UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 29, 2019April 3, 2020
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission File Number 001-33278
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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.) |
| | |
860 N. McCarthy Blvd.200 Parker Dr., Suite 200, Milpitas, CaliforniaC100A, Austin, Texas | | 9503578728 |
(Address of principal executive offices) | | (Zip Code) |
(408) 941-7100
(Registrant’s telephone number, including area code)
No changes
860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035
(Former name, former address and former fiscal year, if changed since last report)
__________________________
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 | AVNW | The Nasdaq Global Select Market |
Indicate by checkmark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| | | | |
Large accelerated filer | o | | Accelerated filer | o |
Non-accelerated filer | x | | Smaller reporting company | ox |
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 7(a)(2)(B) of the Securities Act. ¨
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
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 | AVNW | The Nasdaq Stock Market LLC |
The number of shares outstanding of the registrant’s Common Stock as of April 30, 20192020 was 5,377,630 shares.5,393,030.
AVIAT NETWORKS, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended March 29, 2019April 3, 2020
Table of Contents
PART I. FINANCIAL INFORMATION
| |
Item 1. | Financial Statements |
AVIAT NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| | | | | | | |
(In thousands, except share and par value amounts) | April 3, 2020 | | June 28, 2019 |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 39,208 |
| | $ | 31,946 |
|
Accounts receivable, net | 48,148 |
| | 51,937 |
|
Unbilled receivables | 23,420 |
| | 27,780 |
|
Inventories | 14,190 |
| | 8,573 |
|
Customer service inventories | 1,264 |
| | 936 |
|
Other current assets | 11,164 |
| | 4,825 |
|
Total current assets | 137,394 |
| | 125,997 |
|
Property, plant and equipment, net | 17,602 |
| | 17,255 |
|
Deferred income taxes | 13,780 |
| | 13,864 |
|
Right of use assets | 4,608 |
| | — |
|
Other assets | 6,377 |
| | 12,077 |
|
TOTAL ASSETS | $ | 179,761 |
| | $ | 169,193 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities: | | | |
Short-term debt | $ | 9,000 |
| | $ | 9,000 |
|
Accounts payable | 38,434 |
| | 35,605 |
|
Accrued expenses | 23,170 |
| | 22,555 |
|
Short-term lease liabilities | 2,396 |
| | — |
|
Advance payments and unearned revenue | 21,485 |
| | 13,962 |
|
Restructuring liabilities | 1,538 |
| | 1,089 |
|
Total current liabilities | 96,023 |
| | 82,211 |
|
Unearned revenue | 8,210 |
| | 9,662 |
|
Long-term lease liabilities | 2,493 |
| | — |
|
Other long-term liabilities | 620 |
| | 820 |
|
Reserve for uncertain tax positions | 4,654 |
| | 3,606 |
|
Deferred income taxes | 818 |
| | 1,378 |
|
Total liabilities | 112,818 |
| | 97,677 |
|
Commitments and contingencies (Note 12) |
| |
|
Equity: | | | |
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued | — |
| | — |
|
Common stock, $0.01 par value, 300,000,000 shares authorized, 5,393,030 shares issued and outstanding at April 3, 2020; 5,359,695 shares issued and outstanding at June 28, 2019 | 54 |
| | 54 |
|
Additional paid-in-capital | 813,986 |
| | 815,196 |
|
Accumulated deficit | (731,884 | ) | | (730,998 | ) |
Accumulated other comprehensive loss | (15,213 | ) | | (12,736 | ) |
Total equity | 66,943 |
| | 71,516 |
|
TOTAL LIABILITIES AND EQUITY | $ | 179,761 |
| | $ | 169,193 |
|
|
| | | | | | | |
(In thousands, except share and par value amounts) | March 29, 2019 | | June 29, 2018 |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 36,053 |
| | $ | 37,425 |
|
Restricted cash | — |
| | 3 |
|
Accounts receivable, net | 45,622 |
| | 43,068 |
|
Unbilled receivables | 28,474 |
| | 14,167 |
|
Inventories | 10,309 |
| | 21,290 |
|
Customer service inventories | 949 |
| | 1,507 |
|
Other current assets | 4,664 |
| | 6,006 |
|
Total current assets | 126,071 |
| | 123,466 |
|
Property, plant and equipment, net | 16,849 |
| | 17,179 |
|
Deferred income taxes | 12,185 |
| | 5,600 |
|
Other assets | 12,098 |
| | 9,816 |
|
TOTAL ASSETS | $ | 167,203 |
| | $ | 156,061 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities: | | | |
Short-term debt | $ | 9,000 |
| | $ | 9,000 |
|
Accounts payable | 34,165 |
| | 30,878 |
|
Accrued expenses | 22,234 |
| | 25,864 |
|
Advance payments and unearned revenue | 18,507 |
| | 19,300 |
|
Restructuring liabilities | 1,459 |
| | 1,426 |
|
Total current liabilities | 85,365 |
| | 86,468 |
|
Unearned revenue | 8,071 |
| | 6,593 |
|
Other long-term liabilities | 953 |
| | 1,250 |
|
Reserve for uncertain tax positions | 3,654 |
| | 2,941 |
|
Deferred income taxes | 1,553 |
| | 1,293 |
|
Total liabilities | 99,596 |
| | 98,545 |
|
Commitments and contingencies (Note 11) |
| |
|
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, 5,375,942 shares issued and outstanding at March 29, 2019; 5,351,155 shares issued and outstanding at June 29, 2018 | 54 |
| | 54 |
|
Additional paid-in-capital | 815,421 |
| | 816,426 |
|
Accumulated deficit | (734,837 | ) | | (746,359 | ) |
Accumulated other comprehensive loss | (13,031 | ) | | (12,605 | ) |
Total equity | 67,607 |
| | 57,516 |
|
TOTAL LIABILITIES AND EQUITY | $ | 167,203 |
| | $ | 156,061 |
|
See accompanying Notes to unauditedUnaudited Condensed Consolidated Financial Statements.
AVIAT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except per share amounts) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Revenues: | | | | | | | | | | | | | | |
Revenue from product sales | $ | 34,615 |
| | $ | 40,686 |
| | $ | 115,696 |
| | $ | 113,472 |
| $ | 40,930 |
| | $ | 34,615 |
| | $ | 111,676 |
| | $ | 115,696 |
|
Revenue from services | 19,422 |
| | 21,407 |
| | 63,933 |
| | 66,526 |
| 20,449 |
| | 19,422 |
| | 64,314 |
| | 63,933 |
|
Total revenues | 54,037 |
| | 62,093 |
| | 179,629 |
| | 179,998 |
| 61,379 |
| | 54,037 |
| | 175,990 |
| | 179,629 |
|
Cost of revenues: | | | | | | | | | | | | | | |
Cost of product sales | 23,712 |
| | 28,704 |
| | 76,670 |
| | 76,151 |
| 24,676 |
| | 23,712 |
| | 68,466 |
| | 76,670 |
|
Cost of services | 14,070 |
| | 15,257 |
| | 46,289 |
| | 46,529 |
| 14,742 |
| | 14,070 |
| | 44,688 |
| | 46,289 |
|
Total cost of revenues | 37,782 |
| | 43,961 |
| | 122,959 |
| | 122,680 |
| 39,418 |
| | 37,782 |
| | 113,154 |
| | 122,959 |
|
Gross margin | 16,255 |
| | 18,132 |
| | 56,670 |
| | 57,318 |
| 21,961 |
| | 16,255 |
| | 62,836 |
| | 56,670 |
|
Operating expenses: | | | | | | | | | | | | | | |
Research and development expenses | 5,350 |
| | 4,754 |
| | 15,603 |
| | 14,696 |
| 4,875 |
| | 5,350 |
| | 15,069 |
| | 15,603 |
|
Selling and administrative expenses | 13,408 |
| | 14,745 |
| | 41,405 |
| | 42,571 |
| 15,233 |
| | 13,408 |
| | 44,334 |
| | 41,405 |
|
Restructuring (recovery) charges | — |
| | (2 | ) | | 796 |
| | (252 | ) | |
Restructuring charges | | 617 |
| | — |
| | 2,175 |
| | 796 |
|
Total operating expenses | 18,758 |
| | 19,497 |
| | 57,804 |
| | 57,015 |
| 20,725 |
| | 18,758 |
| | 61,578 |
| | 57,804 |
|
Operating (loss) income | (2,503 | ) | | (1,365 | ) | | (1,134 | ) | | 303 |
| |
Operating income (loss) | | 1,236 |
| | (2,503 | ) | | 1,258 |
| | (1,134 | ) |
Interest income | 73 |
| | 49 |
| | 167 |
| | 149 |
| 112 |
| | 73 |
| | 318 |
| | 167 |
|
Interest expense | (7 | ) | | (5 | ) | | (88 | ) | | (24 | ) | (19 | ) | | (7 | ) | | (23 | ) | | (88 | ) |
Other expense, net | (1 | ) | | (54 | ) | | (1 | ) | | (220 | ) | |
(Loss) income before income taxes | (2,438 | ) | | (1,375 | ) | | (1,056 | ) | | 208 |
| |
(Benefit from) provision for income taxes | (6,777 | ) | | 1,015 |
| | (6,955 | ) | | (2,188 | ) | |
Other (expense) income, net | | — |
| | (1 | ) | | — |
| | (1 | ) |
Income (loss) before income taxes | | 1,329 |
| | (2,438 | ) | | 1,553 |
| | (1,056 | ) |
Provision for (benefit from) income taxes | | 598 |
| | (6,777 | ) | | 2,439 |
| | (6,955 | ) |
Net income (loss) | 4,339 |
| | (2,390 | ) | | 5,899 |
| | 2,396 |
| $ | 731 |
| | $ | 4,339 |
| | $ | (886 | ) | | $ | 5,899 |
|
Less: Net income attributable to noncontrolling interest, net of tax | — |
| | 233 |
| | — |
| | 605 |
| |
Net income (loss) attributable to Aviat Networks | $ | 4,339 |
| | $ | (2,623 | ) | | $ | 5,899 |
| | $ | 1,791 |
| |
| | | | | | | | | | | | | | |
Net income (loss) per share of common stock outstanding: | | | | | | | | | | | | | | |
Basic | $ | 0.81 |
| | $ | (0.49 | ) | | $ | 1.10 |
| | $ | 0.34 |
| $ | 0.14 |
| | $ | 0.81 |
| | $ | (0.16 | ) | | $ | 1.10 |
|
Diluted | $ | 0.78 |
| | $ | (0.49 | ) | | $ | 1.05 |
| | $ | 0.32 |
| $ | 0.13 |
| | $ | 0.78 |
| | $ | (0.16 | ) | | $ | 1.05 |
|
Weighted-average shares outstanding: | | | | | | | | | | | | | | |
Basic | 5,381 |
| | 5,344 |
| | 5,382 |
| | 5,331 |
| 5,395 |
| | 5,381 |
| | 5,390 |
| | 5,382 |
|
Diluted | 5,577 |
| | 5,344 |
| | 5,634 |
| | 5,632 |
| 5,457 |
| | 5,577 |
| | 5,390 |
| | 5,634 |
|
See accompanying Notes to unauditedUnaudited Condensed Consolidated Financial Statements.
AVIAT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 |
Net income (loss) | $ | 4,339 |
| | $ | (2,390 | ) | | $ | 5,899 |
| | $ | 2,396 |
|
Other comprehensive (loss) income: | | | | | | | |
Net change in cumulative translation adjustments | (88 | ) | | 188 |
| | (426 | ) | | 809 |
|
Other comprehensive (loss) income | (88 | ) | | 188 |
| | (426 | ) | | 809 |
|
Comprehensive income (loss) | 4,251 |
| | (2,202 | ) | | 5,473 |
| | 3,205 |
|
Less: Comprehensive income attributable to noncontrolling interest, net of tax | — |
| | 233 |
| | — |
| | 605 |
|
Comprehensive income (loss) attributable to Aviat Networks | $ | 4,251 |
| | $ | (2,435 | ) | | $ | 5,473 |
| | $ | 2,600 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Net income (loss) | $ | 731 |
| | $ | 4,339 |
| | $ | (886 | ) | | $ | 5,899 |
|
Other comprehensive loss: | | | | | | | |
Net change in cumulative translation adjustments | (2,374 | ) | | (88 | ) | | (2,477 | ) | | (426 | ) |
Other comprehensive loss | (2,374 | ) | | (88 | ) | | (2,477 | ) | | (426 | ) |
Comprehensive (loss) income | $ | (1,643 | ) | | $ | 4,251 |
| | $ | (3,363 | ) | | $ | 5,473 |
|
See accompanying Notes to unauditedUnaudited Condensed Consolidated Financial Statements.
AVIAT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | Nine Months Ended | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 |
Operating Activities | | | | | | |
Net income | $ | 5,899 |
| | $ | 2,396 |
| |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization of property, plant and equipment and capitalized software | 3,408 |
| | 3,981 |
| |
(Recovery from) provision for uncollectible receivables | (264 | ) | | 48 |
| |
Net (loss) income | | $ | (886 | ) | | $ | 5,899 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | |
Depreciation and amortization of property, plant and equipment | | 3,226 |
| | 3,408 |
|
(Provision) recovery from uncollectible receivables | | 18 |
| | (264 | ) |
Share-based compensation | 1,396 |
| | 1,689 |
| 1,315 |
| | 1,396 |
|
Deferred tax assets, net | (6,870 | ) | | (2,823 | ) | (475 | ) | | (6,870 | ) |
Charges for inventory and customer service inventory write-downs | 404 |
| | 376 |
| 751 |
| | 404 |
|
Loss on disposition of property, plant and equipment, net | 20 |
| | 28 |
| 14 |
| | 20 |
|
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | (236 | ) | | 8,068 |
| 2,977 |
| | (236 | ) |
Unbilled receivables | (5,674 | ) | | (2,299 | ) | 4,644 |
| | (5,674 | ) |
Inventories | (698 | ) | | 954 |
| (5,810 | ) | | (698 | ) |
Customer service inventories | (170 | ) | | (351 | ) | (930 | ) | | (170 | ) |
Accounts payable | 3,954 |
| | (1,399 | ) | 3,170 |
| | 3,954 |
|
Accrued expenses | (3,085 | ) | | (569 | ) | 140 |
| | (3,085 | ) |
Advance payments and unearned revenue | 7,197 |
| | (806 | ) | 6,157 |
| | 7,197 |
|
Income taxes payable or receivable | 366 |
| | (72 | ) | 1,372 |
| | 366 |
|
Other assets and liabilities | (307 | ) | | (1,942 | ) | (1,058 | ) | | (307 | ) |
Net cash provided by operating activities | 5,340 |
| | 7,279 |
| 14,625 |
| | 5,340 |
|
Investing Activities | | | | | | |
Payments for acquisition of property, plant and equipment | (4,083 | ) | | (5,048 | ) | (3,945 | ) | | (4,083 | ) |
Net cash used in investing activities | (4,083 | ) | | (5,048 | ) | (3,945 | ) | | (4,083 | ) |
Financing Activities | | | | | | |
Proceeds from borrowings | 27,000 |
| | 27,000 |
| 27,000 |
| | 27,000 |
|
Repayments of borrowings | (27,000 | ) | | (27,000 | ) | (27,000 | ) | | (27,000 | ) |
Payments for repurchase of Company stock | (1,870 | ) | | — |
| |
Payments for repurchase of common stock | | (1,772 | ) | | (1,870 | ) |
Payments for taxes related to net settlement of equity awards | (561 | ) | | — |
| (764 | ) | | (561 | ) |
Proceeds from issuance of common stock under employee stock plans | 30 |
| | 15 |
| 11 |
| | 30 |
|
Net cash (used in) provided by financing activities | (2,401 | ) | | 15 |
| |
Net cash used in financing activities | | (2,525 | ) | | (2,401 | ) |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (305 | ) | | 60 |
| (895 | ) | | (305 | ) |
Net (decrease) increase in cash, cash equivalents, and restricted cash | (1,449 | ) | | 2,306 |
| |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | 7,260 |
| | (1,449 | ) |
Cash, cash equivalents, and restricted cash, beginning of period | 37,764 |
| | 36,569 |
| 32,201 |
| | 37,764 |
|
Cash, cash equivalents, and restricted cash, end of period | $ | 36,315 |
| | $ | 38,875 |
| $ | 39,461 |
| | $ | 36,315 |
|
See accompanying Notes to unauditedUnaudited Condensed Consolidated Financial Statements.
AVIAT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
| | | Three Months Ended March 29, 2019 | Three Months Ended April 3, 2020 |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Aviat Networks Stockholders’ Equity | | Noncontrolling Interests | | Total Equity | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
(In thousands, except share amounts) | Shares | | $ Amount | | Shares | | $ Amount | |
Balance as of December 28, 2018 | 5,399,357 |
| | $ | 54 |
| | $ | 815,392 |
| | $ | (739,176 | ) | | $ | (12,943 | ) | | $ | 63,327 |
| | $ | — |
| | $ | 63,327 |
| |
Balance as of December 27, 2019 | | 5,414,480 |
| | $ | 54 |
| | $ | 813,867 |
| | $ | (732,615 | ) | | $ | (12,839 | ) | | $ | 68,467 |
|
Net income | — |
| | — |
| | — |
| | 4,339 |
| | — |
| | 4,339 |
| | — |
| | 4,339 |
| — |
| | — |
| | — |
| | 731 |
| | — |
| | 731 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (88 | ) | | (88 | ) | | — |
| | (88 | ) | — |
| | — |
| | — |
| | — |
| | (2,374 | ) | | (2,374 | ) |
Issuance of common stock under employee stock plans | 8,168 |
| | — |
| | 11 |
| | — |
| | — |
| | 11 |
| | — |
| | 11 |
| 6,715 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Shares withheld for taxes related to vesting of equity awards | (622 | ) | | — |
| | (7 | ) | | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) | (1,681 | ) | | — |
| | (18 | ) | | — |
| | — |
| | (18 | ) |
Stock repurchase | (30,961 | ) | | — |
| | (433 | ) | | — |
| | — |
| | (433 | ) | | — |
| | (433 | ) | (26,484 | ) | | — |
| | (371 | ) | | — |
| | — |
| | (371 | ) |
Share-based compensation | — |
| | — |
| | 458 |
| | — |
| | — |
| | 458 |
| | — |
| | 458 |
| — |
| | — |
| | 507 |
| | — |
| | — |
| | 507 |
|
Balance as of March 29, 2019 | 5,375,942 |
| | $ | 54 |
| | $ | 815,421 |
| | $ | (734,837 | ) | | $ | (13,031 | ) | | $ | 67,607 |
| | $ | — |
| | $ | 67,607 |
| |
Balance as of April 3, 2020 | | 5,393,030 |
| | $ | 54 |
| | $ | 813,986 |
| | $ | (731,884 | ) | | $ | (15,213 | ) | | $ | 66,943 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 30, 2018 |
| 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 December 29, 2017 | 5,340,851 |
| | $ | 53 |
| | $ | 814,898 |
| | $ | (743,790 | ) | | $ | (11,164 | ) | | $ | 59,997 |
| | $ | 915 |
| | $ | 60,912 |
|
Net loss | — |
| | — |
| | — |
| | (2,623 | ) | | — |
| | (2,623 | ) | | 233 |
| | (2,390 | ) |
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 188 |
| | 188 |
| | — |
| | 188 |
|
Issuance of common stock under employee stock plans | 8,458 |
| | — |
| | 4 |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
Share-based compensation | — |
| | — |
| | 535 |
| | — |
| | — |
| | 535 |
| | — |
| | 535 |
|
Balance as of March 30, 2018 | 5,349,309 |
| | $ | 53 |
| | $ | 815,437 |
| | $ | (746,413 | ) | | $ | (10,976 | ) | | $ | 58,101 |
| | $ | 1,148 |
| | $ | 59,249 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 29, 2019 |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
(In thousands, except share amounts) | Shares | | $ Amount | | | | |
Balance as of December 28, 2018 | 5,399,357 |
| | $ | 54 |
| | $ | 815,392 |
| | $ | (739,176 | ) | | $ | (12,943 | ) | | $ | 63,327 |
|
Net income | — |
| | — |
| | — |
| | 4,339 |
| | — |
| | 4,339 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (88 | ) | | (88 | ) |
Issuance of common stock under employee stock plans | 8,168 |
| | — |
| | 11 |
| | — |
| | — |
| | 11 |
|
Shares withheld for taxes related to vesting of equity awards | (622 | ) | | — |
| | (7 | ) | | — |
| | — |
| | (7 | ) |
Stock repurchase | (30,961 | ) | | — |
| | (433 | ) | | — |
| | — |
| | (433 | ) |
Share-based compensation | — |
| | — |
| | 458 |
| | — |
| | — |
| | 458 |
|
Balance as of March 29, 2019 | 5,375,942 |
| | $ | 54 |
| | $ | 815,421 |
| | $ | (734,837 | ) | | $ | (13,031 | ) | | $ | 67,607 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended April 3, 2020 |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity |
(In thousands, except share amounts) | Shares | | $ Amount | | | | |
Balance as of June 28, 2019 | 5,359,695 |
| | 54 |
| | 815,196 |
| | (730,998 | ) | | (12,736 | ) | | 71,516 |
|
Net loss | — |
| | — |
| | — |
| | (886 | ) | | — |
| | (886 | ) |
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (2,477 | ) | | (2,477 | ) |
Issuance of common stock under employee stock plans | 215,423 |
| | 2 |
| | 9 |
| | — |
| | — |
| | 11 |
|
Shares withheld for taxes related to vesting of equity awards | (54,065 | ) | | (1 | ) | | (763 | ) | | — |
| | — |
| | (764 | ) |
Stock repurchase | (128,023 | ) | | (1 | ) | | (1,771 | ) | | — |
| | — |
| | (1,772 | ) |
Share-based compensation | — |
| | — |
| | 1,315 |
| | — |
| | — |
| | 1,315 |
|
Balance as of April 3, 2020 | 5,393,030 |
| | $ | 54 |
| | $ | 813,986 |
| | $ | (731,884 | ) | | $ | (15,213 | ) | | $ | 66,943 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended March 29, 2019 |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity |
(In thousands, except share amounts) | Shares | | $ Amount | | | | |
Balance as of June 29, 2018 | 5,351,155 |
| | 54 |
| | 816,426 |
| | (746,359 | ) | | (12,605 | ) | | 57,516 |
|
Cumulative-effect adjustment for ASC Topic 606 | — |
| | — |
| | — |
| | 5,623 |
| | — |
| | 5,623 |
|
Net income | — |
| | — |
| | — |
| | 5,899 |
| | — |
| | 5,899 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (426 | ) | | (426 | ) |
Issuance of common stock under employee stock plans | 182,421 |
| | 1 |
| | 29 |
| | — |
| | — |
| | 30 |
|
Shares withheld for taxes related to vesting of equity awards | (35,088 | ) | | — |
| | (561 | ) | | — |
| | — |
| | (561 | ) |
Stock repurchase | (122,546 | ) | | (1 | ) | | (1,869 | ) | | — |
| | — |
| | (1,870 | ) |
Share-based compensation | — |
| | — |
| | 1,396 |
| | — |
| | — |
| | 1,396 |
|
Balance as of March 29, 2019 | 5,375,942 |
| | $ | 54 |
| | $ | 815,421 |
| | $ | (734,837 | ) | | $ | (13,031 | ) | | $ | 67,607 |
|
See accompanying Notes to unauditedUnaudited Condensed Consolidated Financial Statements.
AVIAT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended March 29, 2019 |
| 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 29, 2018 | 5,351,155 |
| | $ | 54 |
| | $ | 816,426 |
| | $ | (746,359 | ) | | $ | (12,605 | ) | | $ | 57,516 |
| | $ | — |
| | $ | 57,516 |
|
Cumulative-effect adjustment for ASC Topic 606 | — |
| | — |
| | — |
| | 5,623 |
| | — |
| | 5,623 |
| | — |
| | 5,623 |
|
Net income | — |
| | — |
| | — |
| | 5,899 |
| | — |
| | 5,899 |
| | — |
| | 5,899 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (426 | ) | | (426 | ) | | — |
| | (426 | ) |
Issuance of common stock under employee stock plans | 182,421 |
| | 1 |
| | 29 |
| | — |
| | — |
| | 30 |
| | — |
| | 30 |
|
Shares withheld for taxes related to vesting of equity awards | (35,088 | ) | | — |
| | (561 | ) | | — |
| | — |
| | (561 | ) | | — |
| | (561 | ) |
Stock repurchase | (122,546 | ) | | (1 | ) | | (1,869 | ) | | — |
| | — |
| | (1,870 | ) | | — |
| | (1,870 | ) |
Share-based compensation | — |
| | — |
| | 1,396 |
| | — |
| | — |
| | 1,396 |
| | — |
| | 1,396 |
|
Balance as of March 29, 2019 | 5,375,942 |
| | $ | 54 |
| | $ | 815,421 |
| | $ | (734,837 | ) | | $ | (13,031 | ) | | $ | 67,607 |
| | $ | — |
| | $ | 67,607 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended March 30, 2018 |
| 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 30, 2017 | 5,317,766 |
| | $ | 53 |
| | $ | 813,733 |
| | $ | (748,204 | ) | | $ | (11,785 | ) | | $ | 53,797 |
| | $ | 543 |
| | $ | 54,340 |
|
Net income | — |
| | — |
| | — |
| | 1,791 |
| | — |
| | 1,791 |
| | 605 |
| | 2,396 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 809 |
| | 809 |
| | — |
| | 809 |
|
Issuance of common stock under employee stock plans | 31,543 |
| | — |
| | 15 |
| | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
Share-based compensation | — |
| | — |
| | 1,689 |
| | — |
| | — |
| | 1,689 |
| | — |
| | 1,689 |
|
Balance as of March 30, 2018 | 5,349,309 |
| | $ | 53 |
| | $ | 815,437 |
| | $ | (746,413 | ) | | $ | (10,976 | ) | | $ | 58,101 |
| | $ | 1,148 |
| | $ | 59,249 |
|
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
AVIAT NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. The Company and Basis of Presentation
The Company
Aviat Networks, Inc. (the “Company,” “we,” “us,” and “our”) designs, manufactures, and sells a range of wireless networking solutions and services to mobile and fixed telephone service providers, private network operators, government agencies, transportation and utility companies, public safety agencies, and broadcast system operators across the globe. Due to the volume of our international sales, especially in developing countries, we may be susceptible to a number of political, economic, and geographic risks that could harm our business as outlined in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 29, 2018.28, 2019. 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.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and with the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information.information, and we have made estimates, assumptions and judgments affecting the amounts reported in our unaudited condensed consolidated financial statements and the accompanying notes, as discussed in greater detail below. Accordingly, the statements do not include all information and footnotes required by U.S. GAAP for annual consolidated financial statements. In the opinion of our management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for such periods. The results for the three and nine months ended March 29, 2019 April 3, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year or future operating periods. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statementsconsolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 29, 2018.28, 2019.
The unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated.
We operate on a 52-week or 53-week year ending on the Friday closest to June 30. The firstnine months ended April 3, 2020 consisted of 40 weeks while the nine months ended 2019 included 39 weeks. The three quartersmonths ended April 3, 2020 and March 29, 2019 consisted of fiscal 201914 weeks and fiscal 2018 included 13 weeks, in each quarter.respectively. Fiscal year 20192020 will be comprised of 5253 weeks and will end on June 28, 2019.July 3, 2020.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments affecting the amounts reported and related disclosures. Estimates are based upon historical factors, current circumstances and the experience and judgment of our management. We evaluate our estimates and assumptions on an ongoing basis and may employ outside experts to assist us in making these evaluations. Changes in such estimates, based on more accurate information, or different assumptions or conditions, may affect amounts reported in future periods. Such estimates affect significant items, including revenue recognition, provision for uncollectible receivables, inventory valuation, valuation allowances for deferred tax assets, uncertainties in income taxes, lease liabilities, restructuring obligations, product warranty obligations, share-based awards, contingencies, recoverability of long-lived assets and useful lives of property, plant and equipment. The actual results that we experience may differ materially from our estimates.
Summary of Significant Accounting Policies
There have been no material changes in our significant accounting policies as of and for the nine months ended March 29, 2019,April 3, 2020, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended June 29, 2018,28, 2019, with the exception of our revenue recognition policy. Effective June 30, 2018, we adoptedadoption of Accounting Standards Update (ASU)(“ASU”) No. 2014-09 (2016-02, Accounting Standards Codification 606 or Leases (Topic 842)
(ASU 2016-02) (“ASC 606), Revenue from Contracts with Customers, as amended.842”). See Note 3, “Revenue Recognition”4, “Leases” to the Notes to unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements for discussion of the impact of the adoption of this standard on our policies for revenue.
Comparability
We adopted ASC 606, effective June 30, 2018, using the modified retrospective method. Prior-period financial statements were not retrospectively restated. The Consolidated Balance Sheet as of June 29, 2018 and results of operations for the three and nine months ended March 30, 2018 were prepared using accounting standards that were different than those in effect for the three and nine months ended March 29, 2019. As a result, the balance sheets as of March 29, 2019 and June 29, 2018 are not directly comparable, nor are the results of operations for the three and nine months ended March 29, 2019 and March 30, 2018.leases.
Accounting Standards Adopted
In May 2014,February 2016, the Financial Accounting Standards Board (FASB)(“FASB”) issued ASC 606842, which supersedes nearly all current U.S. GAAP guidanceamends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on this topic and eliminates industry-specific guidance. Revenue recognition under ASC 606 depicts the transferbalance sheet (with the exception of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsshort-term leases). For lessees, leases will continue to be entitledclassified as either operating or financing in exchange for those goods or services. Additional disclosures are required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In addition, the FASB amended its guidance related to the capitalization and amortization of the incremental costs of obtaining a contract with a customer. 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.income statement. We adopted ASC 606842, effective June 29, 2019, using the modified retrospective transition method as of June 30, 2018 with the cumulative effect recognized as an adjustment to the opening balance of our accumulated deficit (netdeficit. Prior-period financial statements were not retrospectively restated. We elected the package of tax). Prior periods have not been retroactively adjusted and will continue to be reportedpractical expedients permitted under the accounting standards in effecttransition guidance, which allowed us to carryforward our historical lease classification, assessment of whether a contract was or contains a lease, and initial direct costs for those periods.leases that existed prior to June 28, 2019. We also elected not to recognize right-of-use (“ROU”) assets and lease liabilities for leases with an initial term of 12 months or less. We elected not to apply the hindsight practical expedient when determining lease term and assessing impairment of ROU assets. See Note 3, “Revenue Recognition”4, “Leases” to the Notes to our unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements for more information.
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 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 adopted this update during the first quarter of fiscal 2019. The adoption had no material impact on our unaudited Condensed Consolidated Financial Statements.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. We adopted this update during the first quarter of fiscal 2019. For our first presentation of changes in stockholders’ equity, see our unaudited Condensed Consolidated Statements of Equity included in this Form 10-Q for the quarter ended March 29, 2019.
Accounting Standards Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842) Targeted Improvements, each issued in July 2018, as well as ASU 2019-01, Leases (Topic 842) Codification Improvements issued in March 2019 (collectively, Topic 842), all of which provides guidance on the recognition, measurement, presentation, and disclosure of leases. Topic 842 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. This standard will become effective for fiscal years beginning after December 15, 2018 including interim periods within those years, with early adoption permitted. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous guidance. Although we are currently evaluating the impact the pronouncement will have on our unaudited Condensed Consolidated Financial Statements and related disclosures, we expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation: Improvement to Nonemployees Share-Based Payment Accounting (ASU 2018-07), which expands the scope of Topic 718 to include all share-based payment
transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. This ASU 2018-07 will beis effective for fiscal years beginning after December 15, 2018, including interim periods within those years, with early2018. We adopted this update during the first quarter of fiscal 2020. The adoption permitted. We do not expect the adoption of this guidance will have ahad no material impact on our unaudited Condensed Consolidated Financial Statements.condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This guidance provides optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for our borrowing instruments, which use LIBOR as a reference rate, and was effective March 12, 2020 through December 31, 2022. We are currently evaluating the potential impact of ASU 2020-04 will have on our unaudited condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). This guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws and rate changes. ASU 2019-12 will be effective for us in our first quarter of fiscal 2022. We are currently evaluating the potential impact that adopting ASU 2019-12 will have on our unaudited condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This standardASU 2018-15 will becomebe effective for interim and annual periods beginning after December 15, 2019,us in our first quarter of fiscal 2021, with early adoption permitted. The standard can be adopted either using the prospective or retrospective transition approach. We are evaluating the effect the adoption of the standardpotential impact adopting ASU 2018-15 will have on our unaudited Condensed Consolidatedcondensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The update eliminates, adds, and modifies certain disclosure requirements for fair value measurements. ASU 2018-13 will be effective for us in our first quarter of fiscal 2021 and early adoption is permitted of the entire standard or only the provisions that eliminate or modify disclosure requirements. We are evaluating the impact the adoption of ASU 2018-13 will have on our unaudited condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Statements.Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19,
ASU 2019-04, and ASU 2019-05 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 will be effective for us in our first quarter of fiscal 2024, and earlier adoption is permitted. We are evaluating the impact adopting Topic 326 will have on our unaudited condensed consolidated financial statements.
Note 2. Net Income (Loss) Per Share of Common Stock
Net income (loss) per share is computed using the two-class method, by dividing net income attributable to us by the weighted-average number of shares of our outstanding common stock and participating securities outstanding. Our restricted shares contain rights to receive non-forfeitable dividends and therefore are considered to be participating securities and included in the calculations of net income per basic and diluted common share. Undistributed losses are not allocated to unvested restricted shares as 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.
The following table presents the computation of basic and diluted net income (loss) per share attributable to our common stockholders:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except per share amounts) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Numerator: | | | | | | | | | | | | | | |
Net income (loss) attributable to Aviat Networks | $ | 4,339 |
| | $ | (2,623 | ) | | $ | 5,899 |
| | $ | 1,791 |
| |
Net income (loss) | | $ | 731 |
| | $ | 4,339 |
| | $ | (886 | ) | | $ | 5,899 |
|
| | | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | | | |
Weighted-average shares outstanding, basic | 5,381 |
| | 5,344 |
| | 5,382 |
| | 5,331 |
| 5,395 |
| | 5,381 |
| | 5,390 |
| | 5,382 |
|
Effect of potentially dilutive equivalent shares | 196 |
| | — |
| | 252 |
| | 301 |
| 62 |
| | 196 |
| | — |
| | 252 |
|
Weighted-average shares outstanding, diluted | 5,577 |
| | 5,344 |
|
| 5,634 |
|
| 5,632 |
| 5,457 |
| | 5,577 |
|
| 5,390 |
|
| 5,634 |
|
| | | | | | | | | | | | | | |
Net income (loss) per share of common stock outstanding: | | | | | | | | | | | | | | |
Basic | $ | 0.81 |
|
| $ | (0.49 | ) |
| $ | 1.10 |
|
| $ | 0.34 |
| $ | 0.14 |
|
| $ | 0.81 |
|
| $ | (0.16 | ) |
| $ | 1.10 |
|
Diluted | $ | 0.78 |
|
| $ | (0.49 | ) |
| $ | 1.05 |
|
| $ | 0.32 |
| $ | 0.13 |
|
| $ | 0.78 |
|
| $ | (0.16 | ) |
| $ | 1.05 |
|
The following table summarizes the weighted-average equity awards that were excluded from the diluted net income (loss) per share calculations since they were anti-dilutive:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Stock options | 394 |
| | 343 |
| | 375 |
| | 333 |
| 327 |
| | 394 |
| | 369 |
| | 375 |
|
Restricted stock units and performance stock units | 52 |
| | 437 |
| | 39 |
| | — |
| 98 |
| | 52 |
| | 143 |
| | 39 |
|
Total shares of common stock excluded | 446 |
| | 780 |
| | 414 |
| | 333 |
| 425 |
| | 446 |
| | 512 |
| | 414 |
|
Note 3. Revenue Recognition
Effective June 30, 2018, we adopted ASC 606, using the modified retrospective method applied to those contracts that were not completed as of June 29, 2018. Results for the reporting periods after June 29, 2018 are presented under ASC 606, while prior‑period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.
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.
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. 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. 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. The services noted are recognized based on an over-time recognition model using the cost inputcost-input method.
Revenues related to certain contracts for customized network solutions are recognized over time using the cost input method. In using this input 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 these 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.to us. We perform ongoing profitability analysis of our service contracts accounted for under this 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 remainder 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 on the unaudited Condensed Consolidated Balance Sheet.condensed consolidated balance sheet.
Contracts and customer purchase orders are used to determine the existence of an arrangement. 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. 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.
ASC 606 Adoption
We recorded a net reduction to the opening balance of our accumulated deficit of $5.6 million as of June 30, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to our bill-and-hold and services revenue. Our revenue was $54.0 million and $179.6 million for the three and nine months ended March 29, 2019, respectively, under ASC 606, compared to $54.1 million and $167.0 million, respectively, under ASC 605. The details of the significant changes and quantitative impact of our adoption of ASC 606 are set out below:Bill-and-Hold Sales
Bill-and-Hold Sales: Certain customer arrangements consist of bill-and-hold characteristics under which transfer of control has been met (including the passing of title and significant risk and reward of ownership to the customers). Therefore, the customers can direct 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. The change under ASC 606 requires consideration of the indicators of when control has been transferred and sets forth additional criteria to be met in a bill-and-hold arrangement potentially resulting in revenue being recognized earlier than under ASC 605. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit consisting of bill-and-hold backlog of $10.5 million that will not be recognized as revenue, less related cost of product sales and income taxes, resulting in a net decrease to accumulated deficit of $1.7 million.
Professional Services Revenue: We historically recognized certain professional services revenue upon completion under ASC 605 which changed to over time revenue recognition under ASC 606. We use the input method based on costs incurred, where revenue is calculated based on the percentage of total costs incurred in relation to total estimated costs at completion of the contract. The input method is reasonable because the costs incurred best reflect our efforts toward satisfying the performance obligation over time. The use of the input method requires us to make reasonably dependable estimates. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit of $4.7 million that will not be recognized as revenue, less related cost of services and income taxes resulting in a net decrease to accumulated deficit of $1.6 million.Termination Rights
Transfer of Control: Certain of our contracts include penalties, acceptance provisions, or other price variability that precluded revenue recognition under ASC 605 because of the requirement for amounts to be fixed or determinable. ASC 606 requires us to estimate and account for variable consideration as a reduction of the transaction price. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit of $0.6 million that will not be recognized as revenue, less related cost of revenues and income taxes, resulting in a net decrease to accumulated deficit of $0.4 million.
In addition, revenue allocation under ASC 606 requires an allocation of revenue between deliverables, or performance obligations, within an arrangement. Under ASC 605, the allocation of revenue was restricted to the amount which was not contingent on future deliverables; however, ASC 606 removes this restriction. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.5 million.
Under ASC 605, we deferred revenue for stand-alone software licenses where vendor-specific objective evidence (VSOE) of fair value had not been established for undelivered items, and revenue was recognized straight line over the term of the maintenance agreement. Under ASC 606, software revenue is allocated to delivered and undelivered elements based on relative fair value resulting in more software arrangement revenue being recognized earlier. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.7 million.
Previously, we expensed the majority of our commission expense as incurred. Under the new standard, we capitalize and amortize incremental commission costs to obtain the contract over a benefit period. We elected a practical expedient to exclude contracts with a benefit period of a year or less from this deferral requirement. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.7 million.
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 will be 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 will be applied on a retrospective
basis, with the adjustment recorded in the period in which the change occurs. Changes to variable consideration will be 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 unaudited Condensed Consolidated Statementscondensed consolidated statements of Operationsoperations 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. Sales commissions have historically been expensed as incurred. Under ASC 606, 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.
We elected ASC 606’sthe 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 sales and marketing expense and included on theour unaudited Condensed Consolidated Balance Sheetcondensed consolidated balance sheet as accrued expenses until paid. Our amortization expense was not material for the three and nine months ended March 29, 2019. April 3, 2020.
Contract Balances, Performance Obligations, and Backlog
The following table provides information about receivables and liabilities from contracts with customers (in thousands):
| | | March 29, 2019 | | At Adoption on June 30, 2018 | | April 3, 2020 | | June 28, 2019 |
Contract Assets | | | | | | | |
Accounts receivable, net | $ | 45,622 |
| | $ | 45,571 |
| | $ | 48,148 |
| | $ | 51,937 |
|
Unbilled receivables | $ | 28,474 |
| | $ | 22,794 |
| | 23,420 |
| | 27,780 |
|
Capitalized commissions | $ | 589 |
| | $ | 656 |
| | 1,031 |
| | 955 |
|
Contract Liabilities | | | | | | | |
Advance payments and unearned revenue | $ | 18,507 |
| | $ | 12,700 |
| | 21,485 |
| | 13,962 |
|
Unearned revenue, long-term | $ | 8,071 |
| | $ | 7,295 |
| | 8,210 |
| | 9,662 |
|
Significant changes in the 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).
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 wouldWhen such events occur, we 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 March 29, 2019,April 3, 2020, we had $26.6$29.7 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 25%30% is expected to be recognized as revenue in the next three monthsremainder of fiscal year 20192020 and the remainderbalance thereafter. During the three and nine months ended March 29, 2019, April 3, 2020 we recognized approximately $1.7$1.8 million and $7.1$7.4 million, respectively, in maintenance service revenue which was included in advance payments and unearned revenue at June 29, 2018.the beginning of the reporting period.
Our remaining performance obligations represent theRemaining Performance Obligations
The aggregate amount of transaction price allocated to our unsatisfied (or partially unsatisfied) performance obligations was approximately $71.8 million at April 3, 2020. Of this amount, we expect to recognize approximately 60% as revenue during the next 12 months, with the remaining amount to be recognized as revenue within two to five years.
Note 4. Leases
On June 29, 2019, the first day of our fiscal 2020, we adopted ASC 842 using the modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of accumulated deficit to be recognized on the date of adoption with prior periods not restated.
We lease facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to 20 years and contain 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 are unsatisfied or partially satisfied, consistingincluded in "Right of deferred revenueuse assets" on our April 3, 2020 unaudited condensed consolidated balance sheets and backlog.represent our right to use the underlying asset for the lease term. Our backlog represents orders received from customers for future product shipmentsobligation to make lease payments are included in "Short-term lease liabilities" and services. Our backlog is subject to future events that could cause"Long-term lease liabilities" on our April 3, 2020 unaudited condensed consolidated balance sheets. We did not enter into any finance leases during the amount or timingnine months ended April 3, 2020.
Operating lease ROU assets and lease liabilities are recognized based on the present value of the related revenue to change, and, in certain cases, may be canceled. Orders in backlog may be fulfilled several quarters following receipt or may relate to multi-year support service obligations.
Impacts on Financial Statements
The following tables summarizefuture minimum lease payments over the impactslease term at commencement date. As most of adopting ASC 606our 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 any lease payments made and exclude 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 minimum 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 of 12 months or less are not recorded on our balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.
Adoption of ASC 842
Upon our adoption of ASC 842, we recorded total ROU assets of $7.9 million, with corresponding liabilities of $8.3 million, on our unaudited Condensed Consolidated Statementscondensed consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact our prior year condensed consolidated statements of Operationsoperations and statements of cash flows. As of April 3, 2020, total ROU assets were approximately $4.6 million, and short-term lease liabilities and long-term lease liabilities were approximately $2.4 million and $2.5 million, respectively. Cash paid for lease liabilities was $1.4 million and $4.0 million for the three and nine months ended April 3, 2020, respectively. During the three and nine months ended April 3, 2020, we obtained $0.2 million and $0.3 million, respectively, of right-of-use assets in exchange for new operating lease obligations.
The following summarizes our lease costs, lease term and discount rate for three and nine months ended April 3, 2020 (in thousands, except for weighted average):
|
| | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | April 3, 2020 | | April 3, 2020 |
| | (In thousands) |
Operating lease costs | | $ | 444 |
| | $ | 1,290 |
|
Short-term lease costs | | 393 |
| | 1,164 |
|
Variable lease costs | | 95 |
| | 251 |
|
Total lease costs | | $ | 932 |
| | $ | 2,705 |
|
|
| | | |
Weighted average remaining lease term | | 5.6 years |
|
Weighted average discount rate | | 6.7 | % |
Rent expense for operating leases, including rentals on a month-to-month basis, for the three and nine months ended March 29, 2019 were $0.9 million and $2.8 million, respectively.
As of April 3, 2020, our Consolidated Balance Sheetfuture minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):
|
| | | | |
| | Amount |
| | (In thousands) |
Remainder of 2020 | | $ | 1,274 |
|
2021 | | 1,618 |
|
2022 | | 583 |
|
2023 | | 320 |
|
2024 | | 231 |
|
Thereafter | | 2,010 |
|
Total lease payments | | 6,036 |
|
Less: interest | | (1,147 | ) |
Present value of lease liabilities | | $ | 4,889 |
|
Prior to our adoption of the new lease accounting standard, as of June 29, 2018 (in thousands):28, 2019, our future minimum lease payments under all non-cancelable operating leases were as follows:
|
| | | | | | | | | | | |
| Three Months Ended March 29, 2019 |
| As Reported | | Adjustments | | Balances without Adoption of ASC 606 |
Income Statement | | | | | |
Revenues: | | | | | |
Revenue from product sales | $ | 34,615 |
| | $ | 304 |
| | $ | 34,919 |
|
Revenue from services | 19,422 |
| | (227 | ) | | 19,195 |
|
Total revenues | $ | 54,037 |
| | $ | 77 |
| | $ | 54,114 |
|
Cost of revenues: | | | | | |
Cost of product sales | $ | 23,712 |
| | $ | 334 |
| | $ | 24,046 |
|
Cost of services | 14,070 |
| | (354 | ) | | 13,716 |
|
Total cost of revenues | $ | 37,782 |
| | $ | (20 | ) | | $ | 37,762 |
|
| | | | | |
Selling and administrative expenses | $ | 13,408 |
| | $ | (39 | ) | | $ | 13,369 |
|
| | | | | |
Net income | $ | 4,339 |
| | $ | 366 |
| | $ | 4,705 |
|
|
| | | | |
Fiscal years | | Amount |
| | (In thousands) |
2020 | | $ | 2,052 |
|
2021 | | 1,268 |
|
2022 | | 456 |
|
2023 | | 243 |
|
2024 | | 249 |
|
Thereafter | | 2,090 |
|
Total | | $ | 6,358 |
|
|
| | | | | | | | | | | |
| Nine Months Ended March 29, 2019 |
| As Reported | | Adjustments | | Balances without Adoption of ASC 606 |
Income Statement | | | | | |
Revenues: | | | | | |
Revenue from product sales | $ | 115,696 |
| | $ | (10,215 | ) | | $ | 105,481 |
|
Revenue from services | 63,933 |
| | (2,370 | ) | | 61,563 |
|
Total revenues | $ | 179,629 |
| | $ | (12,585 | ) | | $ | 167,044 |
|
Cost of revenues: | | | | | |
Cost of product sales | $ | 76,670 |
| | $ | (5,394 | ) | | $ | 71,276 |
|
Cost of services | 46,289 |
| | (1,884 | ) | | 44,405 |
|
Total cost of revenues | $ | 122,959 |
| | $ | (7,278 | ) | | $ | 115,681 |
|
| | | | | |
Selling and administrative expenses | $ | 41,405 |
| | $ | (74 | ) | | $ | 41,331 |
|
| | | | | |
Net income | $ | 5,899 |
| | $ | (4,954 | ) | | $ | 945 |
|
See Note 9, “Segment and Geographic Information” to the Notes to unaudited Condensed Consolidated Financial Statements for discussion on the impact of additional information, including disaggregated revenue disclosures.
|
| | | | | | | | | | | |
| Balances as of June 29, 2018 | | Adjustments due to ASC 606 | | As Adjusted Balances as of June 30, 2018 |
Balance Sheet | | | | | |
Assets | | | | | |
Accounts receivable, net | $ | 43,068 |
| | $ | 2,503 |
| | $ | 45,571 |
|
Unbilled receivables | $ | 14,167 |
| | $ | 8,627 |
| | $ | 22,794 |
|
Inventories | $ | 21,290 |
| | $ | (11,516 | ) | | $ | 9,774 |
|
Other current assets | $ | 6,006 |
| | $ | 476 |
| | $ | 6,482 |
|
Deferred income taxes | $ | 5,600 |
| | $ | (545 | ) | | $ | 5,055 |
|
Other assets | $ | 9,816 |
| | $ | 180 |
| | $ | 9,996 |
|
| | | | | |
Liabilities | | | | | |
Advance payments and unearned revenue | $ | 19,300 |
| | $ | (6,600 | ) | | $ | 12,700 |
|
Unearned revenue - long term | $ | 6,593 |
| | $ | 702 |
| | $ | 7,295 |
|
| | | | | |
Equity | | | | | |
Accumulated deficit | $ | (746,359 | ) | | $ | 5,623 |
| | $ | (740,736 | ) |
The effects of the adoption of the new revenue recognition guidance on our March 29, 2019 unaudited Condensed Consolidated Balance Sheet were as follows:
|
| | | | | | | | | | | |
| As of March 29, 2019 |
| As Reported | | Adjustments due to ASC 606 | | Balances without adoption of ASC 606 |
Balance Sheet | | | | | |
Assets | | | | | |
Accounts receivable, net | $ | 45,622 |
| | $ | (7,473 | ) | | $ | 38,149 |
|
Unbilled receivables | $ | 28,474 |
| | $ | (15,943 | ) | | $ | 12,531 |
|
Inventories | $ | 10,309 |
| | $ | 18,530 |
| | $ | 28,839 |
|
Other current assets | $ | 4,664 |
| | $ | (340 | ) | | $ | 4,324 |
|
Deferred income taxes | $ | 12,185 |
| | $ | 545 |
| | $ | 12,730 |
|
Other assets | $ | 12,098 |
| | $ | (299 | ) | | $ | 11,799 |
|
| | | | | |
Liabilities | | | | | |
Accrued expenses | $ | 22,234 |
| | $ | (369 | ) | | $ | 21,865 |
|
Advance payments and unearned revenue | $ | 18,507 |
| | $ | 7,023 |
| | $ | 25,530 |
|
Unearned revenue - long term | $ | 8,071 |
| | $ | (1,021 | ) | | $ | 7,050 |
|
Reserve for uncertain tax positions | $ | 3,654 |
| | $ | (37 | ) | | $ | 3,617 |
|
| | | | | |
Equity | | | | | |
Accumulated deficit | $ | (734,837 | ) | | $ | (10,576 | ) | | $ | (745,413 | ) |
Note 4.5. Balance Sheet Components
Cash, Cash Equivalents, and Restricted Cash
The following table provides a summary of our cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheetsour unaudited condensed consolidated balance sheets that reconciles to the corresponding amount in the Condensed Consolidated Statementour unaudited condensed consolidated statement of Cash Flows:cash flows:
| | (In thousands) | March 29, 2019 | | June 29, 2018 | April 3, 2020 | | June 28, 2019 |
Cash and cash equivalents | $ | 36,053 |
| | $ | 37,425 |
| $ | 39,208 |
| | $ | 31,946 |
|
Restricted cash | — |
| | 3 |
| |
Restricted cash included in other assets | 262 |
| | 336 |
| 253 |
| | 255 |
|
Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows | $ | 36,315 |
| | $ | 37,764 |
| $ | 39,461 |
| | $ | 32,201 |
|
Accounts Receivable, net
Our net accounts receivable are summarized below:
| | (In thousands) | March 29, 2019 | | June 29, 2018 | April 3, 2020 | | June 28, 2019 |
Accounts receivable | $ | 47,644 |
| | $ | 44,656 |
| $ | 49,973 |
| | $ | 53,539 |
|
Less: Allowances for collection losses | (2,022 | ) | | (1,588 | ) | (1,825 | ) | | (1,602 | ) |
Total accounts receivable, net | $ | 45,622 |
| | $ | 43,068 |
| $ | 48,148 |
| | $ | 51,937 |
|
Inventories
Our inventories are summarized below:
| | (In thousands) | March 29, 2019 | | June 29, 2018 | April 3, 2020 | | June 28, 2019 |
Finished products | $ | 6,649 |
| | $ | 15,496 |
| $ | 8,489 |
| | $ | 4,894 |
|
Work in process | — |
| | 3,246 |
| |
Raw materials and supplies | 3,660 |
| | 2,548 |
| 5,701 |
| | 3,679 |
|
Total inventories | $ | 10,309 |
| | $ | 21,290 |
| $ | 14,190 |
| | $ | 8,573 |
|
Deferred cost of revenue included within finished goods | $ | — |
| | $ | 3,667 |
| |
Consigned inventories included within raw materials and supplies | $ | 1,641 |
| | $ | 1,492 |
| $ | 2,620 |
| | $ | 1,649 |
|
We currently rely on a few vendors for substantially all of our inventory purchases.
We record recovery or charges to adjust our inventory and customer service inventory due to excess and obsolete inventory resulting from lower sales forecast, product transitioning, or discontinuance. During the three and nine months ended March 29, 2019, we recorded a net recovery of $64,000 and $311,000, respectively, in each case related to previously reserved inventory due to sell through. SuchThe recovery or charges during the three and nine months ended March 29, 2019April 3, 2020 and March 30, 201829, 2019 were classified in cost of product sales as follows:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Excess and obsolete inventory (recovery) charges | $ | (64 | ) | | $ | (138 | ) | | $ | (311 | ) | | $ | (280 | ) | $ | (13 | ) | | $ | (64 | ) | | $ | 156 |
| | $ | (311 | ) |
Customer service inventory write-downs | 313 |
| | 309 |
| | 715 |
| | 656 |
| 250 |
| | 313 |
| | 595 |
| | 715 |
|
Total inventory (recovery) charges | $ | 249 |
| | $ | 171 |
| | $ | 404 |
| | $ | 376 |
| |
Total inventory charges | | $ | 237 |
| | $ | 249 |
| | $ | 751 |
| | $ | 404 |
|
Property, Plant and Equipment, net
Our property, plant and equipment, net are summarized below:
| | (In thousands) | March 29, 2019 | | June 29, 2018 | April 3, 2020 | | June 28, 2019 |
Land | $ | 710 |
| | $ | 710 |
| $ | 710 |
| | $ | 710 |
|
Buildings and leasehold improvements | 11,663 |
| | 11,597 |
| 11,723 |
| | 11,668 |
|
Software | 17,439 |
| | 15,498 |
| 17,603 |
| | 17,556 |
|
Machinery and equipment | 48,339 |
| | 48,076 |
| 52,288 |
| | 49,733 |
|
Total property, plant and equipment, gross | 78,151 |
| | 75,881 |
| 82,324 |
| | 79,667 |
|
Less: Accumulated depreciation and amortization | (61,302 | ) | | (58,702 | ) | (64,722 | ) | | (62,412 | ) |
Total property, plant and equipment, net | $ | 16,849 |
| | $ | 17,179 |
| $ | 17,602 |
| | $ | 17,255 |
|
Included in the total plant, property and equipment above were $3.9 million and $2.8 million of assets in progress which have not been placed in service as of April 3, 2020 and June 28, 2019, respectively. Depreciation and amortization expense related to property, plant and equipment, including amortization of software developed for internal use, was as follows:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Depreciation and amortization | $ | 1,024 |
| | $ | 1,391 |
| | $ | 3,408 |
| | $ | 3,981 |
| $ | 1,111 |
| | $ | 1,024 |
| | $ | 3,226 |
| | $ | 3,408 |
|
Accrued Expenses
Our accrued expenses are summarized below:
| | (In thousands) | March 29, 2019 | | June 29, 2018 | April 3, 2020 | | June 28, 2019 |
Accrued compensation and benefits | $ | 7,319 |
| | $ | 8,574 |
| $ | 8,501 |
| | $ | 7,583 |
|
Accrued agent commissions | 2,288 |
| | 1,774 |
| 2,160 |
| | 2,035 |
|
Accrued warranties | 3,434 |
| | 3,196 |
| 3,250 |
| | 3,323 |
|
Other | 9,193 |
| | 12,320 |
| 9,259 |
| | 9,614 |
|
Total accrued expenses | $ | 22,234 |
| | $ | 25,864 |
| $ | 23,170 |
| | $ | 22,555 |
|
Accrued Warranties
We accrue for the estimated cost to repair or replace products under warranty. Changes in our warranty liability, which is included as a component of accrued expenses in theour unaudited Condensed Consolidated Balance Sheetscondensed consolidated balance sheets were as follows:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Balance as of the beginning of the period | $ | 3,416 |
| | $ | 3,168 |
| | $ | 3,196 |
| | $ | 3,056 |
| $ | 3,197 |
| | $ | 3,416 |
| | $ | 3,323 |
| | $ | 3,196 |
|
Warranty provision recorded during the period | 466 |
| | 589 |
| | 1,632 |
| | 1,817 |
| 492 |
| | 466 |
| | 1,249 |
| | 1,632 |
|
Consumption during the period | (448 | ) | | (585 | ) | | (1,394 | ) | | (1,701 | ) | (439 | ) | | (448 | ) | | (1,322 | ) | | (1,394 | ) |
Balance as of the end of the period | $ | 3,434 |
| | $ | 3,172 |
| | $ | 3,434 |
| | $ | 3,172 |
| $ | 3,250 |
| | $ | 3,434 |
| | $ | 3,250 |
| | $ | 3,434 |
|
Advance Payments and Unearned Revenue
Our advance payments and unearned revenue are summarized below:
| | (In thousands) | March 29, 2019 | | June 29, 2018 | April 3, 2020 | | June 28, 2019 |
Advance payments | $ | 1,836 |
| | $ | 7,151 |
| $ | 3,313 |
| | $ | 1,534 |
|
Unearned revenue | 16,671 |
| | 12,149 |
| 18,172 |
| | 12,428 |
|
Total advance payments and unearned revenue | $ | 18,507 |
| | $ | 19,300 |
| $ | 21,485 |
| | $ | 13,962 |
|
Excluded from the balances above are $8.1$8.2 million and $6.6$9.7 million in long-term unearned revenue as of March 29, 2019April 3, 2020 and June 29, 2018,28, 2019, respectively.
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 March 29, 2019April 3, 2020 and June 29, 201828, 2019 were as follows:
| | | March 29, 2019 | | June 29, 2018 | | Valuation Inputs | April 3, 2020 | | June 28, 2019 | | Valuation Inputs |
(In thousands) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | |
Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents: | | | | | | | | | | | | | | | | |
Money market funds | $ | 17,443 |
| | $ | 17,443 |
| | $ | 13,871 |
| | $ | 13,871 |
| | Level 1 | $ | 21,393 |
| | $ | 21,393 |
| | $ | 15,121 |
| | $ | 15,121 |
| | Level 1 |
Bank certificates of deposit | $ | 2,063 |
| | $ | 2,063 |
| | $ | 1,645 |
| | $ | 1,645 |
| | Level 2 | $ | 3,282 |
| | $ | 3,282 |
| | $ | 1,989 |
| | $ | 1,989 |
| | Level 2 |
Other current assets: | | | | | | | | | | | | | | | | |
Foreign exchange forward contracts | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | Level 2 | $ | 41 |
| | $ | 41 |
| | $ | — |
| | $ | — |
| | Level 2 |
Liabilities: | | | | | | | | | | | | | | | | |
Other accrued expenses: | | | | | | | | | | | | | | | | |
Foreign exchange forward contracts | $ | 15 |
| | $ | 15 |
| | $ | 158 |
| | $ | 158 |
| | Level 2 | $ | 296 |
| | $ | 296 |
| | $ | 7 |
| | $ | 7 |
| | Level 2 |
We classify items within Level 1 if quoted prices are available in active markets. Our Level 1 items mainly are money market funds. As of March 29, 2019April 3, 2020 and June 29, 2018,28, 2019, these money market funds were valued at $1.00 net asset value per share.
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. Foreign currency forward contracts are measured at fair value using observable foreign currency exchange rates. The changes in fair value related to our foreign currency forward contracts were recorded in cost of revenues on our unaudited Condensed Consolidated Statementscondensed consolidated statements of Operations.operations.
As of March 29, 2019April 3, 2020 and June 29, 2018,28, 2019, 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 the first nine months of fiscal 20192020 and 2018,2019, 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 June 29, 2018,10, 2019, we entered into aAmendment No. 2 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the SVB“SVB Credit Facility)Facility”). The SVB Credit Facility expires onOn May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security Agreement which extended the expiration date to June 29, 2019.28, 2021. The SVB Credit Facility provides for a $30.0$25.0 million accounts receivable formula-based revolving credit facility that can be borrowed by our U.S. company, with a $30.0$25.0 million sublimit that can be borrowed by our Singapore subsidiary. Loans may be advanced under the SVB Credit Facility based on a borrowing base equal to a specified percentage of the value of eligible accounts of the borrowers under the SVB Credit Facility. The borrowing base is subject to certain eligibility criteria. Availability under the SVB Credit Facilityaccounts receivable formula based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sublimit. We may prepay loans under the SVB Credit Facility in whole or in part at any time without premium or penalty. As of March 29, 2019,April 3, 2020, available credit under the SVB Credit Facility was $9.8$14.5 million, reflecting the calculated borrowing base of $19.7$25.0 million less existing borrowings of $9.0 million and outstanding letters of credit of $0.9$1.5 million.
The SVB Credit Facility carries an interest rate computed, at our option, based on either (i) at the prime rate reported in the Wall Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio; or (ii) if we satisfy a minimum adjusted quick ratio, a LIBOR rate determined in accordance with the SVB Credit Facility, plus a spread of 2.75%. Any outstanding Singapore subsidiary borrowed loans shall bear interest at an additional 2.00% above the applicable prime or LIBOR rate. During the first nine months of fiscal 2019,2020, the weighted-average interest rate on our outstanding loan was 5.90%4.24%. As of March 29, 2019April 3, 2020 and June 29, 2018,28, 2019, our outstanding debt balance under the SVB Credit Facility was $9.0 million, and the interest rate was 6.00%3.75% and 5.50%6.00%, respectively.
The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with Silicon Valley Bank may be directly applied to reduce outstanding obligations under the SVB Credit Facility. The SVB Credit Facility also imposes certain restrictions on our ability 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 equal to 5%5.00% above the applicable interest rate. As of March 29, 2019,April 3, 2020, we were in compliance with the quarterly financial covenants as amended, contained in the SVB Credit Facility.Facility, as amended. The $9.0 million borrowing was classified as a current liability as of March 29, 2019April 3, 2020 and June 29, 2018, and repaid in April 2019 and July 2018, respectively.28, 2019.
On September 28, 2018, we entered into Amendment No. 1 (the Amendment)“Amendment”) to the Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank. Among other things, the Amendment provides for the definition of Quick Assets set forth in the Agreement to be modified to include up to the lesser of (a) 50% of unbilled accounts receivable or (b) $7.0 million.
In addition, we have a short-term line of credit for up to $0.4$0.3 million from a bank in New Zealand to support the operations of our subsidiary located there. This line of credit provides for up to $0.3$0.2 million in short-term advances at various interest rates, all of which was available as of March 29, 2019April 3, 2020 and June 29, 2018.28, 2019. The line of credit also provides for the issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of March 29, 2019.April 3, 2020. This line of credit 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 table summarizes our restructuring-related activities during the nine months ended March 29, 2019:April 3, 2020:
| | | Severance and Benefits | | Facilities and Other | | Total | Severance and Benefits | | Facilities and Other | | Total |
(In thousands) | Fiscal 2018-2019 Plan | | Fiscal 2016-2017 Plan | | Fiscal 2015-2016 Plan | | Fiscal 2013-2014 Plan | | Fiscal 2015-2016 Plan | | | Q3 2020 Plan | | Fiscal 2020 Plan | | Fiscal 2018-2019 Plan | | Fiscal 2016-2017 Plan | | Fiscal 2013-2014 Plan | | Fiscal 2015-2016 Plan | | |
Accrual balance, June 29, 2018 | $ | 1,532 |
| | $ | 14 |
| | $ | 36 |
| | $ | 64 |
| | $ | 266 |
| | $ | 1,912 |
| |
Accrual balance, June 28, 2019 | | $ | — |
| | $ | — |
| | $ | 1,023 |
| | $ | 2 |
| | $ | 64 |
| | $ | 238 |
| | $ | 1,327 |
|
Charges (recovery), net | | — |
| | 1,280 |
| | (103 | ) | | — |
| | — |
| | — |
| | 1,177 |
|
Cash payments | | — |
| | (60 | ) | | (229 | ) | | (2 | ) | | — |
| | — |
| | (291 | ) |
Foreign exchange impact | | — |
| | — |
| | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
Accrual balance, September 27, 2019 | | — |
| | 1,220 |
| | 691 |
| | — |
| | 64 |
| | 229 |
| | 2,204 |
|
Charges, net | 796 |
| | — |
| | — |
| | — |
| | — |
| | 796 |
| — |
| | 381 |
| | — |
| | — |
| | — |
| | — |
| | 381 |
|
Cash payments | (227 | ) | | (12 | ) | | (36 | ) | | — |
| | (23 | ) | | (298 | ) | — |
| | (385 | ) | | (280 | ) | | — |
| | — |
| | — |
| | (665 | ) |
Foreign exchange impact | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
| |
Accrual balance, September 28, 2018 | 2,101 |
| | 2 |
| | — |
| | 64 |
| | 245 |
| | 2,412 |
| |
Accrual balance, December 27, 2019 | | | | 1,216 |
| | 411 |
| | — |
|
| 64 |
|
| 229 |
|
| 1,920 |
|
Charges, net | | 595 |
| | 22 |
| | — |
| | — |
| | — |
| | — |
| | 617 |
|
Cash payments | (242 | ) | | — |
| | — |
| | — |
| | — |
| | (242 | ) | (15 | ) | | (598 | ) | | (157 | ) | | — |
| | — |
| | — |
| | (770 | ) |
Foreign exchange impact | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) | |
Accrual balance, December 28, 2018 | 1,859 |
| | 2 |
|
| — |
|
| 64 |
|
| 239 |
|
| 2,164 |
| |
Cash payments | (360 | ) | | — |
| | — |
| | — |
| | — |
| | (360 | ) | |
Foreign exchange impact | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) | |
Accrual balance, March 30, 2019 | $ | 1,499 |
| | $ | 2 |
| | $ | — |
| | $ | 64 |
| | $ | 236 |
| | $ | 1,801 |
| |
Accrual balance, April 3, 2020 | | $ | 580 |
| | $ | 640 |
| | $ | 254 |
| | $ | — |
| | $ | 64 |
| | $ | 229 |
| | $ | 1,767 |
|
As of March 29, 2019,April 3, 2020, $1.5 million of the accrual balance was in short-term restructuring liabilities while $0.3 million was included in other long-term liabilities on our unaudited condensed consolidated balance sheets.
During the unaudited Condensed Consolidated Balance Sheets.third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”) in order to continue to reduce its operating costs and improve profitability to optimize its business model and increase efficiencies. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.
During the fourth quarter of fiscal 2019, our Board of Directors approved a restructuring plan (the “Fiscal 2020 Plan”) to primarily consolidate product development, right size our resources to support our international business and other support functions. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.
We expect to substantially completecompleted the restructuring activities under our fiscal 2018-2019 restructuring plan (Fiscal(the “Fiscal 2018-2019 Plan)Plan”) by the end of fiscal 2019. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid by the end of fiscal 2020.
For further information, see “Note 7. Restructuring Activities” in Part II, Item 8 of our 20182019 Form 10-K.
Note 8.9. Equity
Stock Repurchase Program
In May 2018, our board of directors approved a stock repurchase program, which does not have an expiration date, for the repurchase of up to $7.5 million of our common stock.
The following table summarizes the repurchases of our common stock:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except share amounts) | March 29, 2019 | | March 29, 2019 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Number of shares repurchased | 30,961 |
| | 122,546 |
| 26,484 |
| | 30,961 |
| | 128,023 |
| | 122,546 |
|
Aggregate purchase price, including commissions | $ | 434 |
| | $ | 1,873 |
| $ | 373 |
| | $ | 434 |
| | $ | 1,773 |
| | $ | 1,873 |
|
All repurchased shares were retired. As of March 29, 2019, $5.6April 3, 2020, $3.4 million remained available under our stock repurchase program. In February 2020, we suspended the stock repurchase program.
Stock Incentive Programs
As of March 29, 2019,April 3, 2020, we had two stock incentive plans (both Plans) for our employees and nonemployee directors, the 2018 Incentive Plan and the 2007 Stock Equity Plan, as amended and restated effective November 13, 2015. The 2018 Incentive Plan was approved by the stockholders during the fiscal year 2017 Annual Stockholders’ Meeting and it added 500,000 shares to the equity pool of shares available to grant to employees. During the three months ended December 28, 2018,April 3, 2020, we granted 15,58446,500 restrictedmarket-based stock units. During the threenine months ended September 28, 2018, April 3, 2020, we granted 78,23684,202 restricted stock units, 51,706 performance restricted stock units, 46,500 market-based stock units and 156,466126,118 stock options to purchase shares of our common stock.
Total compensation expense for share-based awards included in our unaudited Condensed Consolidated Statementscondensed consolidated statements of Operationsoperations was as follows:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
By Expense Category: | | | | | | | | | | | | | | |
Cost of revenues | $ | 44 |
| | $ | 53 |
| | $ | 144 |
| | $ | 152 |
| $ | 53 |
| | $ | 44 |
| | $ | 149 |
| | $ | 144 |
|
Research and development | 42 |
| | 36 |
| | 123 |
| | 114 |
| 33 |
| | 42 |
| | 92 |
| | 123 |
|
Selling and administrative | 372 |
| | 446 |
| | 1,129 |
| | 1,423 |
| 421 |
| | 372 |
| | 1,074 |
| | 1,129 |
|
Total share-based compensation expense | $ | 458 |
| | $ | 535 |
| | $ | 1,396 |
| | $ | 1,689 |
| $ | 507 |
| | $ | 458 |
| | $ | 1,315 |
| | $ | 1,396 |
|
By Types of Award: | | | | | | | | | | | | | | |
Options | $ | 116 |
| | $ | 36 |
| | $ | 271 |
| | $ | 104 |
| $ | 197 |
| | $ | 116 |
| | $ | 460 |
| | $ | 271 |
|
Restricted and performance stock awards and units | 342 |
| | 499 |
| | 1,125 |
| | 1,585 |
| 310 |
| | 342 |
| | 855 |
| | 1,125 |
|
Total share-based compensation expense | $ | 458 |
| | $ | 535 |
| | $ | 1,396 |
| | $ | 1,689 |
| $ | 507 |
| | $ | 458 |
| | $ | 1,315 |
| | $ | 1,396 |
|
As of March 29, 2019,April 3, 2020, there was approximately $1.1 million of total unrecognized compensation expense related to nonvestednon-vested stock options granted under both Plans. This expense iswhich are expected to be recognized over a weighted-average period of 2.442.1 years. As of March 29, 2019,April 3, 2020, there was $1.3$1.7 million of total unrecognized compensation expense related to nonvestednon-vested stock awards and units granted under both Plans. This expense iswhich are expected to be recognized over a weighted-average period of 0.99 year.2.1 years.
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, andOur financial performance is regularly reviewed by our sales and support activities are managed on a geographic basis. Our Chief Executive Officerchief operating decision maker who is our Chief Operating Decision Maker.
chief executive officer.
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 the three and nine months ended April 3, 2020 and March 29, 2019 and March 30, 2018 was as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 |
North America (1) | $ | 28,581 |
| | $ | 31,756 |
| | $ | 93,660 |
| | $ | 99,743 |
|
Africa and the Middle East (1) | 11,079 |
| | 17,623 |
| | 39,058 |
| | 43,767 |
|
Europe and Russia (1) | 3,326 |
| | 3,638 |
| | 10,271 |
| | 11,898 |
|
Latin America and Asia Pacific (1) | 11,051 |
| | 9,076 |
| | 36,640 |
| | 24,590 |
|
Total revenue | $ | 54,037 |
| | $ | 62,093 |
| | $ | 179,629 |
| | $ | 179,998 |
|
(1) Prior-period amounts have not been adjusted under the modified retrospective method for the adoption of ASC 606. |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
North America | $ | 37,250 |
| | $ | 28,581 |
| | $ | 113,489 |
| | $ | 93,660 |
|
Africa and the Middle East | 9,230 |
| | 11,079 |
| | 28,679 |
| | 39,058 |
|
Europe and Russia | 1,903 |
| | 3,326 |
| | 7,728 |
| | 10,271 |
|
Latin America and Asia Pacific | 12,996 |
| | 11,051 |
| | 26,094 |
| | 36,640 |
|
Total revenue | $ | 61,379 |
| | $ | 54,037 |
| | $ | 175,990 |
| | $ | 179,629 |
|
During the nine months ended April 3, 2020, Motorola Solutions, Inc. accounted for 10%of our total revenue. No customer accounted for 10% of our total revenue during the three months ended April 3, 2020. During the three months endedMarch 29, 2019, Mobile Telephone Networks Group (MTN Group) and Globe Telecom, Inc. (Globe) accounted for 13% and 12%, respectively, of our total revenue. During the nine months endedMarch 29, 2019, MTN Group accounted for 12%of our
total revenue. During the As of April 3, 2020three and nine months ended March 30, 2018,, MTN Group and Digitec accounted for 17%16% and 14%, respectively,11% of our total revenue. accounts receivable, respectively. As of June 28, 2019March 29, 2019,, MTN Group and Globe also accounted for 27%10% and 10%, respectively,11% of our accounts receivable. As of June 29, 2018, MTN Group accounted for 13% of our accounts receivable. No other customers accounted for more than 10% of our revenue or accounts receivable, for the periods presented.respectively. We have entered into separate and distinct contracts with Globe and MTN Group, as well as separate arrangements with their various subsidiaries. The loss of alla significant portion of business from Globe and MTN Group, or any other significant customers could adversely affect our unaudited Condensed Consolidated Financial Statements.condensed consolidated financial statements.
Note 10.11. Income Taxes
Our effective tax rate varies from the U.S. federal statutory rate of 21% due to results of foreign operations that are subject to income taxes at different statutory rates and certain jurisdictions where we cannot recognize tax benefits on current losses, and tax benefit from release of valuation allowance.losses. During interim periods, we accrue tax expenses for jurisdictions that are anticipated to be profitable for fiscal 2019.2020.
The determination of our income taxes for the nine months ended April 3, 2020 and March 29, 2019 and March 30, 2018 was based on our estimated annual effective tax rate adjusted for losses in certain jurisdictions for which no tax benefit can be recognized. Our tax expense for the nine months ended April 3, 2020 was primarily due to tax expense related to profitable subsidiaries and a $0.4 million increase in our reserves for uncertain tax positions. The tax benefit for the three and nine months ended March 29, 2019 was primarily due to the release of certain U.S. federal, state, and foreign valuation allowances. The tax benefit for the nine months ended March 30, 2018 was primarily attributable to the foreign tax refunds received from the Inland Revenue Authority of Singapore (IRAS) of $1.3 million and the release of a valuation allowance related to the refundable AMT credit of $3.3 million, as provided under the U.S. Tax Cuts and Jobs Act of 2017 (Tax Act), offset by tax expense related to profitable subsidiaries.
Realizationsubsidiaries, net against the $1.6 million release of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions. In the past,valuation allowance due to our U.S. operating losses in previous years and continuing U.S. earnings volatility which did not allow sustainable profitability, we had established and maintainedthe potential foreign tax refund to be received from the Department of Federal Revenue of Brazil.
We continue to record a fullpartial valuation allowance for our U.S. deferred tax assets. While there has been a trend of positive evidence that has been strengthening in recent years, it was not sufficiently persuasive to outweigh the negative evidence in future periods. During the third quarter of fiscal 2019, we are anticipating our third consecutive profitable year from a U.S. pre-tax book income perspective. Accordingly, during the period, we determined that it is more likely than not that we will realize a portion ofon our U.S. deferred tax assets which primarily relating to certain netrepresent future income tax benefits associated with our operating loss carryforwards and current temporary differences. The positive evidence as of March 29, 2019, which outweighed the negative evidence to release a portion of the valuation allowance, included our fiscal 2019 and three-year cumulative U.S. profitability driven by continued demand for our products in North America that have historically resulted in higher margins than international sales, reductions in operating expenses resulting from our previous restructurings, and our forecasted U.S. operating profits in future periods. The negative evidence primarily relates to certain net operating loss carryforwards and credits that are expected to expire prior to utilization. We believe that our positive evidence is strong. The improved financial performance as it relates to U.S. profitability in recent years is an objectively verifiable piece of positive evidence and is the result of a number of factors which have been present to a greater or lesser extent in prior years but have only recently gathered sufficient weight to deliver objectively verifiable, consistent U.S. pre-tax book profits. In performing our analysis, we used the most updated plans and estimates that we currently use to manage the underlying business and calculated the utilization of our deferred tax assets. Accordingly, during the third quarter
of fiscal 2019, we released $7.1 million of valuation allowance as a discrete item on certain deferred tax assets. The remaining valuation allowance relates to deferred tax assets, for which we believe it is not more likely than not to be realized in future periods. Our valuation allowance decreased from the prior year by approximately $7.1 million.
losses. Realization of our deferred tax assets is dependent on generating sufficient pre-tax book income in future periods. Although we believe it is more likely than not that future income will be sufficient to allow us to recover the value of a portion of our U.S. deferred tax assets, realization is not assured and future events could cause us to change our judgment. If future events cause us to conclude that it is not more likely than not that we will be able to recover more or less of the current anticipated portion of deferred tax assets, we would be required to either decrease or increase the valuation allowance on our deferred tax assets at that time, which would result in a charge to income tax expense (benefit) and a material increase or decrease in net income in the period in which we change our judgment. During the third quarter of fiscal 2020, we did not record any adjustment to valuation allowance on our U.S. deferred tax assets.
We entered into a tax sharing agreement with Harris Corporation (Harris) effective on January 26, 2007, the acquisition date of Stratex. The tax sharing agreement addresses, among other things, the settlement process associated with pre-merger tax liabilities and tax attributes that were attributable to the Microwave Communication Division when it was a division of Harris. There have been no settlement payments recorded since the acquisition date.
During the first quarter of fiscal 2019, we received notification from the Department of Federal Revenue of Brazil that our withholding tax refund request had been approved. We recorded a net discrete income tax benefit of $1.6 million for the release of valuation allowance previously recorded as a deferred tax asset for the withholding tax credits. This consisted of an income tax benefit of $1.9 million for the refundable withholding tax credit, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as a reduction to the withholding tax credits. During the three months ended December 28, 2018, we reduced the refundable withholding tax credit to $1.8 million, primarily due to foreign exchange differences, and recorded a discrete income tax expense of $0.1 million.
We have a number of open income tax audits covering various tax years, which vary from jurisdiction to jurisdiction. Our major tax jurisdictions where audits are pending include Singapore, Nigeria, and Saudi Arabia. The earliest years that are open and subject to potential audits are as follows: U.S. - 2003; Singapore - 2011; Nigeria - 2006: Saudi Arabia - 2010, and Ivory Coast - 2016.
We account for interest and penalties related to unrecognized tax benefits as part of our provision for federal, foreign and state income taxes. Such interest expense was not material for the three and nine months ended April 3, 2020 and March 29, 2019 and March 30, 2018.2019.
On December 22, 2017,March 27, 2020, the SEC staff issued Staff Accounting Bulletin (SAB) No. 118,US enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act which provides guidance on accountingprovided certain tax relief measures including, but not limited to, (1) a five-year net operating loss carryback, (2) changes in the deduction of interest, (3) acceleration of alternative minimum tax credit (AMT) refunds, and (4) a technical correction to allow accelerated deductions for qualified improvement property. The Tax Cuts and Jobs Act repealed the corporate AMT credit and allowed taxpayers to claim any unused AMT credit over four tax effectsyears beginning in tax year 2018. The CARES Act allows for acceleration of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companiesrefundable AMT credit up to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects100% of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimateAMT credit to be includedrefunded in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
year 2018. In connection with our initial analysis of the impact of the TaxCARES Act, we have reclassified the refundable AMT credit of $3.4 million from long-term to short-term receivable and recorded provisional estimates relatedno income tax effects on the other tax relief measures of the CARES Act. We continue to examine the remeasurementelements of deferred taxesCARES Act and the Deemed Repatriation Transition Tax inimpact they may have on our financial statements for our fiscal year ended June 29, 2018. The measurement period ended in the second quarter of fiscal 2019. As of December 28, 2018, we have completed the accounting for the impact of the Tax Act based on the guidance, interpretations, and data available. No adjustments to these provisional estimates have been recorded. Although the measurement period has closed, the accounting for the impact of the Tax Act may change to account for additional factors such as the issuance of further regulatory guidance, changes in interpretations, the collection and analysis of additional information, and any deferred adjustments related to the filing of our 2017 federal and state income tax returns. In accordance with ASC 740, we will recognize any additional effects of the guidance in income tax expense (benefit) in the period that such guidance is issued.future business.
For tax years beginning after December 31, 2017, the Tax Act introduced new provisions of U.S. taxation of certain Global Intangible Low-Taxed Income (GILTI). As of March 29, 2019, we have not yet determined our policy election with respect to whether to record deferred taxes for temporary basis differences expected to reverse as GILTI in future periods, or account for taxes on GILTI using the period cost method. However, we do not expect to generate a GILTI inclusion due to a forecasted overall net loss for our foreign subsidiaries.
Note 11.12. Commitments and Contingencies
Operating Lease Commitments
We lease office and manufacturing facilities under non-cancelable operating leases expiring at various dates through 2028. We lease approximately 19,000 square feet of office space in Milpitas, California, as our corporate headquarters.
As of March 29, 2019, 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 | Amounts |
| (In thousands) |
2019 (one quarter remaining) | $ | 533 |
|
2020 | 1,742 |
|
2021 | 1,205 |
|
2022 | 451 |
|
2023 | 242 |
|
Thereafter | 2,334 |
|
Total | $ | 6,507 |
|
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 March 29, 2019. The future minimum lease payments are not reduced by the minimum sublease rents.
Rent expense for operating leases, including rentals on a month-to-month basis, was as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 |
Rent expense | $ | 901 |
| | $ | 906 |
| | $ | 2,822 |
| | $ | 2,804 |
|
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 March 29, 2019,April 3, 2020, we had outstanding purchase obligations with our suppliers or contract manufacturers of $18.5$22.7 million. In addition, we had contractual obligations of approximately $1.4$2.1 million associated with software licenses as of March 29, 2019.April 3, 2020.
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 March 29, 2019,April 3, 2020, 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 March 29, 2019,April 3, 2020, we had commercial commitments of $59.0$57.7 million outstanding that were not recorded on our unaudited Condensed Consolidated Balance Sheets.condensed consolidated balance sheets. 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 March 29, 2019,April 3, 2020, 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 March 29, 2019,April 3, 2020, 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 approximately $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 March 2016, an enforcement action by the Indian Department of Revenue, Ministry of Finance was brought against 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 ("FEMA"). In November 2017, the Indian Department of Revenue, Ministry of Finance also initiated a similar action against Telsima Communications Private Limited (Telsima India) 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. 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.
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. We have not recorded any 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 unaudited Condensed Consolidated Financial Statements;condensed consolidated financial statements; and (ii) the amount of the loss can be reasonably estimated. Disclosure in the Notes to the unaudited Condensed Consolidated Financial Statementscondensed consolidated 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.
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 unaudited Condensed Consolidated Statementcondensed consolidated statement of Operations.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 unaudited Condensed Consolidated Financial Statements.condensed 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.
COVID-19
In March 2020, the World Health Organization characterized a recent pandemic of respiratory illness caused by novel coronavirus disease, known as COVID-19, as a pandemic. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 virus. The COVID-19 virus may have an impact on our operations, supply chains and distribution systems and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking or requiring. The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with certainty, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating activities can resume. Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.
Our first priority remains the health and safety of our employees and their families. Employees whose tasks can be done off-site have been instructed to work from home. Our manufacturing sites support essential businesses and remain operational. We are maintaining social distancing for workers on-site and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.
The impact to our supply chain lead times and ability to fulfill orders was minimal for the three months ended April 3, 2020. However, depending on pandemic-related factors like the uncertain duration of temporary manufacturing restrictions as well as our ability to perform field services during shelter in place orders, we could experience constraints and delays in fulfilling customer orders in future periods. We are monitoring, assessing and adapting to the situation and preparing for implications to our business, supply chain and customer demand. We expect these challenges to continue until business and economic activities return to more normal levels. The financial results for the three and nine months ended April 3, 2020 reflect some of the reduced activity experienced during the period in various locations around the world and are not necessary indicative of the results for the full year.
Note 13. Subsequent Event
The United States and other countries are experiencing a major global health pandemic related to the outbreak of a novel strain of coronavirus, COVID-19. Due to the current economic uncertainty stemming from the impact of the COVID-19 pandemic, on April 21, 2020, we entered into a Paycheck Protection Program Note (the “Note”) effective April 21, 2020 with Silicon Valley Bank as the lender (“Lender”) in an aggregate principal amount of $5.9 million pursuant to the Paycheck Protection Program under the CARES Act (the “PPP Loan”). Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of one percent (1%) per annum, with the first six months of interest deferred. Commencing seven months after the effective date of the PPP Loan, we are required to pay the Lender equal monthly payments of principal and interest as required to fully amortize the PPP Loan by April 21, 2022. The PPP Loan is unsecured and guaranteed by the Small Business Administration (the “SBA”).
On April 22, 2020, we received proceeds of $5.9 million from the PPP Loan. At the time when we applied for the PPP Loan, we had qualified to receive the funds pursuant to the then published qualification requirements. On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance regarding qualification requirements for public companies. Based on our assessment of the new guidance, we repaid the principal and interest on the PPP Loan.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including 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 the Company. 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 document. 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:
the impact of COVID-19 on our business, operations and cash flows;
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 effects of current and future government regulations, including the effects of current restrictions on various commercial and economic activities in response to the COVID-19 pandemic;
general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States and other countries where we conduct business;
the conduct of unethical business practices in developing countries; and
the impact of political turmoil in countries where we have significant business.business; and
our ability to implement our stock repurchase program or that it will enhance long-term stockholder value.
Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” in our fiscal 20182019 Annual Report on Form 10-K filed with the SEC on August 28, 201827, 2019 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 Quarterly Report on Form 10-Q.
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 Quarterly Report on Form 10-Q. 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 (the Exchange Act)“Exchange Act”), along with provisions of the Private Securities Litigation Reform Act of 1995, and we undertake noexpressly 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 Quarterly Report on Form 10-Q or, in the case of any document incorporated by reference, the date of that document.
Overview of Business; Operating Environment and Key Factors Impacting Fiscal 20192020 and 20182019 Results
The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements and the accompanying notes. In the discussion herein, our fiscal year ending July 3, 2020 is referred to as “fiscal 2020” or “2020” and our fiscal year ended June 28, 2019 is referred to as “fiscal 2019” or “2019”“2019.”
Overview
We anticipate our overall revenue in fiscal 2020 to be higher in North America barring any unforeseen impacts from customers budgets and timelines and the ability to execute field services, offset by lower revenue from our international regions, compared to fiscal 2019. This expectation is based on actual order volumes in fiscal 2019 and our observation of customer spending patterns to date during fiscal year ended June 29, 2018 is referred2020. In the first nine months of fiscal 2020, we added to as “fiscal 2018” or “2018.”
We generate revenue by designing, developing, manufacturing, and supporting a range of wireless networking products, solutions, and servicesthe backlog we had entering fiscal 2020 for mobile and fixed communications service providers,our North America private network operators, government agencies, transportation, energyprojects and utility companies, public safety agencies, and broadcast network operatorswe anticipate continuing momentum across the world. Our products include point-to-point microwave and millimeter-wave radio transmission systems designed for first/last mile access, middle mile/backhaul, and long-distance trunking applications. We have a portfolio of our own internet protocol routers optimized for both wireless transport and mixed optical fiber and wireless transport applications. We provide network management software tools and applications to enable the deployment, monitoring, and management of our systems. Beyond the portfolio of solutions developed in-house we source, qualify, supply, and support third-party equipment such as antennas, routers, optical transmission equipment, and other technology and equipment necessary to build and deploy a complete telecommunications transmission network. We also provide a full suite of professional services for planning, deployment, operations, and maintenance of our customers’ networks.
these verticals. We have made significant progressinroads into the U.S. rural broadband and wireless internet service provider areas and there is evidence now of investment to support 5G deployments with our U.S. service provider customers. Internationally, we take a more conservative view of our revenue opportunity based on a variety of factors that have led to an overall capital spending decline and increased competitive intensity, especially from vendors based in expandingChina. While there is an attractive pipeline of international revenue opportunity, it has less clarity on timing and we are maintaining our solutions portfolio, increasing addressable marketslower international expectations with respect to fiscal 2020.
In March 2020, the World Health Organization characterized a recent pandemic of respiratory illness caused by novel coronavirus disease, known as COVID-19, as a pandemic. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and applications, alongrestrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the gains we have already made in expanding our customer footprint. As weCOVID-19 virus. The COVID-19 virus has had and is likely to continue to executehave an impact on our technology roadmap,operations, supply chains and distribution systems and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are engaging more deeplytaking or requiring. The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with customers on the evolution of use cases and applications as 5th Generation 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 future 5G market needs. We will 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 us in the future. We will continue working to streamline management processes to attain the efficiency levels required by the markets in which we do business.
The trend of increasing demand for bandwidth is well established and set to continue across all geographic and vertical markets creating opportunities for network enhancements, expansions, and modernizations.
We expect to provide increased managed services to our customers,certainty, including, but not limited to, network design, network monitoring, optimization, asset tracking, inventory management, final configuration,the duration and warehousing services.
We work continuouslyspread of the pandemic, its severity, the actions to improve our established brandscontain the virus or treat its impact, and how quickly and to create new products that meet our customers’ evolving needswhat extent normal economic and preferences. operating activities can resume. Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.
Our fundamental business goal is to generate superior returns for our stockholders overfirst priority remains the long term. We believe that increases in revenue, operating profits,health and earnings per share are the key measures of financial performance for our business.
Within the industry there continues to be strong price competition for new business. Periodic large service provider customer consolidations can increase opportunity or intensify competition from time to time or may increase the uncertainty in the timing of purchases and vendor selections.
We continue to explore strategic alternatives to improve the market position and profitabilitysafety of our product offeringsemployees and their families. Employees whose tasks can be done offsite have been instructed to work from home. Our manufacturing sites remain operational, and we are maintaining social distancing and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.
The impact to our supply chain lead times and ability to fulfill orders was minimal for the three months ended April 3, 2020. However, depending on pandemic-related factors like the uncertain duration of temporary manufacturing restrictions as well as our ability to perform field services during shelter in place orders, we could experience constraints and delays in fulfilling customer orders in future periods. We are monitoring, assessing and adapting to the marketplace, generate additional liquidity,situation and enhance our valuation. We may pursue our goals through organic growth and through strategic alternatives. Some of these alternatives have included, and could continuepreparing for implications to include, selective acquisitions, divestitures, and the sale of assets or securities. We have provided, and may from time to time in the future provide, information to interested parties regarding our business, supply chain and operationscustomer demand. We expect these challenges to continue until business and economic activities return to more normal levels. The financial results for the three and nine months ended April 3, 2020 reflect some of the reduced activity experienced during the period in connection with various potential transactions.locations around the world and are not necessary indicative of the results for the full year.
Operations Review
The market for mobile backhaul continues 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 2020. In North America, we supported 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, the ongoing build-out of some large 3G deployments, and the emergence of early-stage LTE deployments. Our international business continues to be affected by fluctuations in currency valuation relative to the U.S. dollar, which may limit local purchasing power and capital
spending, slow the payments from customers in those affected locations, and cause variations in our overall operating costs. Our position continues to beWe continue 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 our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers in all markets. However, as disclosed above and in the “Risk Factors” section in Item 1A of our fiscal 2018 2019Annual 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.service, including the ongoing effects of the COVID-19 pandemic.
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. The three and nine months ended April 3, 2020 consisted of an additional week compared to the same periods of fiscal 2019. Revenue by region for thethree and nine months ended April 3, 2020 and March 29, 2019 and March 30, 2018 and the related changes were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change |
North America | $ | 28,581 |
| | $ | 31,756 |
| | $ | (3,175 | ) | | (10.0 | )% | | $ | 93,660 |
| | $ | 99,743 |
| | $ | (6,083 | ) | | (6.1 | )% |
Africa and the Middle East | 11,079 |
| | 17,623 |
| | (6,544 | ) | | (37.1 | )% | | 39,058 |
| | 43,767 |
| | (4,709 | ) | | (10.8 | )% |
Europe and Russia | 3,326 |
| | 3,638 |
| | (312 | ) | | (8.6 | )% | | 10,271 |
| | 11,898 |
| | (1,627 | ) | | (13.7 | )% |
Latin America and Asia Pacific | 11,051 |
| | 9,076 |
| | 1,975 |
| | 21.8 | % | | 36,640 |
| | 24,590 |
| | 12,050 |
| | 49.0 | % |
Total revenue | $ | 54,037 |
| | $ | 62,093 |
| | $ | (8,056 | ) | | (13.0 | )% | | $ | 179,629 |
| | $ | 179,998 |
| | $ | (369 | ) | | (0.2 | )% |
During the third quarter and first nine months of fiscal 2019, we recognized revenue based on ASC 606 but revenue for the third quarter and first nine months of fiscal 2018 was recognized based on ASC 605. Therefore, the periods are not directly comparable. For additional information regarding the impact of the new accounting standard on our revenue, please refer to “Note 3, Revenue Recognition” of the Notes to unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change | | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change |
North America | $ | 37,250 |
| | $ | 28,581 |
| | $ | 8,669 |
| | 30.3 | % | | $ | 113,489 |
| | $ | 93,660 |
| | $ | 19,829 |
| | 21.2 | % |
Africa and the Middle East | 9,230 |
| | 11,079 |
| | (1,849 | ) | | (16.7 | )% | | 28,679 |
| | 39,058 |
| | (10,379 | ) | | (26.6 | )% |
Europe and Russia | 1,903 |
| | 3,326 |
| | (1,423 | ) | | (42.8 | )% | | 7,728 |
| | 10,271 |
| | (2,543 | ) | | (24.8 | )% |
Latin America and Asia Pacific | 12,996 |
| | 11,051 |
| | 1,945 |
| | 17.6 | % | | 26,094 |
| | 36,640 |
| | (10,546 | ) | | (28.8 | )% |
Total revenue | $ | 61,379 |
| | $ | 54,037 |
| | $ | 7,342 |
| | 13.6 | % | | $ | 175,990 |
| | $ | 179,629 |
| | $ | (3,639 | ) | | (2.0 | )% |
Our revenue in North America decreasedincreased by $3.2$8.7 million, or 10.0%30.3%, during the third quarter of fiscal 20192020 compared with the same period of fiscal 2018. 2019. Revenue in North America decreasedincreased by $6.1$19.8 million, or 6.1%21.2%, during the first nine months
of fiscal 20192020 compared with the same period of fiscal 2018. 2019. The decreaseincrease in North America revenue during the three andthird quarter and first nine months of fiscal of fiscal 20192020 was due to the timing of customeran increase in private network projects and fewer orders fromas well as an increase in mobile operators.operator sales compared to fiscal 2019.
Our revenue in Africa and the Middle East decreased by $6.5$1.8 million, or 37.1%16.7%, for the third quarter of fiscal 20192020 compared with the same period of fiscal 2018.2019. Revenue in Africa and the Middle East decreased by $4.7$10.4 million, or 10.8%26.6%, during the first nine months of fiscal 20192020 compared with the same period of fiscal 2018.2019. The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the region and completion of a large Middle East project in fiscal 2018 that was not repeated in fiscal 2019.region.
Revenue in Europe and Russia decreased by $0.3$1.4 million, or 8.6%42.8%, for the third quarter of fiscal 20192020 compared with the same quarterperiod of fiscal 2018.2019. Revenue in Europe and Russia decreased by $1.6$2.5 million, or 13.7%24.8%, during the first nine months of fiscal 20192020 compared with the same period of fiscal 2018.2019. The decrease was due to lower sales to mobile and private networkoperator customers in the region.
Revenue in Latin America and Asia Pacific increased by $2.0$1.9 million, or 21.8%17.6%, during the third quarter of fiscal 20192020 compared with the same period of fiscal 2019. The increase came from additional sales to mobile customers in fiscal 2018. 2020. Revenue in Latin America and Asia Pacific increaseddecreased by $12.1$10.5 million, or 49.0%28.8%, during the first nine months of fiscal 20192020 compared with the same period of fiscal 2018.2019. The increasedecrease was primarily due to higher lower sales volume to several mobile operator customers in Asia Pacific.the region.
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change | | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change |
Product sales | $ | 34,615 |
| | $ | 40,686 |
| | $ | (6,071 | ) | | (14.9 | )% | | $ | 115,696 |
| | $ | 113,472 |
| | $ | 2,224 |
| | 2.0 | % | $ | 40,930 |
| | $ | 34,615 |
| | $ | 6,315 |
| | 18.2 | % | | $ | 111,676 |
| | $ | 115,696 |
| | $ | (4,020 | ) | | (3.5 | )% |
Services | 19,422 |
| | 21,407 |
| | (1,985 | ) | | (9.3 | )% | | 63,933 |
| | 66,526 |
| | (2,593 | ) | | (3.9 | )% | 20,449 |
| | 19,422 |
| | 1,027 |
| | 5.3 | % | | 64,314 |
| | 63,933 |
| | 381 |
| | 0.6 | % |
Total revenue | $ | 54,037 |
| | $ | 62,093 |
| | $ | (8,056 | ) | | (13.0 | )% | | $ | 179,629 |
| | $ | 179,998 |
| | $ | (369 | ) | | (0.2 | )% | $ | 61,379 |
| | $ | 54,037 |
| | $ | 7,342 |
| | 13.6 | % | | $ | 175,990 |
| | $ | 179,629 |
| | $ | (3,639 | ) | | (2.0 | )% |
Our revenue from product sales decreasedincreased by $6.1$6.3 million, or 14.9%18.2%, for the third quarter of fiscal 20192020 compared with the same quarter of fiscal 2019. Product sales increased compared to the same period in fiscal 2018. Product volume decreased over the same quarter2019 in fiscal 2018North America, offset in all sectors, except for Asia Pacific.part by a small decrease in international sectors. Our services revenue decreasedincreased by $2.0$1.0 million, or 9.3%5.3%, during the third quarter of fiscal 20192020 compared with the same period of fiscal 2018. We experienced d2019. ecreasedHigher North America service sales were offset in part by lower service sales in allinternational sectors except for Asia Pacific.relative to fiscal 2019.
During the three months ended December 27, 2019, our product revenue was adversely impacted by a cyberattack at one of our contract manufacturing vendors, which constrained capacity by approximately three weeks and led to lower than expected results. The shortfall in product revenue related to the three months ended December 27, 2019 was recognized in the third quarter of fiscal 2020.
Our revenue from product sales increaseddecreased by $2.2$4.0 million, or 2.0%3.5%, for the first nine months of fiscal 2019 compared with the same period in fiscal 2018. Product volume increased primarily with mobile operators in Asia Pacific by $12.5 million offsetting volume reductions of $10.3 million in the other sectors compared with fiscal 2018. Our services revenue decreased by $2.6 million, or 3.9%, during the first nine months of fiscal 20192020 compared with the same period of fiscal 2018.2019. DecreasedIncreased product sales in North America and Africa and the Middle East were offset by a larger volume decrease in partinternational sectors compared to the same period in fiscal 2019. Our services revenue increased by increased$0.4 million, or 0.6%, during the first nine months of fiscal 2020 compared with the same period of fiscal 2019. Increased sales in other sectors.North America were offset by a decrease in international sectors sales compared to the same period in fiscal 2019.
Gross Margin
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change | | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change |
Revenue | $ | 54,037 |
| | $ | 62,093 |
| | $ | (8,056 | ) | | (13.0 | )% | | $ | 179,629 |
| | $ | 179,998 |
| | $ | (369 | ) | | (0.2 | )% | $ | 61,379 |
| | $ | 54,037 |
| | $ | 7,342 |
| | 13.6 | % | | $ | 175,990 |
| | $ | 179,629 |
| | $ | (3,639 | ) | | (2.0 | )% |
Cost of revenue | 37,782 |
| | 43,961 |
| | (6,179 | ) | | (14.1 | )% | | 122,959 |
| | 122,680 |
| | 279 |
| | 0.2 | % | 39,418 |
| | 37,782 |
| | 1,636 |
| | 4.3 | % | | 113,154 |
| | 122,959 |
| | (9,805 | ) | | (8.0 | )% |
Gross margin | $ | 16,255 |
| | $ | 18,132 |
| | $ | (1,877 | ) | | (10.4 | )% | | $ | 56,670 |
| | $ | 57,318 |
| | $ | (648 | ) | | (1.1 | )% | $ | 21,961 |
| | $ | 16,255 |
| | $ | 5,706 |
| | 35.1 | % | | $ | 62,836 |
| | $ | 56,670 |
| | $ | 6,166 |
| | 10.9 | % |
% of revenue | 30.1 | % | | 29.2 | % | | | | | | 31.5 | % | | 31.8 | % | | | | | 35.8 | % | | 30.1 | % | | | | | | 35.7 | % | | 31.5 | % | | | | |
Product margin % | 31.5 | % | | 29.4 | % | | | | | | 33.7 | % | | 32.9 | % | | | | | 39.7 | % | | 31.5 | % | | | | | | 38.7 | % | | 33.7 | % | | | | |
Service margin % | 27.6 | % | | 28.7 | % | | | | | | 27.6 | % | | 30.1 | % | | | | | 27.9 | % | | 27.6 | % | | | | | | 30.5 | % | | 27.6 | % | | | | |
Gross margin for the third quarter and first nine months of fiscal 2019 decreased2020 increased by $1.9$5.7 million,, or 10.4%, and $0.6 million, or 1.1%, respectively,35.1% compared with the same periods inquarter of fiscal 2018.2019. Our gross margin decreasedincreased from the prior-year quarter,same period last year primarily due to reduced product and service sales volume offset in part by improvementa shift in product margins and reduced supply chain costs. Forsales toward higher margin markets. Gross margin for the first nine months of fiscal 2020 increased by $6.2 million, or 10.9% primarily due to a2019, gross margins decreased on less profitable services,
higher volume of business in higher margin markets and higher margin rates for certain projects, offset in part by increased margin from product sales and decreased supply chain costs.
Gross
Product margin as a percentage of product revenue increased in the third quarter of fiscal 2019 2020 compared with the same period inof fiscal 2018,2019 primarily due to improved profitability ofa shift in product sales in the quarter and lower supply chain costs. Producttoward higher margin as a percentage of product revenue improved in the third quarter of fiscal 2019 compared with the same period in fiscal 2018, primarily due to reduced supply chain costs and better margins on product sales.markets. Service margin as a percentage of service revenue decreasedincreased slightly in the third quarter of fiscal 2019 2020 compared with the same period in fiscal 2018, primarily due to lower absorption of fixed costs and lower project margins.2019.
Gross margin as a percentage of revenue decreased in the first nine months of fiscal 2019 compared with the same period in fiscal 2018, primarily due to lower margin rates for services.
Product margin as a percentage of product revenue improved in the first nine months of fiscal 20192020, compared with the same period inof fiscal 2018, primarily2019 due to lowerhigher volume of business in higher margin markets. This increase was offset in part by increased supply chain costs. Service margin as a percentage of service revenue decreasedimproved in the first nine months of fiscal 20192020 compared with the same period inof fiscal 2018,2019 primarily due to decreased margins in North America and Africa and the Middle East.
higher margin rates for certain projects.
Research and Development Expenses
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change | | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change |
Research and development | $ | 5,350 |
| | $ | 4,754 |
| | $ | 596 |
| | 12.5 | % | | $ | 15,603 |
| | $ | 14,696 |
| | $ | 907 |
| | 6.2 | % | $ | 4,875 |
| | $ | 5,350 |
| | $ | (475 | ) | | (8.9 | )% | | $ | 15,069 |
| | $ | 15,603 |
| | $ | (534 | ) | | (3.4 | )% |
% of revenue | 9.9 | % | | 7.7 | % | | | | | | 8.7 | % | | 8.2 | % | | | | | 7.9 | % | | 9.9 | % | | | | | | 8.6 | % | | 8.7 | % | | | | |
Our research and development expenses increaseddecreased by $0.6$0.5 million, or 12.5%8.9%, in the third quarter of fiscal 20192020 compared with the same period inof fiscal 2018. The increase was primarily due to2019. increased product development activities.
Our research and development expenses increaseddecreased by $0.9$0.5 million, or 6.2%3.4%, in for the first nine months of fiscal2020 of fiscal 2019 compared withto the same period inof fiscal 2018. The increase was2019. These decreases were primarily due to the increased leveltiming and consolidation of product development activity.activities, offset in part by payroll costs related to an extra calendar week in the three and nine months of fiscal 2020 calendar, compared to the same periods of fiscal 2019.
Selling and Administrative Expenses
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change | | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change |
Selling and administrative | $ | 13,408 |
| | $ | 14,745 |
| | $ | (1,337 | ) | | (9.1 | )% | | $ | 41,405 |
| | $ | 42,571 |
| | $ | (1,166 | ) | | (2.7 | )% | $ | 15,233 |
| | $ | 13,408 |
| | $ | 1,825 |
| | 13.6 | % | | $ | 44,334 |
| | $ | 41,405 |
| | $ | 2,929 |
| | 7.1 | % |
% of revenue | 24.8 | % | | 23.7 | % | | | | | | 23.1 | % | | 23.7 | % | | | | | 24.8 | % | | 24.8 | % | | | | | | 25.2 | % | | 23.1 | % | | | | |
Our selling and administrative expenses decreasedincreased by $1.3$1.8 million, or 9.1%13.6%, in the third quarter of fiscal 20192020 compared with the same period in fiscal 2018. The decrease was primarily due to lower variable compensation.
2019. Our selling and administrative expenses decreasedincreased by $1.2$2.9 million,, or 2.7%7.1%, in the first nine months of fiscal 20192020 compared with the same period in fiscal 2019. 2018. The decrease wasThese increases were primarily duerelated to lowerpayroll costs related to an extra calendar week in the three and nine months of fiscal 2020 calendar, higher variable compensation.compensation and other legal-related costs, compared to the same periods of fiscal 2019.
Restructuring Charges
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change | | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change |
Restructuring (recovery) charges | $ | — |
| | $ | (2 | ) | | $ | 2 |
| | — | % | | $ | 796 |
| | $ | (252 | ) | | $ | 1,048 |
| | (415.9 | )% | |
Restructuring charges | | $ | 617 |
| | $ | — |
| | $ | 617 |
| | — | % | | $ | 2,175 |
| | $ | 796 |
| | $ | 1,379 |
| | 173.2 | % |
Expenses incurredDuring the third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”) in order to continue to reduce its operating costs and improve profitability to optimize its business model and increase efficiencies. We recorded restructuring charges of $0.6 million related to the Q3 2020 Plan in the first nine monthsthird quarter of fiscal 2019 were due to the implementation of the Fiscal 2018-2019 Plan. We expect to substantially complete the restructuring activities under the Fiscal 2018-2019 Plan by the end of fiscal 2019.2020. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid byin fiscal 2021.
During the endfourth quarter of fiscal 2019, our Board of Directors approved a restructuring plan (the “Fiscal 2020 Plan”) to primarily consolidate product development and, right size our resources to support our international business and other support functions. We recorded restructuring charges of $1.7 million related to the Fiscal 2020 Plan in the nine months ended April 3, 2020. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.
Interest Income, Interest Expense and Other (Expense) Income, Net
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change | | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change |
Interest income | $ | 73 |
| | $ | 49 |
| | $ | 24 |
| | 49.0 | % | | $ | 167 |
| | $ | 149 |
| | $ | 18 |
| | 12.1 | % | $ | 112 |
| | $ | 73 |
| | $ | 39 |
| | 53.4 | % | | $ | 318 |
| | $ | 167 |
| | $ | 151 |
| | 90.4 | % |
Interest expense | $ | (7 | ) | | $ | (5 | ) | | $ | (2 | ) | | 40.0 | % | | $ | (88 | ) | | $ | (24 | ) | | $ | (64 | ) | | 266.7 | % | $ | (19 | ) | | $ | (7 | ) | | $ | (12 | ) | | 171.4 | % | | $ | (23 | ) | | $ | (88 | ) | | $ | 65 |
| | (73.9 | )% |
Other expense, net | $ | (1 | ) | | $ | (54 | ) | | $ | 53 |
| | (98.1 | )% | | $ | (1 | ) | | $ | (220 | ) | | $ | 219 |
| | (99.5 | )% | |
Other (expense) income, net | | $ | — |
| | $ | (1 | ) | | $ | 1 |
| | — | % | | $ | — |
| | $ | (1 | ) | | $ | 1 |
| | — | % |
Interest income reflected interest earned on our cash equivalents which were comprised of money market funds and bank certificates of deposit.
Interest expense was primarily related to interest associated with borrowings under the SVB Credit Facility and discounts on customer letters of credit.
Other (expense) income, net during fiscal 2018 was primarily comprised of a foreign exchange loss related to a dividend declared by our Nigeria entity (a partnership for U.S. tax purposes) to our Aviat U.S. entity.Facility.
Income Taxes
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change | | March 29, 2019 | | March 30, 2018 | | $ Change | | % Change |
(Loss) income before income taxes | $ | (2,438 | ) | | $ | (1,375 | ) | | $ | (1,063 | ) | | 77.3 | % | | $ | (1,056 | ) | | $ | 208 |
| | $ | (1,264 | ) | | (607.7 | )% |
(Benefit from) provision for income taxes | $ | (6,777 | ) | | $ | 1,015 |
| | $ | (7,792 | ) | | (767.7 | )% | | $ | (6,955 | ) | | $ | (2,188 | ) | | $ | (4,767 | ) | | 217.9 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands, except percentages) | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change | | April 3, 2020 | | March 29, 2019 | | $ Change | | % Change |
Income (loss) before income taxes | $ | 1,329 |
| | $ | (2,438 | ) | | $ | 3,767 |
| | (154.5 | )% | | $ | 1,553 |
| | $ | (1,056 | ) | | $ | 2,609 |
| | (247.1 | )% |
Provision for (benefit from) income taxes | $ | 598 |
| | $ | (6,777 | ) | | $ | 7,375 |
| | (108.8 | )% | | $ | 2,439 |
| | $ | (6,955 | ) | | $ | 9,394 |
| | (135.1 | )% |
We estimate our annual effective tax rate at the end of each quarterly period, and we record the tax effect of certain discrete items in the interim period in which they occur, including changes in judgment about uncertain tax positions and deferred tax valuation allowances.
The tax benefitexpense for the first nine months ended March 29, 2019of fiscal 2020 was primarily due to tax expense related to profitable subsidiaries net against the release of valuation allowance due to the potential foreign tax refund to be received from the Department of Federal Revenue of Brazil and a partial release of valuation allowance related to U.S. deferred$0.4 million increase in our reserves for uncertain tax assets.positions. During the first quarter of fiscal 2019, we recorded a net discrete tax benefit of $1.6 million for the release of valuation allowance on a deferred tax asset recorded for $1.9 million of refundable withholding tax credit to be received from the Department of Federal Revenue of Brazil, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as a reduction against the deferred tax for the withholding tax credit. During the second quarter of fiscal 2019, we reduced the refundable withholding tax credit
We continue to $1.8 million, primarily due to foreign exchange differences, and recorded a discrete income tax expense of $0.1 million.
During the third quarter of fiscal 2019, we recordedrecord a partial release of valuation allowance related toon our U.S. deferred tax assets based on sufficient positive objective evidence that we would generate sufficientwhich primarily represent future income in the U.S. to realize a portion of the deferred tax assets. The positive evidence as of March 29, 2019 includedbenefits associated with our fiscal 2019 and three-year cumulative U.S. profitability driven by continued demand for our products in North America that have historically resulted in higher margins than international sales, reductions in operating expenses resulting from our previous restructurings, and our forecasted U.S. operating profits in future periods.losses. Realization of our deferred tax assets is primarily dependent uponon generating sufficient pre-tax book income in future periods. Although we believe it is more likely than not that future income in applicablewill be sufficient to allow us to recover the value of a portion of our U.S. deferred tax jurisdictions.assets, realization is not assured and future events could cause us to change our judgment. If future events cause us to conclude that it is not more likely than not that we will be able to recover more or less of the current anticipated portion of deferred tax assets, we would be required to either decrease or increase the valuation allowance on our assumptions and consequently our estimates change in the future, our valuation allowances may be increased or decreased, resultingdeferred tax assets at that time, which would result in a respectivecharge to income tax expense (benefit) and a material increase or decrease in net income tax expense.
in the period in which we change our judgment. During the firstthird quarter of fiscal 2018,2020, we received a refund of $1.3 million from IRAS which represented a final settlement. The determination of the effective tax rate reflects tax expense and benefit generated in certain jurisdictions. However, jurisdictions with a year-to-date loss where no tax benefit can be recognized are excluded from the annual effective tax rate. During the second quarter of fiscal 2018, we recorded the release of adid not record any adjustment to valuation allowance related to the refundable AMT credit of $3.3 million, as provided under the Tax Act, as a discrete benefit, and included in other assets as a long-term receivable on the unaudited Condensed Consolidated Balance Sheet in this Quarterly Report on Form 10-Q. Under the Tax Act, any carryforward AMTour U.S. deferred tax credits can be refunded if not fully utilized by fiscal year 2022. We expect to receive the refund of this tax benefit starting in our fiscal year 2020.
assets.
Liquidity, Capital Resources, and Financial Strategies
Sources of Cash
As of March 29, 2019,April 3, 2020, our total cash and cash equivalents and restricted cash were $36.1$39.2 million. Approximately $17.5$21.4 million, or 48.5%54.6%, was held in the United States. The remaining balance of $18.6$17.8 million, or 51.5%45.4%, was held by entities outside the United States. Of the amount of cash and cash equivalents held by our foreign subsidiaries at March 29, 2019, $17.3April 3, 2020, $17.4 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 provided by operating activities was $5.3 million for the first nine months of fiscal 2019, compared to cash provided by operating activities of $7.3 million for the first nine months of fiscal 2018. Cashor used in or provided by operating activities is presented as net (loss) income adjusted for non-cash items and changes in operating assets and liabilities. Net cash provided by operating activities was $14.6 million for the first nine months of fiscal 2020, compared to cash used in operating activities of $5.3 million for the first nine months of fiscal 2019; this difference was primarily related to a net change in deferred tax expense. The net contribution of non-cash items decreased cash by $5.2$6.8 million
and net changes in operating assets and liabilities decreasedincreased cash by $0.2$9.3 million for the first nine months of fiscal 20192020 as compared to the same period in fiscal 2018.2019.
The $5.2 million decrease in the net contribution of non-cash items was primarily due to a $4.0 million net decrease in deferred tax expense, a $0.6 million decrease in depreciation and amortization, a $0.3 million recovery for uncollectible receivables, and a $0.3 million decrease in share-based compensation expense.
Changes in operating assets and liabilities resulted in a net decreaseincrease of $0.2$9.3 million to cash for the first nine months of fiscal 2019,2020, compared to the same period in 2018.2019. Accounts receivable and unbilled costs fluctuate from period to period, depending on the amount, timing of sales and billing activities as well asand cash collections and the impact from the adoption of ASC 606.collections. The fluctuations in accounts payable and accrued expenses were primarily due to the timing of liabilities incurred and managing timing of vendor payments. The change in inventories and in customer service inventories were primarily due to demand and our focus on improving our inventory management, and the impact from the adoption of ASC 606.management. The increase in customer advance payments and unearned revenue was due to the timing of payment from customers and revenue recognition. We used $0.9$1.7 million in cash during the first nine months of fiscal 20192020 on expenses related to restructuring liabilities.
Investing Activities
CashNet cash used in investing activities was $4.1$3.9 million and $5.0$4.1 million for the first nine months of fiscal 2020 and 2019, and 2018, respectively, related to the acquisitionwhich consisted of property, plant and equipment.capital expenditures. During the remainder of fiscal year 2019,2020, we expect to spend approximately $1.0$1.4 million for capital expenditures, primarily on equipment for development and manufacturing of new products and to support customer managed services.
CashFinancing Activities
Financing cash flows consist primarily of proceeds and repayments of short-term debt, repurchase of stock and proceeds from sale of share of common stock through employee equity plans. Net cash used in financing activities was $2.4$2.5 million for the first nine months of fiscal 2019,2020, primarily due to $1.8 million for repurchases of our common stock and a $0.8 million payment for taxes related to the repurchasenet settlement of common stock.equity awards.
As of March 29, 2019,April 3, 2020, our principal sources of liquidity consisted of $36.1$39.2 million in cash and cash equivalents, and short-term investments; $9.8equivalents; $14.5 million of available credit under our $30.0$25.0 million SVB Credit Facility which expires on June 29, 2019; and future collections of receivables from customers. On May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security Agreement which extended the expiration date to June 28, 2021. 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.
We believe that our existing cash and cash equivalents, the available line of credit under the SVB Credit Facility, and future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for at least the next 12 months. Our SVB Credit Facility expires onOn May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security Agreement which extended the expiration date to June 29, 2019.28, 2021. In addition, there can be no assurance that our business will generate cash flow from operations, that we will be in compliance with 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, our borrowing base under the availability of our credit facility is not certain or SVB Credit Facility 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.control such as COVID-19.
As of March 29, 2019,April 3, 2020, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility. The $9.0 million borrowing was classified as a current liability as of March 29, 2019April 3, 2020 and June 29, 2018 and repaid in April 2019 and July 2018, respectively.28, 2019.
In addition, we have an uncommitted short-term line of credit of $0.4$0.3 million from a bank in New Zealand to support the operations of our subsidiary located there. This line of credit provides for $0.3$0.2 million in short-term advances at various interest rates, all of which was available as of March 29, 2019April 3, 2020 and June 29, 2018.28, 2019. The line of credit also provides for the issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of March 29, 2019.April 3, 2020. This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee.
Restructuring Payments
We had liabilities for restructuring activities totaling $1.8 million as of March 29, 2019,April 3, 2020, $1.5 million of which was classified as current liabilities and expected to be paid out in cash over the next 12 months. We expect to fund these future payments with available cash and cash provided by operations.
Contractual Obligations and Commercial Commitments
The amounts disclosed in our fiscal 20182019 Annual Report on Form 10-K filed with the SEC on August 28, 201827, 2019 include our commercial commitments and contractual obligations. During the first nine months of fiscal 2019,2020, no material changes occurred in our contractual obligations to purchase goods and services andor to make payments under operating leases or our contingent liabilities on outstanding letters of credit, guarantees, and other arrangements as disclosed in our fiscal 20182019 Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of March 29, 2019,April 3, 2020, we had commercial commitments of $59.0 million outstanding that were not recorded on our unaudited Condensed Consolidated Balance Sheets. This is an increase of $7.5 million from the amount disclosed in our fiscal 2018 Annual Report on Form 10-K. $57.7 million.
Please refer to “Note 1112 Commitments and Contingencies” of the Notes to unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements in this Quarterly Report on Form 10-Q.10-Q for Contractual Obligations and Off-Balance Sheet Arrangements.
Critical Accounting Estimates
For information about our critical accounting estimates, see the “Critical Accounting Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 20182019 Annual Report on Form 10-K other than for the impact of adopting new revenuelease accounting standards. Effective June 30, 2018, we adopted ASC 606. SeePlease refer to “Note 3, Revenue Recognition”4 Leases” of the Notes to unaudited Condensed Consolidated Financial Statements for discussion of the impact of the adoption of ASC 606condensed consolidated financial statements in this Quarterly Report on our policies for revenue.Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market 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.
Exchange Rate Risk
We conduct business globally in numerous currencies and are therefore exposed to foreign currency risks. We use derivative instruments 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. Beginning the fourth quarter of fiscal 2015, we no longer prepared contemporaneous documentation of hedges for the new foreign exchange forward contracts we entered. 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 balance sheet. All balance sheet hedges are marked to market through earnings every period. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities.
As of March 29, 2019,April 3, 2020, we had four foreign currency forward contracts outstanding with a total notional amount of $3.5 million consisting of three currencies as follows:
| | Currency | Notional Contract Amount (Local Currency) | | Notional Contract Amount (USD) | | Notional Contract Amount (Local Currency) | | Notional Contract Amount (USD) |
| (In thousands) | | (In thousands) |
Canadian dollar | 500 |
| | $ | 373 |
| | 600 |
| | $ | 440 |
|
Euro | 1,584 |
| | 1,792 |
| | 3,028 |
| | 3,358 |
|
Great Britain pound | 1,000 |
| | 1,315 |
| |
New Zealand dollar | | | 5,000 |
| | 3,206 |
|
Singapore dollar | | | 1,200 |
| | 860 |
|
Total of all currency forward contracts | | | $ | 3,480 |
| | | | $ | 7,864 |
|
Net foreign exchange income (loss),(income) loss, net recorded in our unaudited Condensed Consolidated Statementscondensed consolidated statements of Operationsoperations during the three and nine months ended of fiscal 2019April 3, 2020 and 2018March 29, 2019 was as follows:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
(In thousands) | March 29, 2019 | | March 30, 2018 | | March 29, 2019 | | March 30, 2018 | April 3, 2020 | | March 29, 2019 | | April 3, 2020 | | March 29, 2019 |
Amount included in costs of revenues | $ | 22 |
| | $ | 58 |
| | $ | 193 |
| | $ | (40 | ) | $ | (534 | ) | | $ | 22 |
| | $ | (478 | ) | | $ | 193 |
|
Amount included in other expense | — |
| | (51 | ) | | — |
| | (188 | ) | |
Total foreign exchange income (loss), net | $ | 22 |
| | $ | 7 |
| | $ | 193 |
| | $ | (228 | ) | |
A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of March 29, 2019 would have an impact of approximately $0.3 million on the fair value of such instruments.
Certain of our international business areis 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 for the first nine months of fiscal 2020 and 2019 waswere $2.5 million and $0.4 million, andrespectively, was included as a component of stockholders’ equity. As of March 29, 2019April 3, 2020 and June 29, 2018,28, 2019, the cumulative translation adjustment decreased our equity by $13.0$15.2 million and $12.6$12.7 million, respectively.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents and borrowings under our credit facility.
Exposure on Cash Equivalents
We had $36.1$39.2 million in total cash and cash equivalents as of March 29, 2019.April 3, 2020. Cash equivalents totaled $19.5$24.7 million as of March 29, 2019April 3, 2020 and were comprised of money market funds and bank certificates of deposit. Cash equivalents investments have been recorded at fair value on our balance sheet.
Our cash equivalents earn interest at fixed rates; therefore, changes in interest rates will not generate a gain or loss on these investments unless they are sold prior to maturity. The weighted-average days to maturity for cash equivalents held as of March 29, 2019April 3, 2020 was 3737.7 days, and these investments had an average yield of approximately 8%5.98% per annum. A 10% change in interest rates on our cash equivalents is not expected to have a material impact on our financial position, results of operations, or cash flows.
Exposure on Borrowings
Our borrowings outstanding under the SVB Credit Facility incurred interest at the prime rate plus a spread of 0.50% to 1.50% with such spread determined based on our adjusted quick ratio. During the first nine months of fiscal 2019,2020, our weighted-average interest rate was 5.90%4.24%, and the interest expense on these borrowings was insignificant.
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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation, with participation of our President and Chief Executive Officer (CEO)(“CEO”), and PrincipalChief Financial Officer (PFO)officer (“CFO”), as of the end of the period covered by this report, our CEO and PFO haveCFO has concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 29, 2019,April 3, 2020, 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 Commission rules and forms, and is accumulated and communicated to management, including our CEO and PFO,CFO, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting
In the first quarter of fiscal 2019, we implemented certainThere were no changes to our internal controls over financial reporting as defined in connection with our adoption of ASC 606. There were no other changes in our internal control over financial reportingRules 13a-15(f) or 15d-15(f) that occurred during the first nine monthsquarter ended March 29, 2019April 3, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including theour CEO and PFO,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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Please refer to Legal Proceedings under “Note 1112 Commitments and Contingencies” of the Notes to unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
The recent COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic could have a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition.
The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in all industries around the world. These events have directly affected our business and have exacerbated the potential negative impact from many of the risks described in our Form 10-K for the year ended June 28, 2019, including those relating to the global economy, our sales cycle, our global supply chain, and our employees. For example, we are facing logistical challenges including border closures, travel restrictions and an inability to commute to certain facilities and job sites, as we provide services and products to our customers. We are also experiencing inefficiencies surrounding stay-at-home orders and remote work arrangements.
Given the nature and significance of the events described above, we are not able to enumerate all potential risks to our business; however, we believe that in addition to the impacts described above, other current and potential impacts of these recent events include, but are not limited to:
disruption to our supply chain for certain components essential to our business, including restrictions on importing and exporting products;
liquidity challenges, including impacts related to delayed customer payments;
cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of cyberattacks in the current environment of remote connectivity;
litigation risk and possible loss contingencies related to COVID-19 and its impact, including with respect to commercial contracts, employee matters and insurance arrangements;
reduction of our global workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve;
infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties in areas in which we operate;
actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects; and
a structural shift in the global economy and changes in the way people work, travel and interact, or in connection with a global recession or depression.
The combination of events described above have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic could have a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2020 and 2019 Results.”
Investors should also carefully review and consider the information regarding certain factors which could materially affect our business, operating results, cash flows, and financial condition set forth under Item 1A, Risk Factors, in our fiscal 20182019 Annual Report on Form 10-K filed with the SEC on August 28, 2018.27, 2019.
We do not believe that there have been any other material additions or changes to the risk factors previously disclosed in our fiscal 20182019 Annual Report on Form 10-K, except as disclosed as above, although we may disclose changes to such factors
or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Following is a summary of stock repurchases for the three months ended March 29, 2019:April 3, 2020:
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Repurchased | | Average Price Paid per Share | | Total Number of Shares Repurchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares that May Yet be Repurchased Under the Program (1) (in thousands) |
December 29, 2018 through January 25, 2019 | | 24,875 |
| | $ | 13.98 |
| | 24,875 |
| | $ | 5,705 |
|
January 26, 2019 through February 22, 2019 | | 6,086 |
| | $ | 14.14 |
| | 6,086 |
| | $ | 5,619 |
|
February 23, 2019 through March 29, 2019 | | — |
| | $ | — |
| | — |
| | $ | 5,619 |
|
Total | | 30,961 |
| | | | | | |
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Repurchased | | Average Price Paid per Share | | Total Number of Shares Repurchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares that May Yet be Repurchased Under the Program (1) (in thousands) |
December 28, 2019 through January 24, 2020 | | 17,197 |
| | $ | 14.20 |
| | 17,197 |
| | $ | 3,541 |
|
January 25, 2020 through February 28, 2020 | | 9,287 |
| | $ | 13.72 |
| | 9,287 |
| | $ | 3,414 |
|
February 29, 2020 through April 3, 2020 | | — |
| | $ | — |
| | — |
| | $ | 3,414 |
|
Total | | 26,484 |
| | | | | | |
(1) Stock Repurchase Programs
In May 2018, our board of directors approved a stock repurchase program, which does not have an expiration date, for the repurchase of up to $7.5 million of our common stock. During the three months ended March 29, 2019,April 3, 2020, we repurchased $0.4 million of our common stock in the open market. As of March 29, 2019, $5.6April 3, 2020, $3.4 million remained available under our stock repurchase program. In February 2020, we suspended the stock repurchase program.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following exhibits are filed herewith or incorporated by reference to exhibits previously filed with the SEC:
|
| | |
Exhibit Number | | Descriptions |
2.1 | | |
3.1 | | |
3.2 | | |
3.3 | | |
4.1 | | |
4.24.2+ | | |
31.110.1+ | | |
31.1* | | |
31.2* | | |
31.2 | | |
32.132.1** | | |
101.INS | | XBRL Instance Document |
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 |
| | |
* | | Filed herewith. |
** | | Furnished herewith. |
+ | | Constitutes management contracts or compensatory plans or arrangements. |
SIGNATURES
Pursuant to the requirements 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.
|
|
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AVIAT NETWORKS, INC. (Registrant) |
Date: May 13, 201912, 2020
|
| |
| |
By: | /s/ Walter Stanley Gallagher, Jr. |
| Walter Stanley Gallagher, Jr.
Senior Vice President, Chief Operating Officer
(Principal financial officer and duly authorized officer)
|
|
| |
| |
By: | /s/ Eric Chang |
| Eric Chang Vice President, Corporate Controller and Principal AccountingChief Financial Officer
(Principal accounting officer and duly (duly authorized officer)
|