were as follows:
| | | | Fiscal Year | | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 | (In thousands) | 2023 | | 2022 | | 2021 |
| North America | $ | 132,078 |
| | $ | 125,482 |
| | $ | 153,239 |
| North America | $ | 202,096 | | | $ | 199,801 | | | $ | 183,071 | |
| Africa and Middle East | 60,150 |
| | 82,742 |
| | 97,112 |
| Africa and Middle East | 60,416 | | | 47,527 | | | 44,023 | |
| Europe and Russia | 14,128 |
| | 20,539 |
| | 35,990 |
| |
| Europe | | Europe | 18,772 | | | 12,973 | | | 8,826 | |
| Latin America and Asia Pacific | 35,518 |
| | 39,927 |
| | 49,537 |
| Latin America and Asia Pacific | 65,309 | | | 42,658 | | | 38,991 | |
| Total Revenue | $ | 241,874 |
| | $ | 268,690 |
| | $ | 335,878 |
| Total Revenue | $ | 346,593 | | | $ | 302,959 | | | $ | 274,911 | |
Revenue by country comprising more than 5%10% of our total revenue for fiscal 2017, 20162023, 2022 and 2015 were2021 was as follows:
| | | | | | | | | | | |
| (In thousands, except percentages) | Revenue | | % of
Total Revenue |
| Fiscal 2023 | | | |
| United States | $ | 198,435 | | | 57.3 | % |
| Fiscal 2022 | | | |
| United States | $ | 198,824 | | | 65.6 | % |
| Fiscal 2021 | | | |
| United States | $ | 181,842 | | | 66.1 | % |
|
| | | | | | |
| (In thousands, except percentages) | Revenue | | % of Total Revenue |
| Fiscal 2017: | | | |
| United States | $ | 127,889 |
| | 52.9 | % |
| Nigeria | $ | 18,147 |
| | 7.5 | % |
| Philippines | $ | 13,733 |
| | 5.7 | % |
| Fiscal 2016: | | | |
| United States | $ | 121,283 |
| | 45.1 | % |
| Nigeria | $ | 28,862 |
| | 10.7 | % |
| Fiscal 2015: | | | |
| United States | $ | 151,066 |
| | 45.0 | % |
| Nigeria | $ | 36,459 |
| | 10.9 | % |
Our long-lived assets, consisting primarily of net property, plant and equipment, by geographic areas based on the physical location of the assets as of June 30, 20172023 and July 1, 20162022 were as follows:
| | | | | | | | | | | |
| (In thousands) | June 30, 2023 | | July 1, 2022 |
| New Zealand | $ | 3,619 | | | $ | 5,149 | |
| United States | 5,048 | | | 2,972 | |
| Other countries | 785 | | | 766 | |
| Total | $ | 9,452 | | | $ | 8,887 | |
|
| | | | | | | |
| (In thousands) | June 30,
2017 | | July 1,
2016 |
| United States | $ | 5,854 |
| | $ | 11,353 |
|
| United Kingdom | 2,727 |
| | 2,946 |
|
| New Zealand | 6,310 |
| | 2,618 |
|
| Other countries | 1,515 |
| | 1,245 |
|
| Total | $ | 16,406 |
| | $ | 18,162 |
|
Note 10. Divestiture
In March 2011, our board of directors approved a plan for the sale of our WiMAX business. On September 2, 2011, we sold to EION Networks, Inc. (“EION”) our WiMAX business and related assets consisting of certain technology, inventory and equipment. As consideration for the sale of assets, EION agreed to pay us $0.4 million in cash and up to $2.8 million in additional cash payments contingent upon specific factors related to future WiMAX business performance. We had received $0.1 million in total of such contingent payments through June 27, 2014 and do not expect any further payments from EION. In addition, EION is entitled to receive cash payments up to $2.0 million upon collection of certain WiMAX accounts receivable. As of September 26, 2014, we made $1.6 million in total of such payments to EION and wrote-off the remaining $0.4 million balance resulting from the write-downs of the corresponding WiMAX accounts receivable. As of June 30, 2017 and July 1, 2016, we had no liabilities related to the disposition of WiMAX business.
In the third quarter of fiscal 2011, we began accounting for the WiMAX business as a discontinued operation and, therefore, the operating results of our WiMAX business were included in discontinued operations in our consolidated financial statements for all years presented. The income recognized in fiscal 2016 was primarily due to the recovery of
certain WiMAX customer receivables that was previously written down. The income recognized in fiscal 2015 was primarily due to a $0.1 million write-off of accrued liabilities due to EION.
Summary results of operations for the WiMAX business were as follows:
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Income from operations of WiMAX | $ | — |
| | $ | 652 |
| | $ | 30 |
|
| Gain on disposal | — |
| | — |
| | 85 |
|
| Income taxes | — |
| | (111 | ) | | (21 | ) |
| Income from discontinued operations, net of tax | $ | — |
| | $ | 541 |
| | $ | 94 |
|
Note 11. Income Taxes
Income (loss) from continuing operations before provision for (benefit from) income taxes during fiscal year 2017, 20162023, 2022 and 20152021 consisted of the following:
| | | | Fiscal Year | | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 | (In thousands) | 2023 | | 2022 | | 2021 |
| United States | $ | 10,979 |
| | $ | (4,248 | ) | | $ | (18,603 | ) | United States | $ | 20,531 | | | $ | 31,923 | | | $ | 26,325 | |
| Foreign | (11,584 | ) | | (24,295 | ) | | (7,355 | ) | Foreign | 2,572 | | | (1,488) | | | (3,885) | |
| Total loss from continuing operations before income taxes | $ | (605 | ) | | $ | (28,543 | ) | | $ | (25,958 | ) | |
| Total income before income taxes | | Total income before income taxes | $ | 23,103 | | | $ | 30,435 | | | $ | 22,440 | |
Provision for (benefit from) income taxes from continuing operations for fiscal year 2017, 20162023, 2022 and 20152021 were summarized as follows:
| | | | | | | | | | | | | | | | | |
| Fiscal Year |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Current provision (benefit): | | | | | |
| Federal | $ | — | | | $ | 15 | | | $ | (60) | |
| Foreign | 1,493 | | | 1,234 | | | 2,128 | |
| State and local | 637 | | | 333 | | | 221 | |
| 2,130 | | | 1,582 | | | 2,289 | |
| Deferred provision (benefit): | | | | | |
| Federal | 8,826 | | | 6,348 | | | (75,587) | |
| Foreign | (522) | | | 161 | | | 983 | |
| State and local | 1,141 | | | 1,184 | | | (15,384) | |
| 9,445 | | | 7,693 | | | (89,988) | |
| Total provision for (benefit from) income taxes | $ | 11,575 | | | $ | 9,275 | | | $ | (87,699) | |
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Current provision (benefit): | | | | | |
| Federal | $ | (14 | ) | | $ | 131 |
| | $ | — |
|
| Foreign | (52 | ) | | 1,814 |
| | 3,378 |
|
| State and local | 7 |
| | 24 |
| | 23 |
|
| | (59 | ) | | 1,969 |
| | 3,401 |
|
| Deferred provision (benefit): | | | | | |
| Federal | 168 |
| | (468 | ) | | (216 | ) |
| Foreign | (93 | ) | | 134 |
| | (4,495 | ) |
| | 75 |
| | (334 | ) | | (4,711 | ) |
| Total provision for (benefit from) income taxes from continuing operations | $ | 16 |
| | $ | 1,635 |
| | $ | (1,310 | ) |
The provision for (benefit from) income taxes from continuing operations differed from the amount computed by applying the federal statutory rate of 35%21%, to our income before provision for (benefit from) income taxes as follows:
| | | | | | | | | | | | | | | | | |
| Fiscal Year |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Tax provision at statutory rate | $ | 4,852 | | | $ | 6,344 | | | $ | 4,713 | |
| Valuation allowances | 239 | | | 220 | | | (95,796) | |
| Permanent differences | 19 | | | 7 | | | (346) | |
| Foreign income inclusions | 397 | | | — | | | — | |
| Effect of flow-through entities | 409 | | | 58 | | | 101 | |
| Transaction costs | 746 | | | 235 | | | — | |
| State and local taxes, net of U.S. federal tax benefit | 1,034 | | | 1,534 | | | 1,436 | |
| Foreign income taxed at rates different than the U.S. statutory rate | 218 | | | 439 | | | 209 | |
| Executive compensation limitation | 663 | | | 439 | | | — | |
| Share-based compensation | (728) | | | (580) | | | (482) | |
| Tax credit - generated and expired | (140) | | | 113 | | | 108 | |
| Foreign withholding taxes | 88 | | | 267 | | | 1,184 | |
| Brazil withholding tax receivable | — | | | — | | | 72 | |
| Change in uncertain tax positions | 406 | | | 644 | | | 102 | |
| Return-to-provision/Deferred true-up adjustments | 359 | | | (269) | | | — | |
| Acquisition restructuring and integration | 3,022 | | | — | | | — | |
| Other | (9) | | | (176) | | | 1,000 | |
| Total provision for (benefit from) income taxes | $ | 11,575 | | | $ | 9,275 | | | $ | (87,699) | |
|
| | | | | | | | | | | |
| | Fiscal Year |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Tax benefit at statutory rate | $ | (196 | ) | | $ | (9,990 | ) | | $ | (9,065 | ) |
| Valuation allowances | (1,346 | ) | | 6,609 |
| | (3,900 | ) |
| Foreign non-deductible expenses | 628 |
| | 103 |
| | (80 | ) |
| State and local taxes, net of U.S. federal tax benefit | 358 |
| | (134 | ) | | (500 | ) |
| Foreign income taxed at rates less than the U.S. statutory rate | 2,062 |
| | 6,019 |
| | 9,970 |
|
| Dividend from foreign subsidiary | — |
| | (1,781 | ) | | — |
|
| Foreign branch income/withholding taxes | 1,116 |
| | 292 |
| | 1,350 |
|
| Singapore refund | (3,778 | ) | | — |
| | — |
|
| Change in uncertain tax positions | 1,173 |
| | 437 |
| | 610 |
|
| Other | (1 | ) | | 80 |
| | 305 |
|
| Total provision for (benefit from) income taxes from continuing operations | $ | 16 |
| | $ | 1,635 |
| | $ | (1,310 | ) |
TheOur provision for (benefit from) income tax expense (benefit) from continuing operationstaxes was $16 thousand of expense for fiscal 2017, $1.6$11.6 million of expense for fiscal 20162023, $9.3 million of expense fiscal 2022 and $1.3$87.7 million of benefit for fiscal 2015. The difference between our income2021. Our tax expense (benefit) from continuing operations and incomefor fiscal 2023 was primarily due to tax expense at the statutory raterelated to U.S. and profitable foreign subsidiaries, including tax expense associated with our acquisition of 35%Redline in July 2022 and subsequent restructuring and integration impact. See Note 12. Acquisitions.
Our tax expense for fiscal 2022 was primarily attributabledue to losses in tax jurisdictions in which we cannot recognize a tax benefitexpenses related to U.S. and increase inprofitable foreign withholding taxes. During fiscal 2017, we recorded a $3.7 million tax benefit from the audit assessment refund received from the Inland Revenue Authoritysubsidiaries.
The components of deferred tax assets and liabilities were as follows:
| | | (In thousands) | June 30, 2017 | | July 1, 2016 | (In thousands) | June 30, 2023 | | July 1, 2022 |
| Deferred tax assets: | | | | Deferred tax assets: | | | |
| Inventory | $ | 4,390 |
| | $ | 6,652 |
| Inventory | $ | 4,363 | | | $ | 4,065 | |
| Accruals and reserves | 2,611 |
| | 2,497 |
| Accruals and reserves | 1,848 | | | 3,248 | |
| Bad debts | 669 |
| | 1,091 |
| Bad debts | 125 | | | 157 | |
| Amortization | 1,870 |
| | 3,148 |
| Amortization | 86 | | | 2,274 | |
| Stock compensation | 2,266 |
| | 2,599 |
| |
| Share-based compensation | | Share-based compensation | 858 | | | 807 | |
| Deferred revenue | 3,127 |
| | 1,759 |
| Deferred revenue | 3,678 | | | 1,913 | |
| Unrealized exchange gain/loss | 3,295 |
| | 3,422 |
| Unrealized exchange gain/loss | 3,229 | | | 374 | |
| Other | 3,715 |
| | 6,623 |
| Other | 144 | | | 2,888 | |
| Capitalized research expenses | | Capitalized research expenses | 5,119 | | | — | |
| Tax credit carryforwards | 15,337 |
| | 18,016 |
| Tax credit carryforwards | 4,274 | | | 4,926 | |
| Tax loss carryforwards | 168,115 |
| | 167,468 |
| Tax loss carryforwards | 100,791 | | | 114,048 | |
| Total deferred tax assets before valuation allowance | 205,395 |
| | 213,275 |
| Total deferred tax assets before valuation allowance | 124,515 | | | 134,700 | |
| Valuation allowance | (197,951 | ) | | (202,824 | ) | Valuation allowance | (37,032) | | | (37,529) | |
| Total deferred tax assets | 7,444 |
| | 10,451 |
| Total deferred tax assets | 87,483 | | | 97,171 | |
| Deferred tax liabilities: | | | | Deferred tax liabilities: | | | |
| Branch undistributed earnings reserve | 990 |
| | 822 |
| Branch undistributed earnings reserve | 90 | | | 176 | |
| Depreciation | 1,501 |
| | 4,596 |
| Depreciation | 520 | | | 948 | |
| | Right of use assets | | Right of use assets | 488 | | | 548 | |
| Other | 456 |
| | 462 |
| Other | 227 | | | 650 | |
| Total deferred tax liabilities | 2,947 |
| | 5,880 |
| Total deferred tax liabilities | 1,325 | | | 2,322 | |
| Net deferred tax assets | $ | 4,497 |
| | $ | 4,571 |
| Net deferred tax assets | $ | 86,158 | | | $ | 94,849 | |
| | | | | | | | |
| As Reported on the Consolidated Balance Sheets | | | | |
| As reported on the consolidated balance sheets | | As reported on the consolidated balance sheets | |
| Deferred income tax assets | $ | 6,178 |
| | $ | 6,068 |
| Deferred income tax assets | $ | 86,650 | | | $ | 95,412 | |
| Deferred income tax liabilities | 1,681 |
| | 1,497 |
| Deferred income tax liabilities | 492 | | | 563 | |
| Total net deferred income taxes | $ | 4,497 |
| | $ | 4,571 |
| |
| Total net deferred income tax assets | | Total net deferred income tax assets | $ | 86,158 | | | $ | 94,849 | |
Our valuation allowance related to deferred income taxes, as reflected in our consolidated balance sheets, was $198.0$37.0 million as of June 30, 20172023 and $202.8$37.5 million as of July 1, 2016. 2022. The change in valuation allowance for the fiscal years ended June 30, 2023 and July 1, 2022 was an decrease of $0.5 million and an increase of $0.1 million, respectively.
The decrease in the valuation allowance in fiscal 20172023 was primarily due to the release of certain U.S. federal, state, and foreign valuation allowance in certain foreign jurisdictions,allowances, partially offset by losses in tax jurisdictions in which we cannot recognize tax benefits. The increase in the valuation allowance in fiscal 2022 was primarily due to losses in tax jurisdictions in which we cannot recognize tax benefits, partially offset by the release of certain U.S. federal, state, and foreign valuation allowances. As of June 30, 2023, we continue to maintain a valuation allowance of $1.2 million on certain U.S. federal and state deferred tax assets that we believe is not more likely than not to be realized in future periods.
Tax loss and credit carryforwards as of June 30, 20172023 have expiration dates ranging between one year and no expiration in certain instances. The amountamounts of U.S. federal tax loss carryforwards as of June 30, 2017 and July 1, 2016 were $339.82023 was $303.5 million and $345.3 million, respectively, and begin to expire in fiscal 2023.2024. The amount of U.S. federal and state tax credit carryforwards as of June 30, 2017 were $16.42023 was $6.9 million, and certain credits will begin to expire in fiscal 2018.2024. The amount of foreign tax loss carryforwards as of June 30, 20172023 was $232.1$186.0 million and certain losses begin to expire in fiscal 2018.2024. The amount of foreign tax credit carryforwards as of June 30, 2017 were $4.42023 was $3.1 million,, and certain credits will begin to expire in fiscal 2023.2026.
We use the flow-through method to account for investment tax credits generated on eligible scientific research and development expenditures. Under this method, the investment tax credits are recognized as a benefit to income tax in the year they are generated.
United States income taxes have not been provided on basis differences in foreign subsidiaries of $5.0$2.8 million and $5.6 million, respectively, as of June 30, 2017 and July 1, 2016,2023 because of our intention to reinvest these earnings indefinitely. The residual U.S. tax liability,Additionally, no foreign withholding taxes, federal or state taxes have been provided if these unremitted earnings of the Company’s foreign subsidiaries were distributed, as such amounts were remitted,are considered permanently reinvested.
It is not practicable to estimate the additional income taxes, including applicable foreign withholding taxes, that would be nominal.
We entered into a tax sharing agreement with Harris effective on January 26, 2007,due upon the daterepatriation of the acquisition of Stratex. The tax sharing agreement addresses, among other things, the settlement process associated with pre-merger tax liabilities and tax attributes that are attributable to the Microwave Communication Division when it was a division of Harris. There were no settlement payments recorded in fiscal year 2017, 2016 or 2015.these earnings.
As of June 30, 2017 and July 1, 2016,2023, we had unrecognized tax benefits of $18.7$16.1 million and $27.0 million, respectively, for various federal, foreign, and state income tax matters. Unrecognized tax benefits decreased by $8.3
million.$1.6 million during fiscal 2023. Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $2.5was $8.1 million and $1.4 million, respectively, as of June 30, 2017 and July 1, 2016.2023. These unrecognized tax benefits are presented on the accompanying consolidated balance sheets net of the tax effects of net operating loss carryforwards.
We account for interest and penalties related to unrecognized tax benefits as part of our provision for income taxes. The interest accrued was $0.2$0.7 million as of June 30, 2017 and2023. As of June 30, 2023, an immaterial asamount of July 1, 2016. No penalties have been accrued.
Our unrecognized tax benefit activity for fiscal 2017, 20162023, 2022 and 20152021 was as follows:
| | | | | |
| (In thousands) | Amount |
| Unrecognized tax benefit as of July 3, 2020 | $ | 18,047 | |
| Additions for tax positions in prior periods | 184 | |
| Additions for tax positions in current periods | 869 | |
| Decreases for tax positions in prior periods | (1,788) | |
| Decreases related to change of foreign exchange rate | (57) | |
| Unrecognized tax benefit as of July 2, 2021 | 17,255 | |
| Additions for tax positions in prior periods | 54 | |
| Additions for tax positions in current periods | 704 | |
| Decreases for tax positions in prior periods | (104) | |
| Decreases related to change of foreign exchange rate | (202) | |
| Unrecognized tax benefit as of July 1, 2022 | 17,707 | |
| Additions for tax positions in prior periods | 19 | |
| Additions for tax positions in current periods | 770 | |
| Decreases for tax positions in prior periods | (457) | |
| Decreases related to change of foreign exchange rate | (1,953) | |
| Unrecognized tax benefit as of June 30, 2023 | $ | 16,086 | |
|
| | | |
| (In thousands) | Amount |
| Unrecognized tax benefit as of June 27, 2014 | $ | 28,209 |
|
| Additions for tax positions in prior periods | 673 |
|
| Decreases for tax positions in prior periods | (227 | ) |
| Decreases related to change of foreign exchange rate | (1,745 | ) |
| Unrecognized tax benefit as of July 3, 2015 | 26,910 |
|
| Additions for tax positions in current periods | 397 |
|
| Additions for tax positions in prior periods | 246 |
|
| Decreases related to change of foreign exchange rate | (515 | ) |
| Unrecognized tax benefit as of July 1, 2016 | 27,038 |
|
| Additions for tax positions in prior periods | 626 |
|
| Additions for tax positions in current periods | 831 |
|
| Decreases for tax positions in prior periods | (9,279 | ) |
| Decreases related to change of foreign exchange rate | (477 | ) |
| Unrecognized tax benefit as of June 30, 2017 | $ | 18,739 |
|
During the fiscal year 2014, we receivedThere was an assessment letter from the Inland Revenue Authority of Singapore (“IRAS”) related to deductions claimedimmaterial change in prior years and made a payment of $13.2 million related to tax years 2007 through 2010, reflecting all of the taxes incrementally assessed by IRAS. While we disagreed with the IRAS assessment, the payment was a required step in order to continue our appeal. Since the initial assessment, we have continued to challenge this assessment. During the first quarter of fiscal year 2017, we received an initial refund of $3.7 million from IRAS and recognized a discrete benefit in the first quarter of fiscal year 2017. During the first quarter of fiscal 2018, we received an additional refund of $1.3 million from IRAS which represents a final settlement. We will recognize the refund as a discrete tax benefit in the first quarter of fiscal 2018. During the next twelve months, it is reasonably possible that our unrecognized tax benefits will be impactedbenefit for tax positions in prior periods for fiscal 2023 related to settlements with tax authorities in the table above. Our unrecognized tax benefit decreased for tax positions in prior periods by up$0.0 million and $0.9 million for fiscal 2022 and 2021, respectively, related to $3.0 million.settlements with tax authorities in the table above.
We have a number of years with open tax audits which vary from jurisdiction to jurisdiction. Our major tax jurisdictions include the U.S., Singapore, Nigeria and the Ivory Coast. The earliest years stillthat are open and subject to potential audits include the U.S., Singapore, Ghana, Kenya, Nigeria, Saudi Arabia and Tanzania. The earliest years for these jurisdictions are as follows: U.S. —2003;- 2003; Singapore —- 2015; Ghana – 2016; Kenya – 2018; Nigeria – 2006; Nigeria — 2011,Saudi Arabia – 2019 and Ivory Coast — 2016.Tanzania - 2017.
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. We continue to examine the elements of the ARPA and the impact it may have on our future business.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) which includes a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion, effective for taxable years beginning after December 31, 2022, and a 1% excise tax on stock repurchases
by public corporations after December 31, 2022. We will continue to evaluate the applicability and effect of the IRA as more guidance is issued.
Note 12. Acquisitions
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. 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 million in Company common stock. Aggregate consideration will be approximately $70 million. The Company has obtained permanent financing to fund the cash portion of the NEC Transaction. See Note 7. 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.
Redline Communications Group Inc.
On July 5, 2022, 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. Acquiring 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.
Cash acquired as part of the all-cash acquisition was $4.6 million for total net consideration of $15.8 million. The acquisition was accounted for as a business combination using the acquisition method of accounting. The assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. The recognized goodwill is attributable to the workforce of the acquired business and expected synergies. The goodwill from this acquisition is expected to be 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.
The preliminary purchase price allocation has been updated for certain measurement period adjustments based on the final valuation resulting in a $2.5 million increase in identifiable finite-lived intangible assets and a $2.6 million decrease in net tangible assets acquired. These adjustments resulted in corresponding increase to goodwill.
The results of operations of Redline have been included in our consolidated financial statements since the date of acquisition. The Company determined that the impact of this acquisition was not material to our consolidated financial statements; therefore, revenue and earnings since the acquisition date and pro forma information are not required or presented.
A summary of the final purchase price allocation is as follows:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | |
| Cash and cash equivalents | | $ | 4,642 | |
| Accounts receivable, net | | 4,281 | |
| Inventories | | 3,379 | |
| Property, plant and equipment, net | | 688 | |
| Identifiable finite-lived intangible assets: | | |
| Patents | | 690 | |
| Customer relationships | | 7,730 | |
| Trade names | | 1,330 | |
| Other assets | | 1,921 | |
| Accounts payable | | (2,113) | |
| Advance payments and unearned revenue | | (3,301) | |
| Other liabilities | | (3,948) | |
| Goodwill | | 5,112 | |
| Total consideration | | $ | 20,411 | |
The following table presents details of the acquired identifiable finite-lived intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Useful life in Years | | Gross | | Accumulated amortization | | Net |
| Identifiable intangible assets: | | | | | | | | |
| Patents | | 10 | | $ | 690 | | | $ | (69) | | | $ | 621 | |
| Customer relationships | | 14 | | 7,730 | | | (552) | | | 7,178 | |
| Trade names | | 16 | | 1,330 | | | (83) | | | 1,247 | |
| Total identifiable intangible assets | | | | $ | 9,750 | | | $ | (704) | | | $ | 9,046 | |
| | | | | | | | |
Amortization of finite-lived intangibles is included in selling and administrative expenses. As of June 30, 2023, the estimated future amortization expense of intangible assets with finite lives is as follows:
| | | | | | | | |
| | Amount |
| | (In thousands) |
| 2024 | | $ | 704 | |
| 2025 | | 704 | |
| 2026 | | 704 | |
| 2027 | | 704 | |
| 2028 | | 704 | |
| Thereafter | | 5,526 | |
| Total | | $ | 9,046 | |
Note 12.13. Commitments and Contingencies
Operating Lease Commitments
We lease office and manufacturing facilities under non-cancelable operating leases expiring at various dates through 2024. We lease approximately 19,000 square feet of office space in Milpitas, California as our corporate headquarters with a term of 60 months. As of June 30, 2017, future minimum lease payments for our Milpitas headquarters total $1.4 million.
As of June 30, 2017, our future minimum lease payments under all non-cancelable operating leases with an initial lease term in excess of one year were as follows:
|
| | | |
| Fiscal Years | Amount |
| | (In thousands) |
| 2018 | $ | 1,997 |
|
| 2019 | 1,431 |
|
| 2020 | 988 |
|
| 2021 | 908 |
|
| 2022 | 208 |
|
| Thereafter | 2,023 |
|
| Total | $ | 7,555 |
|
These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives or unusual provisions or conditions. We sublease a portion of our facilities to third parties and the total minimum rents to be received in the future under our non-cancelable subleases were $0.1 million as of June 30, 2017. The future minimum lease payments are not reduced by the minimum sublease rents.
Rental expense for operating leases, including rentals on a month-to-month basis was $4.0 million, $5.1 million and $6.5 million in fiscal 2017, 2016 and 2015, respectively.
Purchase Orders and Other Commitments
From time to time in the normal course of business, we may enter into purchasing agreements with our suppliers that require us to accept delivery of, and remit full payment for, finished products that we have ordered, finished
products that we requested be held as safety stock, and work in process started on our behalf in the event we cancel or terminate the purchasing agreement. 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 we have no present intention to cancel or terminate any of these agreements, we currently do not believe that we have any future liability under these agreements.
As of June 30, 2017,2023, we had outstanding purchase obligations with our suppliers or contract manufacturers of $17.8 million. In addition, we had contractual obligations of approximately $1.4 million associated with software licensesand other commitments as of June 30, 2017.follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period | | |
| | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Total |
| Purchase obligations with suppliers of contract manufacturers | | $ | 34,004 | | | $ | 3,089 | | | $ | — | | | $ | — | | | $ | — | | | $ | 37,093 | |
| Contractual obligations associated with software as a service and software maintenance support | | 971 | | | 1,708 | | | 896 | | | 164 | | | — | | | 3,739 | |
| Total obligations | | $ | 34,975 | | | $ | 4,797 | | | $ | 896 | | | $ | 164 | | | $ | — | | | $ | 40,832 | |
Financial Guarantees and Commercial Commitments
Guarantees issued by banks, insurance companies or other financial institutions are contingent commitments issued to guarantee our performance under borrowing arrangements, such as bank overdraft facilities, tax and customs obligations and similar transactions or to ensure our performance under customer or vendor contracts. 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 June 30, 2017,2023, we had no guarantees applicable to our debt arrangements.
We have 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 June 30, 2017,2023, we had commercial commitments of $34.7$61.0 million outstanding that were not recorded inon our consolidated balance sheets. During the second fiscal quarter, we recorded a payout in cost of revenues of $0.4 million on the performance guarantees to a contractor in the Middle East region. We believe the customer improperly drew down on the performance bond and intend to pursue all remedies available to recover the payment. We do 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 the performance guarantees in the future.
Indemnifications
Under the terms of substantially all of our license agreements, we have agreed to defend and pay any final judgment against our customers arising from claims against such customers that our products infringe the intellectual property rights of a third party. As of June 30, 2017,2023, we have not received any notice that any customer is subject to an infringement claim arising from the use of our products; we have not received any request to defend any customers from infringement claims arising from the use of our products; and we have not paid any final judgment on behalf of any
customer related to an infringement claim arising from the use of our products. 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, we cannot estimate the maximum amount of potential future payments, if any, related to our indemnification provisions. As of June 30, 2017,2023, we had not recorded any liabilities related to these indemnifications.
Legal Proceedings
We are subject from time to time to disputes with customers concerning our products and services. In May 2016, we received notification of a claim for $1.0 million in damages from a customer in Austria alleging that certain of our products were defective. We are continuing to investigate this claim, and at this time an estimate of the reasonably possible loss or range of loss cannot be made. We believe that we have numerous contractual and legal defenses to these disputes, and we intend to dispute them vigorously.
In August 2016, we received correspondence from a customer in Africa demanding that certain inventory be repurchased under the terms of an inventory management agreement that we believed had previously expired. We settled this matter for $0.2 million in April 2017.
From time to time, we may be involved in various other legal claims and litigation that arise in the normal course of our operations. We are aggressively defending all current litigation matters. Although there can be no assurances and the outcome of these matters is currently not determinable, we currently believe that none of these claims or proceedings are likely to have a material adverse effect on our financial position. We expect to defend each of these disputes vigorously. There are many uncertainties associated with any litigation and these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, if any.
We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. Except for the matter above which was ultimately settled for $0.2 million, weWe have not recorded any significant accrual for loss contingencies associated with such legal claims or litigation discussed above.
Contingent Liabilities
We record a loss contingency as a charge to operations when (i) it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements; and (ii) the amount of the loss can be reasonably estimated. Disclosure in the notes to the financial statements is required for loss contingencies that do not meet both those conditions if there is a reasonable possibility that a loss may have been incurred. Gain contingencies are not recorded until realized. We expense all legal costs incurred to resolve regulatory, legal and tax matters as incurred.
In March 2016, an enforcement action by the Indian Department of Revenue, Ministry of Finance was brought against our subsidiary Aviat Networks (India) Private Limited (“Aviat India”) relating to the non-realization of intercompany receivables and non-payment of intercompany payables, which originated from 1999 to 2012, within the time frames dictated by the Indian regulations under the Foreign Exchange Management Act. In November 2017, the Indian Department of Revenue, Ministry of Finance also initiated a similar action against Telsima Communications Private Limited (“Telsima India”), a subsidiary of the Company, relating to the non-realization of intercompany receivables and non-payment of intercompany payables which originated from the period prior to our acquisition of Telsima India in February 2009. In September 2019, our 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 June 30, 2023. We have accrued an immaterial amount representing the estimated probable loss for which we would settle the matter. We currently cannot form an estimate of the range of loss in excess of our amounts already accrued. If the outcome of this matter is greater than the current immaterial amount accrued, we intend to dispute it vigorously.
Periodically, we review the status of each significant matter to assess the potential financial exposure. If a potential loss is considered probable and the amount can be reasonably estimated, we reflect the estimated loss in our results of operations. Significant judgment is required to determine the probability that a liability has been incurred or an asset impaired and whether such loss is reasonably estimable. Further, estimates of this nature are highly subjective, and the final outcome of these matters could vary significantly from the amounts that have been included in our consolidated financial statements. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise estimates accordingly. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.
Note 13. Quarterly Financial Data (Unaudited)
The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Our fiscal quarters end on the Friday nearest the end of the calendar quarter. Summarized quarterly data for fiscal 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | |
| (In thousands, except per share amounts) | Q1
Ended
9/30/2016 | | Q2
Ended
12/30/2016 | | Q3
Ended
3/31/2017 | | Q4
Ended
6/30/2017 |
| Fiscal 2017 | | | | | | | |
| Revenue | $ | 58,207 |
| | $ | 68,536 |
| | $ | 58,700 |
| | $ | 56,431 |
|
| Gross margin | 17,365 |
| | 21,116 |
| | 17,732 |
| | 19,259 |
|
| Operating (loss) income | (2,925 | ) | | 2,513 |
| | 73 |
| | (646 | ) |
| Net (loss) income | (601 | ) | | 1,722 |
| | (330 | ) | | (1,412 | ) |
| Net (loss) income attributable to Aviat Networks | (629 | ) | | 1,678 |
| | (399 | ) | | (1,473 | ) |
| Per share data: | | | | | | | |
| Basic net (loss) income per common share | $ | (0.12 | ) | | $ | 0.32 |
| | $ | (0.08 | ) | | $ | (0.28 | ) |
| Diluted net (loss) income per common share | (0.12 | ) | | 0.31 |
| | (0.08 | ) | | (0.28 | ) |
| | | | | | | | |
| (In thousands, except per share amounts) | Q1
Ended
10/2/2015 | | Q2
Ended
1/1/2016 | | Q3
Ended
4/1/2016 | | Q4
Ended
7/1/2016 |
| Fiscal 2016 | | | | | | | |
| Revenue | $ | 79,555 |
| | $ | 70,416 |
| | $ | 60,467 |
| | $ | 58,252 |
|
| Gross margin | 21,011 |
| | 16,424 |
| | 14,413 |
| | 9,869 |
|
| Operating loss | (1,598 | ) | | (4,998 | ) | | (7,594 | ) | | (13,256 | ) |
| Net loss | (1,154 | ) | | (5,534 | ) | | (7,808 | ) | | (15,141 | ) |
| Net loss attributable to Aviat Networks | (1,203 | ) | | (5,679 | ) | | (7,874 | ) | | (15,151 | ) |
| Per share data: | | | | | | | |
Basic and diluted net loss per common share (1) | $ | (0.23 | ) | | $ | (1.09 | ) | | $ | (1.50 | ) | | $ | (2.88 | ) |
_______________________
| |
(1) | All per share data in this note have been retroactively adjusted for the Reverse Stock Split discussed in Note 1. |
The following tables summarize notable items included in our results of operations for each of the fiscal quarters presented:
|
| | | | | | | | | | | | | | | |
| (In thousands) | Q1
Ended
9/30/2016 | | Q2
Ended
12/30/2016 | | Q3
Ended
3/31/2017 | | Q4
Ended
6/30/2017 |
| Fiscal 2017 | | | | | | | |
| Restructuring charges | $ | 160 |
| | $ | 72 |
| | $ | 111 |
| | $ | 246 |
|
| Nigeria foreign exchange loss (gain) on dividend receivable | 210 |
| | (2 | ) | | 10 |
| | (5 | ) |
| WTM inventory recovery | — |
| | (83 | ) | | (48 | ) | | (45 | ) |
| Performance bond expense | — |
| | 365 |
| | — |
| | — |
|
| Gain on liquidation of subsidiary | — |
| | — |
| | (349 | ) | | — |
|
| Tax refund from Inland Revenue Authority of Singapore | (3,741 | ) | | — |
| | — |
| | — |
|
| | | | | | | | |
| (In thousands) | Q1
Ended
10/2/2015 | | Q2
Ended
1/1/2016 | | Q3
Ended
4/1/2016 | | Q4
Ended
7/1/2016 |
| Fiscal 2016 | | | | | | | |
| Restructuring charges | $ | 21 |
| | $ | 34 |
| | $ | 804 |
| | $ | 1,596 |
|
| Nigeria foreign exchange loss on dividend receivable | — |
| | — |
| | — |
| | 1,245 |
|
| WTM inventory write-down | — |
| | — |
| | — |
| | 5,057 |
|
Note 14. Subsequent Events
In August 2017, we received an insurance recovery of $0.3 million which will be recorded as a reduction of operating expenses in the first quarter of 2018.
During the first quarter of fiscal 2018, we received a refund of $1.3 million from IRAS which represents a final settlement. We will recognize the tax refund as a discrete tax benefit in the first quarter of fiscal 2018. For more information about the tax refund, see “Note 11. Income Taxes”.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation, with participation of our Chief Executive Officer (CEO)(“CEO”) and Chief Financial Officer (CFO)(“CFO”), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange CommissionCommission’s rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
There were no changes to our internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) that occurred during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP.
Management, including our CEO and CFO, assessed our internal control over financial reporting as of June 30, 2017, the end of our fiscal year.2023. Management based its assessment on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.
Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal yearJune 30, 2023 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.
This Annual Report on Form 10-K does not include an attestation reportThe effectiveness of the Company’s internal control over financial reporting as of June 30, 2023 has been audited by our independent registered public accounting firm, regardingas stated in their attestation report included herein.
Changes in Internal Controls Over Financial Reporting
There were no changes to our internal controlscontrol over financial reporting because Aviat is a non-accelerated filer and is not subjectas defined in Rules 13a-15(f) or 15d-15(f) that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to auditor attestation requirements under the applicable rules of the Securities Exchange Commission.materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including theour CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Aviat Networks, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Aviat Networks, Inc. and subsidiaries (the “Company”) as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2023, of the Company and our report dated August 30, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Austin, Texas
August 30, 2023
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a definitive Proxy Statement with the SEC within 120 days after the end of our fiscal year ended June 30, 2017.2023.
Item 10. Directors, Executive Officers and Corporate Governance
We adopted a Code of Conduct that is available at www.aviatnetworks.com. No amendments to our Code of Business Ethics or waivers fromWe most recently amended and restated our Code of Conduct with respect to any ofin November 2022 and posted it on our executive officers or directors have been made.website. If, in the future, we amend our Code of Conduct or grant waivers from our Code of Conduct with respect to any of our executive officers or directors, we will make information regarding such amendments or waivers available on our corporate website (www.aviatnetworks.com) for a period of at least 12 months.
For information with respect to Executive Officers, see Part I, Item 1 of this Annual Report on Form 10-K, under “Executive“Information about our Executive Officers, of the Registrant.” which is incorporated herein by reference.
Information regarding our directors and compliance with Section 16(a) of the Exchange Act by our directors and executive officersAll information required to be disclosed in this Item 10 that is not otherwise contained herein will appear in our definitive Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
Information regarding our executive and director compensation will appear in our definitive Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder matters will appear in our definitive Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence will appear in our definitive Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information regarding our principal accountant fees and services will appear in our definitive Proxy Statement and is incorporated herein by reference.
PART IV
Item 15.Exhibits and Financial Statement Schedules
| |
(a) | The following documents are filed as part of this report. |
(a)The following documents are filed as part of this report.
1. Financial Statements
The financial statements of Aviat Networks, Inc. are set forth in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
|
| | | | |
| Schedule | Page |
Schedule II — Valuation and Qualifying Accounts for the three fiscal years ended July 1, 2016June 30, 2023 | |
All other schedules have been omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedules or because the information required is included in the consolidated financial statements or notes thereto.
(b)Exhibits.
The information required by this Item is set forth on the Exhibit Index (following the Signatures section of this report) and is included, or incorporated by reference, in this Form 10-K.
Item 16. Form 10–K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | AVIAT NETWORKS, INC.
(Registrant) |
| | | | | |
| Date: | August 30, 2023 | | AVIAT NETWORKS, INC.
(Registrant)
By: | | /s/ David M. Gray |
| | | | | David M. Gray |
Date: | September 6, 2017 | | By: | | /s/ Ralph S. Marimon |
| | | | | Ralph S. Marimon |
| | | | | Senior Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
|
| /s/ Peter A. Smith | | President and Chief Executive Officer
(Principal Executive Officer) | | August 30, 2023 |
| Peter A. Smith | | |
|
| /s/ David M. Gray | | Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) | | August 30, 2023 |
| David M. Gray | | |
|
| /s/ John Mutch | | Chairman of the Board | | August 30, 2023 |
| John Mutch | | | | |
| | | | |
Signature/s/ Bryan Ingram | | TitleDirector | | DateAugust 30, 2023 |
| Bryan Ingram | | | | |
/s/ Michael A. Pangia | | President and Chief Executive Officer
(Principal Executive Officer)
| | September 6, 2017 |
Michael A. Pangia/s/ Michele Klein | | Director | | August 30, 2023 |
| Michele Klein | | | | |
/s/ Ralph S. Marimon | | Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
| | September 6, 2017 |
Ralph S. Marimon | | |
| | | | |
/s/ Eric Chang | | Vice President, Corporate Controller and
Principal Accounting Officer
(Principal Accounting Officer)
| | September 6, 2017 |
Eric Chang | | |
|
/s/ John Mutch | | Chairman of the Board | | September 6, 2017 |
John Mutch | | | | |
| | | | |
/s/ Wayne Barr, Jr. | | Director | | September 6, 2017 |
Wayne Barr, Jr. | | | | |
|
/s/ Kenneth Kong | | Director | | September 6, 2017 |
Kenneth Kong | | | | |
|
/s/ John Quicke | | Director | | September 6, 2017 |
John Quicke | | | | |
|
| /s/ James C. Stoffel | | Director | | September 6, 2017August 30, 2023 |
| James C. Stoffel | | | | |
|
| /s/ Bruce Taten | | Director | | August 30, 2023 |
| Bruce Taten | | | | |
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
AVIAT NETWORKS, INC.
Years Ended June 30, 2017, 2023, July 1, 20162022 and July 3, 20152, 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Balance at
Beginning of
Period | | Charged to
(Credit from)
Costs and
Expenses | | Write-offs | | Balance
at End
of Period |
| Allowances for collection losses: | | | | | | | |
| Year ended June 30, 2023 | $ | 934 | | | $ | 467 | | | $ | (682) | | | $ | 719 | |
| Year ended July 1, 2022 | $ | 2,141 | | | $ | (1,207) | | | $ | — | | | $ | 934 | |
| Year ended July 2, 2021 | $ | 1,841 | | | $ | 300 | | | $ | — | | | $ | 2,141 | |
|
| | | | | | | | | | | | | | | |
| (In thousands) | Balance at Beginning of Period | | Charged to (Credit from) Costs and Expenses | | Deductions | | Balance at End of Period |
| Allowances for collection losses: | | | | | | | |
| Year ended June 30, 2017 | $ | 7,967 |
| | $ | (484 | ) | | $ | 3,564 |
| (A) | $ | 3,919 |
|
| Year ended July 1, 2016 | $ | 6,641 |
| | $ | 2,431 |
| | $ | 1,105 |
| (B) | $ | 7,967 |
|
| Year ended July 3, 2015 | $ | 7,442 |
| | $ | 1,302 |
| | $ | 2,103 |
| (C) | $ | 6,641 |
|
____________________________
Note A - Consisted of changes to allowance for collection losses of $607 thousand for foreign currency translation gain and $4,172 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged off.
Note B - Consisted of changes to allowance for collection losses of $308 thousand for foreign currency translation losses and $797 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged off.
Note C - Consisted of changes to allowance for collection losses of $250 thousand for foreign currency translation losses and $1,853 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged off.
EXHIBIT INDEX
The following exhibits are filed or furnished herewith or are incorporated herein by reference to exhibits previously filed with the SEC:
| | | | | | | | |
| Ex. # | | Description |
| | |
Ex. # | | Description |
| | |
2.1 | | Asset PurchaseMaster Sale of Business Agreement, dated May 9, 2023, by and among Aviat U.S., Inc.the Company and EION Networks, Inc., dated as of September 2, 2011NEC (incorporated by reference to Exhibit 2.1 toof the Current Report on Form 8-K filed with the SEC on SeptemberMay 9, 2011,2023, File No. 001-33278) |
| | |
| | |
| | |
3.3 | | |
3.4 | | |
3.5 | | |
4.1 | | |
4.1.1 | | |
10.1 | | Letter Agreement,Amended and Restated Tax Benefit Preservation Plan, dated September 13, 2016, amongas of August 27, 2020, by and between Aviat Networks, Inc. and Computershare Inc., JDS 1, LLC, Julian Singer and David S. Orosas Rights Agent (incorporated by reference to Exhibit 10.14.1 to the Current Report on Form 8-K filed with the SEC on September 15, 2016August 31, 2020, File No. 011-33278) |
| | |
10.2 | | |
| | |
10.3 | | |
10.4* | | |
10.5 | | |
10.6 | | Second Amended and Restated Loan and Security Agreement, dated as of March 28, 2014, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 31, 2014, File No. 001-33278) |
10.6.1 | | |
10.6.2 | | |
|
| | |
Ex. # | | Description |
| | |
10.6.3 | | Amendment #3 to Second Amended and Restated Loan and Security Agreement, dated as of December 2, 2014, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 5, 2014, File No. 001-33278) |
10.6.4 | | Amendment #4 to Second Amended and Restated Loan and Security Agreement, dated February 27, 2015, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 3, 2015, File No. 001-33278) |
10.6.5 | | |
10.6.6 | | |
10.6.7 | | |
10.7* | | |
10.8* | | |
10.8.1* | | Amendment, effective April 1, 2006, to Employment Agreement, dated May 14, 2002, between Stratex Networks, Inc. and Shaun McFall (incorporated by reference to Exhibit 10.25.1 to the Annual Report on Form 10-K for the fiscal year ended July 3, 2009 filed with the SEC on September 4, 2009, File No. 001-33278) |
10.9* | | |
10.10* | | |
10.11 | | |
10.12* | | |
10.13 | | Lease Agreement, dated June 8, 2016, between Aviat Networks, Inc., through its wholly owned subsidiary Aviat U.S., Inc., and The Irvine Company LLC (incorporated by reference to Exhibit 10.34 to the Annual Report on Form 10-K for fiscal year end July 1, 2016 filed with the SEC on September 9, 2016, File No. 001-33278) |
10.14 | | Lease TerminationEmployment Agreement, dated June 1, 2016,January 2, 2020, between Aviat Networks, Inc., through its wholly owned subsidiary Aviat U.S., Inc., and Aslan Newcastle Great America Owner, L.L.C.Peter Smith (incorporated by reference to Exhibit 10.3510.1 to the Current Report on Form 8-K filed with the SEC on January 2, 2020, File No. 001-33278) |
| | |
| | | | | | | | |
| Ex. # | | Description |
| | |
| | |
| | |
| | |
| | |
| | |
21 | | |
| | |
23.1 | | |
| | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
| 101.INS | | XBRL Instance Document |
|
| 101.SCH | | |
Ex. # | | Description |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
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*+ | Management compensatory contract, arrangement or plan required to be filed as an exhibit pursuant to Item 15(b) of this report. |
| * | Filed herewith. |
| ** | Furnished herewith. |
| # | Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC on request. |
| ¥ | Certain portions of this exhibit were redacted pursuant to Item 601(b)(2)(ii) of Regulation S-K. |
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